| (7)(8) | the investment failed cash flow projection testing to determine if anticipated principal and interest payments will be realized.realized; and |
GLOBAL INDEMNITY LIMITED
| (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, the Company must recognize an other than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a securityany allowance for credit losses is other than temporary. If the impairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amount representing the credit losswritten off and the amount relatedamortized cost basis is written down to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net presentfair value of the projected future cash flows discounted at the effective interest rate implicitfixed maturity security with any incremental impairment reported in the debt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit losses is recordedearnings. That new amortized cost basis shall not be adjusted for subsequent recoveries in other comprehensive income, net of taxes. For equity securities, management carefully reviews all securities with unrealized losses to determine if a security should be impaired and further focuses on securities that have either:fair value.
| (1) | persisted with unrealized losses for more than twelve consecutive months or |
12 | (2) | the value of the investment has been 20% or more below cost for six continuous months or more. |
The amount of any write-down, including those that are deemed to be other than temporary, is included in earnings as a realized loss in the period in which the impairment arose.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, 2017,2020, gross unrealized losses related to U.S. treasury and agency obligations were $0.495$0.215 million. Of this amount, $0.006 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for 12 months or greater and are rated AA+. Macroeconomicother factors, macroeconomic and market analysis is conducted in evaluating these securities. Consideration is given to the interest rate environment, duration and yield curve management of the portfolio, sector allocation and security selection. Based on the analysis performed, the Company did not recognize a credit loss on U.S. treasury and agency obligations during the period.
Obligations of states and political subdivisions– As of September 30, 2017,2020, gross unrealized losses related to obligations of states and political subdivisions were $0.256$0.188 million. Of this amount, $0.057 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater and are rated investment grade. Allother factors, elements that may influence the performance of the municipal bond market are considered in evaluating these securities. The aforementioned factors includesecurities such as investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. The analysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform extensivein-house fundamental analysis on each issuer, regardless of their rating by the major agencies. GLOBAL INDEMNITY LIMITED
Based on the analysis performed, the Company did not recognize a credit loss on obligations of states and political subdivisions during the period. Mortgage-backed securities (“MBS”) –As of September 30, 2017,2020, gross unrealized losses related to mortgage-backed securities were $0.562$1.120 million. Of this amount, $0.008 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater. 75.9% of the unrealized losses for twelve months or greater are related to securities rated AA+. Mortgage-backedother factors, mortgage-backed securities are modeled to project principal losses under downside, base, and upside scenarios for the economy and home prices. The primary assumption that drives the security and loan level modeling is the Home Price Index (“HPI”) projection. These forecasts incorporate not just national macro-economic trends, but also regional impacts to arrive at the most granular and accurate projections. These assumptions are incorporated into the model as a basis to generate delinquency probabilities, default curves, loss severity curves, and voluntary prepayment curves at the loan level within each deal. The model utilizesHPI-adjusted current LTV, payment history, loan terms, loan modification history, and borrower characteristics as inputs to generate expected cash flows and principal loss for each bond under various scenarios. Based on the analysis performed, the Company did not recognize a credit loss on mortgage-backed securities during the period. Asset-backed
Asset backed securities (“ABS”) -As of September 30, 2017,2020, gross unrealized losses related to asset backed securities were $0.142$1.001 million. All unrealized losses have been in an unrealized loss position for less than 12 months. The weighted average credit enhancement for the Company’s asset backed portfolio is 22.5.33.3. This represents the percentage of pool losses that can occur before an asset backed security will incur its first dollar of principal losses. EveryTo assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, every ABS transaction is analyzed on a stand-alone basis. This analysis involves a thorough review of the collateral, prepayment, and structural risk in each transaction. Additionally, the analysis includes anin-depth credit analysis of the originator and servicer of the collateral. The analysis projects an expected loss for a deal given a set of assumptions specific to the asset type. These assumptions are used to calculate at what level of losses the deal will incur its first dollar of principal loss. The major assumptions used to calculate this ratio are loss severities, recovery lags, and no advances on principal and interest. Based on the analysis performed, the Company did not recognize a credit loss on asset backed securities during the period.
Commercial mortgage-backed securities (“CMBS”) - As of September 30, 2017,2020, gross unrealized losses related to the CMBS portfolio were $0.741$0.804 million. Of this amount, $0.102 million have been in an unrealized loss position for twelve months or greater and are rated AA+ or better. The weighted average credit enhancement for the Company’s CMBS portfolio is 25.6.32.4. This represents the percentage of pool losses that can occur before a mortgage-backed security will incur its first dollar of principal loss. ForTo assess whether the Company’s CMBS portfolio,decline in fair value below amortized cost has resulted from a credit loss or other factors, a loan level analysis is utilized where every underlying CMBS loan isre-underwritten based on a set of assumptions reflecting expectations for the future path of the economy. Each loan is analyzed over time using a series of tests to determine if a credit event will occur during the life of the loan. Inherent in this process are several economic scenarios and their corresponding rent/vacancy and capital market states. The five primary credit events that frame the analysis include loan modifications, term default, balloon default, extension, and ability to pay off at balloon. The resulting output is the expected loss adjusted cash flows for each bond under the base case and distressed scenarios. Based on the analysis performed, the Company did not recognize a credit loss on commercial mortgage-backed securities during the period.
Corporate bonds -As of September 30, 2017,2020, gross unrealized losses related to corporate bonds were $0.838$1.135 million. Of this amount, $0.238 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater and are ratedA- or better. Theother factors, analysis for this 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, 2017,2020, gross unrealized losses related to foreign bonds were $0.188$0.204 million. Of this amount, $0.101 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater and are rated investment grade. For this asset class,other factors, detailed financial models are maintained 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. GLOBAL INDEMNITY LIMITED
Based on the analysis performed, the Company did not recognize a credit loss on foreign bonds during the period. Common stock – As of September 30, 2017, gross unrealized losses related to common stock were $3.750 million. All unrealized losses have been in an unrealized loss position for less than twelve months. To determine if an other-than-temporary impairment of an equity security has occurred, the Company considers, among other things, the severity and duration of the decline in fair value of the equity security. The Company also examines other factors to determine if the equity security could recoverhas evaluated its value in a reasonable period of time.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 quartersquarter and nine months ended September 30, 2017 and 2016:2019: | | | | Quarters Ended
September 30, | | | Nine Months Ended
September 30, | | | Quarter Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2017 | | 2016 | | | 2019 | | | 2019 | | Fixed maturities: | | | | | | | | | | | | | | | | | OTTI losses, gross | | $ | — | | | $ | (108 | ) | | $ | (31 | ) | | $ | (201 | ) | | $ | 0 | | | $ | (1,897 | ) | Portion of loss recognized in other comprehensive income(pre-tax) | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | Net impairment losses on fixed maturities recognized in earnings | | | — | | | | (108 | ) | | | (31 | ) | | (201 | ) | | $ | 0 | | | $ | (1,897 | ) | Equity securities | | | (1,020 | ) | | | (2,106 | ) | | | (1,677 | ) | | (4,280 | ) | | | | | | | | | | | | | | | | Total | | $ | (1,020 | ) | | $ | (2,214 | ) | | $ | (1,708 | ) | | $ | (4,481 | ) | | | | | | | | | | | | | | | |
The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company for the quartersquarter and nine months ended September 30, 2017 and 20162019 for which a portion of the OTTI loss was recognized in other comprehensive income. | | | | Quarters Ended
September 30, | | | Nine Months Ended
September 30, | | | Quarter Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2017 | | 2016 | | | 2019 | | | 2019 | | Balance at beginning of period | | $ | 16 | | | $ | 31 | | | $ | 31 | | | $ | 31 | | | $ | 13 | | | $ | 13 | | Additions where no OTTI was previously recorded | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | Additions where an OTTI was previously recorded | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | Reductions for securities for which the company intends to sell or more likely than not will be required to sell before recovery | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | Reductions reflecting increases in expected cash flows to be collected | | | — | | | | — | | | | — | | | | — | | | Reductions reflecting increases in expected cashflows to be collected | | | | 0 | | | | 0 | | Reductions for securities sold during the period | | | (3 | ) | | | — | | | | (18 | ) | | | — | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | Balance at end of period | | $ | 13 | | | $ | 31 | | | $ | 13 | | | $ | 31 | | | $ | 13 | | | $ | 13 | | | | | | | | | | | | | | | |
14
GLOBAL INDEMNITY GROUP, LLC Accumulated Other Comprehensive Income, Net of Tax Accumulated other comprehensive income, net of tax, as of September 30, 20172020 and December 31, 20162019 was as follows: | | | | | | | | | | (Dollars in thousands) | | September 30, 2017 | | | December 31, 2016 | | Net unrealized gains (losses)from: | | | | | | | | | Fixed maturities | | $ | 4,473 | | | $ | (1,308 | ) | Common stock | | | 9,398 | | | | 1,042 | | Foreign currency fluctuations | | | 584 | | | | — | | Deferred taxes | | | (4,370 | ) | | | (352 | ) | | | | | | | | | | Accumulated other comprehensive income, net of tax | | $ | 10,085 | | | $ | (618 | ) | | | | | | | | | |
GLOBAL INDEMNITY LIMITED
(Dollars in thousands) | | September 30, 2020 | | | December 31, 2019 | | Net unrealized gains (losses) from: | | | | | | | | | Fixed maturities | | $ | 43,336 | | | $ | 21,591 | | Foreign currency fluctuations | | | (587 | ) | | | (1,032 | ) | Deferred taxes | | | (7,029 | ) | | | (2,950 | ) | Accumulated other comprehensive income, net of tax | | $ | 35,720 | | | $ | 17,609 | |
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, 20172020 and 2016:2019: | | | | | | | | | | | | | Quarter Ended September 30, 2017 (Dollars in thousands) | | Unrealized Gains
and Losses on
Available for Sale
Securities, Net of
Tax | | | Foreign Currency
Items, Net of Tax | | | Accumulated Other
Comprehensive
Income, Net of Tax | | Beginning balance | | $ | 5,549 | | | $ | 437 | | | $ | 5,986 | | Other comprehensive income (loss) before reclassification | | | 3,173 | | | | 485 | | | | 3,658 | | Amounts reclassified from accumulated other comprehensive income (loss) | | | 653 | | | | (212 | ) | | | 441 | | | | | | | | | | | | | | | Other comprehensive income (loss) | | | 3,826 | | | | 273 | | | | 4,099 | | | | | | | | | | | | | | | Ending balance | | $ | 9,375 | | | $ | 710 | | | $ | 10,085 | | | | | | | | | | | | | | |
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 | | $ | 38,736 | | | $ | (1,043 | ) | | $ | 37,693 | | Other comprehensive income before reclassification, before tax | | | 1,852 | | | | 456 | | | | 2,308 | | Amounts reclassified from accumulated other comprehensive income, before tax | | | (2,276 | ) | | | 0 | | | | (2,276 | ) | Other comprehensive income, before tax | | | (424 | ) | | | 456 | | | | 32 | | Income tax (expense) benefit | | | (2,128 | ) | | | 123 | | | | (2,005 | ) | Ending balance, net of tax | | $ | 36,184 | | | $ | (464 | ) | | $ | 35,720 | |
| | | | | | | | | | | | | Quarter Ended September 30, 2016 (Dollars in thousands) | | Unrealized Gains
and Losses on
Available for Sale
Securities, Net of
Tax | | | Foreign Currency
Items, Net of Tax | | | Accumulated Other
Comprehensive
Income, Net of Tax | | Beginning balance | | $ | 22,511 | | | $ | (435 | ) | | $ | 22,076 | | Other comprehensive income (loss) before reclassification | | | 2,073 | | | | (89 | ) | | | 1,984 | | Amounts reclassified from accumulated other Comprehensive loss | | | (781 | ) | | | — | | | | (781 | ) | | | | | | | | | | | | | | Other comprehensive income (loss) | | | 1,292 | | | | (89 | ) | | | 1,203 | | | | | | | | | | | | | | | Ending balance | | $ | 23,803 | | | $ | (524 | ) | | $ | 23,279 | | | | | | | | | | | | | | |
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 | | $ | 17,745 | | | $ | (1,203 | ) | | $ | 16,542 | | Other comprehensive income (loss) before reclassification, before tax | | | 10,767 | | | | 200 | | | | 10,967 | | Amounts reclassified from accumulated other comprehensive income, before tax | | | (946 | ) | | | 0 | | | | (946 | ) | Other comprehensive income (loss), before tax | | | 9,821 | | | | 200 | | | | 10,021 | | Income tax expense | | | (1,249 | ) | | | 0 | | | | (1,249 | ) | Ending balance, net of tax | | $ | 26,317 | | | $ | (1,003 | ) | | $ | 25,314 | |
| | | | | | | | | | | | | Nine Months Ended September 30, 2017 (Dollars in thousands) | | Unrealized Gains
and Losses on
Available for Sale
Securities, Net of
Tax | | | Foreign Currency
Items, Net of Tax | | | Accumulated Other
Comprehensive
Income, Net of Tax | | Beginning balance | | $ | (554 | ) | | $ | (64 | ) | | $ | (618 | ) | Other comprehensive income (loss) before reclassification | | | 10,498 | | | | 993 | | | | 11,491 | | Amounts reclassified from accumulated other comprehensive income (loss) | | | (569 | ) | | | (219 | ) | | | (788 | ) | | | | | | | | | | | | | | Other comprehensive income (loss) | | | 9,929 | | | | 774 | | | | 10,703 | | | | | | | | | | | | | | | Ending balance | | $ | 9,375 | | | $ | 710 | | | $ | 10,085 | | | | | | | | | | | | | | |
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 | | $ | 18,641 | | | $ | (1,032 | ) | | $ | 17,609 | | Other comprehensive income before reclassification, before tax | | | 38,773 | | | | 445 | | | | 39,218 | | Amounts reclassified from accumulated other comprehensive income, before tax | | | (17,028 | ) | | | 0 | | | | (17,028 | ) | Other comprehensive income, before tax | | | 21,745 | | | | 445 | | | | 22,190 | | Income tax (expense) benefit | | | (4,202 | ) | | | 123 | | | | (4,079 | ) | Ending balance, net of tax | | $ | 36,184 | | | $ | (464 | ) | | $ | 35,720 | |
15
GLOBAL INDEMNITY LIMITEDGROUP, 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 | | $ | (19,897 | ) | | $ | (1,334 | ) | | $ | (21,231 | ) | Other comprehensive income before reclassification, before tax | | | 55,960 | | | | 331 | | | | 56,291 | | Amounts reclassified from accumulated other comprehensive income, before tax | | | (2,834 | ) | | | 0 | | | | (2,834 | ) | Other comprehensive income, before tax | | | 53,126 | | | | 331 | | | | 53,457 | | Income tax expense | | | (6,912 | ) | | | 0 | | | | (6,912 | ) | Ending balance, net of tax | | $ | 26,317 | | | $ | (1,003 | ) | | $ | 25,314 | |
| | | | | | | | | | | | | Nine Months Ended September 30, 2016 (Dollars in thousands) | | Unrealized Gains
and Losses on
Available for Sale
Securities, Net of
Tax | | | Foreign Currency
Items, Net of Tax | | | Accumulated Other
Comprehensive
Income, Net of Tax | | Beginning balance | | $ | 4,200 | | | $ | (122 | ) | | $ | 4,078 | | Other comprehensive income (loss) before reclassification | | | 22,075 | | | | (400 | ) | | | 21,675 | | Amounts reclassified from accumulated other comprehensive loss | | | (2,472 | ) | | | (2 | ) | | | (2,474 | ) | | | | | | | | | | | | | | Other comprehensive income (loss) | | | 19,603 | | | | (402 | ) | | | 19,201 | | | | | | | | | | | | | | | Ending balance | | $ | 23,803 | | | $ | (524 | ) | | $ | 23,279 | | | | | | | | | | | | | | |
The reclassifications out of accumulated other comprehensive income for the quarters and nine months ended September 30, 20172020 and 20162019 were as follows: | | | | | | | | | | Amounts Reclassified from Accumulated Other Comprehensive Income | | | (Dollars in thousands) | | | | Amounts Reclassified from
Accumulated Other
Comprehensive Income
Quarters Ended September 30, | | | | | Quarters Ended September 30, | | Details about Accumulated Other
Comprehensive Income Components | | Affected Line Item in the
Consolidated Statements of Operations | | 2017 | | | 2016 | | | 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 | | $ | (97 | ) | | $ | (3,384 | ) | | Other net realized investment (gains) losses | | $ | (2,276 | ) | | $ | (946 | ) | | | Other than temporary impairment losses on investments | | | 1,020 | | | | 2,214 | | | Other than temporary impairment losses on investments | | | 0 | | | | 0 | | | | | | | | | | | | Total before tax | | | (2,276 | ) | | | (946 | ) | | | Total before tax | | | 923 | | | | (1,170 | ) | | Income tax expense (benefit) | | | 172 | | | | 99 | | | | Income tax expense | | | (270 | ) | | | 389 | | | Unrealized gains and losses on available for sale securities, net of tax | | | (2,104 | ) | | | (847 | ) | | | | | | | | | | | | | Unrealized gains and losses on available for sale securities, net of tax | | $ | 653 | | | $ | (781 | ) | | | | | | | | | | | | Foreign currency items | | Other net realized investment gains | | $ | (326 | ) | | $ | — | | | Other net realized investment (gains) losses | | | 0 | | | | 0 | | | | Income tax expense | | | 114 | | | | — | | | Income tax expense | | | 0 | | | | 0 | | | | | | | | | | | | Foreign currency items, net of tax | | | 0 | | | | 0 | | | | Foreign currency items, net of tax | | $ | (212 | ) | | $ | — | | | | | | | | | | | | | Total reclassifications | | Total reclassifications, net of tax | | $ | 441 | | | $ | (781 | ) | | Total reclassifications, net of tax | | $ | (2,104 | ) | | $ | (847 | ) | | | | | | | | | | |
| | | | 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 | | $ | (17,028 | ) | | $ | (4,731 | ) | | | Other than temporary impairment losses on investments | | | 0 | | | | 1,897 | | | | Total before tax | | | (17,028 | ) | | | (2,834 | ) | | | Income tax expense (benefit) | | | 3,823 | | | | 169 | | | | Unrealized gains and losses on available for sale securities, net of tax | | | (13,205 | ) | | | (2,665 | ) | Foreign currency items | | Other net realized investment (gains) losses | | | 0 | | | | 0 | | | | Income tax expense | | | 0 | | | | 0 | | | | Foreign currency items, net of tax | | | 0 | | | | 0 | | Total reclassifications | | Total reclassifications, net of tax | | $ | (13,205 | ) | | $ | (2,665 | ) |
16
GLOBAL INDEMNITY LIMITED GROUP, LLC | | | | | | | | | | | | (Dollars in thousands) | | | | Amounts Reclassified from
Accumulated Other
Comprehensive Income
Nine Months Ended
September 30, | | Details about Accumulated Other
Comprehensive Income Components | | Affected Line Item in the
Consolidated Statements of Operations | | 2017 | | | 2016 | | Unrealized gains and losses on available for sale securities | | Other net realized investment gains | | $ | (2,538 | ) | | $ | (8,214 | ) | | | Other than temporary impairment losses on investments | | | 1,708 | | | | 4,481 | | | | | | | | | | | | | | | Total before tax | | | (830 | ) | | | (3,733 | ) | | | Income tax expense | | | 261 | | | | 1,261 | | | | | | | | | | | | | | | Unrealized gains and losses on available for sale securities, net of tax | | $ | (569 | ) | | $ | (2,472 | ) | | | | | | | | | | | | Foreign currency items | | Other net realized investment gains | | $ | (336 | ) | | $ | (4 | ) | | | Income tax expense | | | 117 | | | | 2 | | | | | | | | | | | | | | | Foreign currency items, net of tax | | $ | (219 | ) | | $ | (2 | ) | | | | | | | | | | | | Total reclassifications | | Total reclassifications, net of tax | | $ | (788 | ) | | $ | (2,474 | ) | | | | | | | | | | | |
Net Realized Investment Gains (Losses) The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 20172020 and 20162019 were as follows: | | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | Gross realized gains | | $ | 434 | | | $ | 434 | | | $ | 3,122 | | | $ | 1,252 | | | $ | 2,705 | | | $ | 1,054 | | | $ | 21,685 | | | $ | 5,765 | | Gross realized losses | | | (300 | ) | | | (147 | ) | | | (2,358 | ) | | (291 | ) | | | (429 | ) | | | (108 | ) | | | (4,657 | ) | | | (2,931 | ) | | | | | | | | | | | | | | | Net realized gains | | | 134 | | | | 287 | | | | 764 | | | 961 | | | | | | | | | | | | | | | | | Common stock: | | | | | | | | | | Net realized gains (losses) | | | | 2,276 | | | | 946 | | | | 17,028 | | | | 2,834 | | Equity securities: | | | | | | | | | | | | | | | | | | Gross realized gains | | | 917 | | | | 3,345 | | | | 2,711 | | | 8,068 | | | | 4,942 | | | | 1,681 | | | | 14,669 | | | | 26,936 | | Gross realized losses | | | (1,648 | ) | | | (2,462 | ) | | | (2,309 | ) | | (5,292 | ) | | | (55 | ) | | | (3,146 | ) | | | (31,870 | ) | | | (9,076 | ) | | | | | | | | | | | | | | | Net realized gains | | | (731 | ) | | | 883 | | | | 402 | | | 2,776 | | | | | | | | | | | | | | | | | Net realized gains (losses) | | | | 4,887 | | | | (1,465 | ) | | | (17,201 | ) | | | 17,860 | | Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | Gross realized gains | | | 486 | | | | 1,955 | | | | 822 | | | | — | | | | 1,520 | | | | 341 | | | | 19,514 | | | | 341 | | Gross realized losses | | | (852 | ) | | | (1,197 | ) | | | (2,838 | ) | | (12,794 | ) | | | (1,360 | ) | | | (2,512 | ) | | | (41,673 | ) | | | (9,745 | ) | | | | | | | | | | | | | | | Net realized gains (losses) (1) | | | (366 | ) | | | 758 | | | | (2,016 | ) | | (12,794 | ) | | | 160 | | | | (2,171 | ) | | | (22,159 | ) | | | (9,404 | ) | | | | | | | | | | | | | | | Total net realized investment gains (losses) | | $ | (963 | ) | | $ | 1,928 | | | $ | (850 | ) | | $ | (9,057 | ) | | $ | 7,323 | | | $ | (2,690 | ) | | $ | (22,332 | ) | | $ | 11,290 | | | | | | | | | | | | | | | |
(1) | Includes periodic net interest settlements related to the derivatives of $0.9$1.4 million and $1.2$0.3 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and $2.8$3.1 millionand $3.7$0.7 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. |
GLOBAL INDEMNITY LIMITEDNet 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 | | $ | 4,887 | | | $ | (1,465 | ) | | $ | (17,201 | ) | | $ | 17,860 | | Less: Net gains (losses) recognized during the period on equity securities sold during the period | | | 3,419 | | | | (614 | ) | | | (366 | ) | | | 9,836 | | Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | 1,468 | | | $ | (851 | ) | | $ | (16,835 | ) | | $ | 8,024 | |
The proceeds from sales and redemptions ofavailable-for-sale available for sale and equity securities resulting in net realized investment gains (losses) for the nine months ended September 30, 20172020 and 20162019 were as follows: | | | | Nine Months Ended
September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2020 | | | 2019 | | Fixed maturities | | $ | 742,229 | | | $ | 279,659 | | | $ | 600,962 | | | $ | 642,049 | | Equity securities | | | 24,483 | | | | 34,976 | | | | 563,926 | | | | 206,212 | |
17
GLOBAL INDEMNITY GROUP, LLC Net Investment Income The sources of net investment income for the quarters and nine months ended September 30, 20172020 and 20162019 were as follows: | | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Fixed maturities | | $ | 9,020 | | | $ | 8,131 | | | $ | 24,032 | | | $ | 22,729 | | | $ | 7,421 | | | $ | 8,806 | | | $ | 25,013 | | | $ | 27,692 | | Equity securities | | | 906 | | | | 698 | | | | 2,740 | | | 2,647 | | | | 1,390 | | | | 1,704 | | | | 4,161 | | | | 4,384 | | Cash and cash equivalents | | | 226 | | | | 44 | | | | 621 | | | 111 | | | | 260 | | | | 372 | | | | 492 | | | | 1,242 | | Other invested assets | | | 655 | | | | 909 | | | | 2,423 | | | 3,806 | | | | 3,485 | | | | 1,280 | | | | (8,004 | ) | | | 1,394 | | | | | | | | | | | | | | | | Total investment income | | | 10,807 | | | | 9,782 | | | | 29,816 | | | 29,293 | | | | 12,556 | | | | 12,162 | | | | 21,662 | | | | 34,712 | | Investment expense (1) | | | (673 | ) | | | (987 | ) | | | (2,198 | ) | | (4,190 | ) | | | | | | | | | | | | | | | | Investment expense | | | | (810 | ) | | | (814 | ) | | | (2,146 | ) | | | (2,319 | ) | Net investment income | | $ | 10,134 | | | $ | 8,795 | | | $ | 27,618 | | | $ | 25,103 | | | $ | 11,746 | | | $ | 11,348 | | | $ | 19,516 | | | $ | 32,393 | | | | | | | | | | | | | | | |
(1) | Investment expense for the nine months ended September 30, 2016 includes $1.5 million in upfront fees necessary to enter into a new investment. See Note 9 for additional information on the Company’s $40 million commitment related to this investment. |
The Company’s total investment return on apre-tax basis for the quarters and nine months ended September 30, 20172020 and 20162019 were as follows: | | | | Quarters Ended September 30, | | Nine Months Ended September 30, | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | 2016 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Net investment income | | $ | 10,134 | | | $ | 8,795 | | | $ | 27,618 | | | $ | 25,103 | | | $ | 11,746 | | | $ | 11,348 | | | $ | 19,516 | | | $ | 32,393 | | | | | | | | | | | | | | | | Net realized investment gains (losses) | | | (963 | ) | | 1,928 | | | (850 | ) | | (9,057 | ) | | | 7,323 | | | | (2,690 | ) | | | (22,332 | ) | | | 11,290 | | Change in unrealized holding gains and losses | | | 5,631 | | | 2,061 | | | 14,721 | | | 25,398 | | | | 32 | | | | 10,021 | | | | 22,190 | | | | 53,457 | | | | | | | | | | | | | | | | Net realized and unrealized investment returns | | | 4,668 | | | 3,989 | | | 13,871 | | | 16,341 | | | | 7,355 | | | | 7,331 | | | | (142 | ) | | | 64,747 | | | | | | | | | | | | | | | | Total investment return | | $ | 14,802 | | | $ | 12,784 | | | $ | 41,489 | | | $ | 41,444 | | | $ | 19,101 | | | $ | 18,679 | | | $ | 19,374 | | | $ | 97,140 | | | | | | | | | | | | | | | | Total investment return %(1) | | | 0.9 | % | | 0.8 | % | | 2.6 | % | | 2.7 | % | | | 1.2 | % | | | 1.2 | % | | | 1.3 | % | | | 6.2 | % | | | | | | | | | | | | | | | Average investment portfolio | | $ | 1,629,989 | | | $ | 1,530,599 | | | $ | 1,587,645 | | | $ | 1,522,247 | | | | | | | | | | | | | | | | | Average investment portfolio (2) | | | $ | 1,541,227 | | | $ | 1,585,165 | | | $ | 1,528,005 | | | $ | 1,562,177 | |
(2) | Average of total cash and invested assets, net of receivable/payable for securities purchased and sold, as of the beginning and end of the period. |
Insurance Enhanced Asset Backed and Credit Securities
As of September 30, 2017,2020 and December 31, 2019, the Company did 0t own any fixed maturity securities that were non-income producing for the preceding twelve months. Insurance Enhanced Asset-Backed and Credit Securities As of September 30, 2020, the Company held insurance enhanced asset-backed, commercial mortgage-backed, and credit securitiesbonds with a market value of approximately $37.9 million. Approximately $4.2$26.0 million of these securities were tax free municipal bonds, which represented approximately 0.3%1.8% of the Company’s total cash and invested assets, net of payable/receivable for securities purchased and sold. These securities had an average rating of“AA-.” Approximately $1.5 million of these bonds arepre-refunded with U.S. treasury securities. None of the remaining $2.7 million of tax free insurance enhanced municipal bonds, would have carried a lower credit rating had they not been insured. GLOBAL INDEMNITY LIMITED
A summary of the Company’s insurance enhanced municipal bonds that are backed by financial guarantors, including thepre-refunded bonds that are escrowed in U.S. government obligations, as of September 30, 2017, is as follows:
| | | | | | | | | | | | | | | | | (Dollars in thousands) Financial Guarantor | | Total | | | Pre-refunded
Securities | | | Government
Guaranteed
Securities | | | Exposure Net
of Pre-refunded
& Government
Guaranteed
Securities | | Ambac Financial Group | | $ | 1,029 | | | $ | — | | | $ | — | | | $ | 1,029 | | Municipal Bond Insurance Association | | | 1,191 | | | | — | | | | — | | | | 1,191 | | Gov’t National Housing Association | | | 440 | | | | — | | | | 440 | | | | — | | | | | | | | | | | | | | | | | | | Total backed by financial guarantors | | | 2,660 | | | | — | | | | 440 | | | | 2,220 | | Other credit enhanced municipal bonds | | | 1,523 | | | | 1,523 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 4,183 | | | $ | 1,523 | | | $ | 440 | | | $ | 2,220 | | | | | | | | | | | | | | | | | | |
In addition to thetax-free municipal bonds, the Company held $33.7 million of insurance enhanced bonds, which represented approximately 2.1% of the Company’s total invested assets, net of receivable/payable for securities purchased and sold. The insurance enhanced bonds are comprised of $23.2$15.3 million of taxable municipal bonds, $10.4$10.6 million of commercial mortgage-backed securities, and less than $0.1 million of asset-backed securities.collateralized mortgage obligations. The financial guarantors of the Company’s $33.7$26.0 million of insurance enhanced asset-backed, commercial-mortgage-backed, and taxable municipal securities, and collateralized mortgage obligations include Municipal Bond Insurance Association ($7.03.2 million), Assured Guaranty Corporation ($16.310.0 million), and Federal Home Loan Mortgage Corporation ($10.410.6 million), Ambac Financial Group ($2.2 million), and Federal Deposit Insurance Corporation (less than $0.1 million).
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, 2017.2020. 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, pursuant to borrowing arrangements, or were held in trust pursuant to intercompany reinsurance agreements. The fair values were as follows as of September 30, 20172020 and December 31, 2016:2019: | | | | Estimated Fair Value | | | Estimated Fair Value | | | (Dollars in thousands) | | September 30, 2017 | | | December 31, 2016 | | | September 30, 2020 | | | December 31, 2019 | | On deposit with governmental authorities | | $ | 28,489 | | | $ | 29,079 | | | $ | 27,082 | | | $ | 26,431 | | Intercompany trusts held for the benefit of U.S. policyholders | | | 335,444 | | | | 351,002 | | | | 142,496 | | | | 179,116 | | Held in trust pursuant to third party requirements | | | 80,820 | | | | 88,178 | | | | 84,174 | | | | 133,122 | | Letter of credit held for third party requirements | | | 4,028 | | | | 4,871 | | | | 2,645 | | | | 1,458 | | Securities held as collateral for borrowing arrangements (1) | | | 93,736 | | | | 85,939 | | | | | | | | | | | Securities held as collateral | | | | 555 | | | | 91,229 | | Total | | $ | 542,517 | | | $ | 559,069 | | | $ | 256,952 | | | $ | 431,356 | | | | | | | | | |
(1) | Amount required to collateralize margin borrowing facility. |
Variable Interest Entities A Variable Interest Entity (VIE)(“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 three3 VIE’s for which it is not the primary beneficiary. These investments are accounted for under the equity method of accounting as their ownership interest exceeds 3% of their respective investments. The faircarrying value of one of the Company’s VIE’s, which invests in distressed securities and assets, was $29.8$11.3 million and $32.9$13.5 million as of September 30, 2017 GLOBAL INDEMNITY LIMITED
2020 and December 31, 2016,2019, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $44.0$25.5 million and $27.7 million at September 30, 20172020 and $48.6 million at December 31, 2016.2019, respectively. The faircarrying value of a second VIE that provides financing for middle market companies,also invests in distressed securities and assets was $26.8$17.0 million and $24.0 million at September 30, 20172020 and $33.2 million at December 31, 2016.2019, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $38.6$34.0 million and $41.0 million at September 30, 20172020 and $42.3 million at December 31, 2016. During the 2nd quarter2019, respectively. The carrying value of 2017, the Company invested in a new limited partnershipthird VIE that also invests in distressed securitiesREIT qualifying assets was $9.5 million and assets and is considered a VIE. The Company’s investment in this partnership has a fair value of $16.9$9.8 million as of September 30, 2017.2020 and December 31, 2019, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $50.4$9.5 million and $10.3 million at September 30, 2017.2020 and December 31, 2019, respectively. The Company’s investment in VIEs is included in other invested assets on the consolidated balance sheet with changes in faircarrying value recorded in the consolidated statements of operations. 3.4. | Derivative Instruments |
Interest rate swaps
Derivatives are used by the Company primarily to reduce risks from changes in interest rates. Under the terms of therates and limit exposure to severe equity market changes. The Company has interest rate swaps the Company agrees with another partyterms 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 asnon-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 (losses)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’ fair valuederivatives on the consolidated balance sheets as of September 30, 20172020 and December 31, 2016:2019: | | (Dollars in thousands) | | | | September 30, 2017 | | December 31, 2016 | | | | | 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 | | | Balance Sheet Location | | Notional Amount | | | Fair Value | | | Notional Amount | | | Fair Value | | Interest rate swap agreements | | Other liabilities | | $ | 200,000 | | | $ | (10,702 | ) | | $ | 200,000 | | | $ | (11,524 | ) | | Other assets/liabilities | | $ | 200,000 | | | $ | (17,931 | ) | | $ | 200,000 | | | $ | (10,275 | ) | Futures contracts on bonds (1) | | | Other assets/liabilities | | | 30,418 | | | | 0 | | | | 16,894 | | | | 0 | | Futures contracts on equities (1) | | | Other assets/liabilities | | | 0 | | | | 0 | | | | 57,816 | | | | 0 | | Total | | | | | $ | 230,418 | | | $ | (17,931 | ) | | $ | 274,710 | | | $ | (10,275 | ) |
(1) | Futures are settled daily such that their fair value is not reflected in the consolidated statements of financial position |
The following table summarizes the net gain (loss)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, 20172020 and 2016:2019: | | | | | Quarters Ended
September 30, | | | Nine Months Ended
September 30, | | | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | Consolidated Statement of Operations Line | | 2017 | | 2016 | | | 2017 | | 2016 | | | Consolidated Statements of Operations Line | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Interest rate swap agreements | | Net realized investment gains (losses) | | $ | (366 | ) | | $ | 758 | | | $ | (2,016 | ) | | $ | (12,794 | ) | | Net realized investment gains (losses) | | $ | 45 | | | $ | (1,831 | ) | | $ | (10,827 | ) | | $ | (9,064 | ) | Futures contracts on bonds | | | Net realized investment gains (losses) | | | 115 | | | | 15 | | | | (2,343 | ) | | | 15 | | Futures contracts on equities | | | Net realized investment gains (losses) | | | 0 | | | | (355 | ) | | | (8,989 | ) | | | (355 | ) | Total | | | | | $ | 160 | | | $ | (2,171 | ) | | $ | (22,159 | ) | | $ | (9,404 | ) |
As of both September 30, 20172020 and December 31, 2016,2019, the Company is due $3.3$3.0 million, and $5.3 million, respectively, for funds it needed to post to execute the swap transaction and $14.2$18.6 million and $12.6$12.5 million, respectively, for margin calls made in connection with the interest rate swaps. These amounts are included in other assets on the consolidated balance sheets. As of September 30, 2020 and December 31, 2019, the Company posted initial margin of $0.6 million and $3.0 million, respectively, in securities for trading futures contracts and has a mark-to-market payable of less than $0.1 million and receivable of $0.3 million, respectively, in connection with the futures contracts. Variation margin is included in other assets on the consolidated balance sheets. 4.5. | 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 - | • | 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 LIMITED GROUP, LLC Level 2 - inputs utilize other than quoted prices included in Level 1 that are observable for similar assets, either directly or indirectly. | • | Level 3 – inputs are unobservable for the asset, and include situations where there is little, if any, market activity for the asset. |
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, 20172020 and December 31, 2016,2019 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, 2017 | | Fair Value Measurements | | | | (Dollars in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | As of September 30, 2020 (Dollars in thousands) | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 117,766 | | | $ | — | | | $ | — | | | $ | 117,766 | | | $ | 200,457 | | | $ | 1,500 | | | $ | 0 | | | $ | 201,957 | | Obligations of states and political subdivisions | | | — | | | | 117,243 | | | | — | | | | 117,243 | | | | 0 | | | | 62,001 | | | | 0 | | | | 62,001 | | Mortgage-backed securities | | | — | | | | 146,888 | | | | — | | | | 146,888 | | | | 0 | | | | 401,084 | | | | 0 | | | | 401,084 | | Commercial mortgage-backed securities | | | — | | | | 139,093 | | | | — | | | | 139,093 | | | | 0 | | | | 138,911 | | | | 0 | | | | 138,911 | | Asset-backed securities | | | — | | | | 209,520 | | | | — | | | | 209,520 | | | | 0 | | | | 139,150 | | | | 0 | | | | 139,150 | | Corporate bonds | | | — | | | | 488,593 | | | | — | | | | 488,593 | | | | 0 | | | | 258,861 | | | | 0 | | | | 258,861 | | Foreign corporate bonds | | | — | | | | 141,060 | | | | — | | | | 141,060 | | | | 0 | | | | 101,811 | | | | 0 | | | | 101,811 | | | | | | | | | | | | | | | | Total fixed maturities | | | 117,766 | | | | 1,242,397 | | | | — | | | | 1,360,163 | | | | 200,457 | | | | 1,103,318 | | | | 0 | | | | 1,303,775 | | Common stock | | | 133,462 | | | | — | | | | — | | | | 133,462 | | | | | | | | | | | | | | | | | Total assets measured at fair value (1) | | $ | 251,228 | | | $ | 1,242,397 | | | $ | — | | | $ | 1,493,625 | | | | | | | | | | | | | | | | | Equity securities | | | | 64,673 | | | | 11,268 | | | | 0 | | | | 75,941 | | Total assets measured at fair value | | | $ | 265,130 | | | $ | 1,114,586 | | | $ | 0 | | | $ | 1,379,716 | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Derivative instruments | | $ | — | | | $ | 10,702 | | | $ | — | | | $ | 10,702 | | | $ | 0 | | | $ | 17,931 | | | $ | 0 | | | $ | 17,931 | | | | | | | | | | | | | | | | Total liabilities measured at fair value | | $ | — | | | $ | 10,702 | | | $ | — | | | $ | 10,702 | | | $ | 0 | | | $ | 17,931 | | | $ | 0 | | | $ | 17,931 | | | | | | | | | | | | | | | |
(1) | Excluded from the table above are limited partnerships of $73.6 million at September 30, 2017 whose fair value is based on net asset value as a practical expedient. |
| | | | | | | | | | | | | | | | | | As of December 31, 2016 | | Fair Value Measurements | | | (Dollars in thousands) | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | Fixed maturities: | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 72,047 | | | $ | — | | | $ | — | | | $ | 72,047 | | Obligations of states and political subdivisions | | | — | | | | 156,446 | | | | — | | | | 156,446 | | Mortgage-backed securities | | | — | | | | 88,468 | | | | — | | | | 88,468 | | Commercial mortgage-backed securities | | | — | | | | 183,192 | | | | — | | | | 183,192 | | Asset-backed securities | | | — | | | | 233,991 | | | | — | | | | 233,991 | | Corporate bonds | | | — | | | | 380,027 | | | | — | | | | 380,027 | | Foreign corporate bonds | | | — | | | | 125,860 | | | | — | | | | 125,860 | | | | | | | | | | | | | | | | | | | Total fixed maturities | | | 72,047 | | | | 1,167,984 | | | | — | | | | 1,240,031 | | Common stock | | | 120,557 | | | | — | | | | — | | | | 120,557 | | | | | | | | | | | | | | | | | | | Total assets measured at fair value (1) | | $ | 192,604 | | | $ | 1,167,984 | | | $ | — | | | $ | 1,360,588 | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative instruments | | $ | — | | | $ | 11,524 | | | $ | — | | | $ | 11,524 | | | | | | | | | | | | | | | | | | | Total liabilities measured at fair value | | $ | — | | | $ | 11,524 | | | $ | — | | | $ | 11,524 | | | | | | | | | | | | | | | | | | |
(1) | Excluded from the table above are limited partnerships of $66.1 million at December 31, 2016 whose fair value is based on net asset value as a practical expedient. |
GLOBAL INDEMNITY LIMITED
| | 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 | | $ | 156,689 | | | $ | 0 | | | $ | 0 | | | $ | 156,689 | | Obligations of states and political subdivisions | | | 0 | | | | 63,838 | | | | 0 | | | | 63,838 | | Mortgage-backed securities | | | 0 | | | | 328,374 | | | | 0 | | | | 328,374 | | Commercial mortgage-backed securities | | | 0 | | | | 188,104 | | | | 0 | | | | 188,104 | | Asset-backed securities | | | 0 | | | | 168,537 | | | | 0 | | | | 168,537 | | Corporate bonds | | | 0 | | | | 248,259 | | | | 0 | | | | 248,259 | | Foreign corporate bonds | | | 0 | | | | 99,358 | | | | 0 | | | | 99,358 | | Total fixed maturities | | | 156,689 | | | | 1,096,470 | | | | 0 | | | | 1,253,159 | | Equity securities | | | 251,448 | | | | 11,656 | | | | 0 | | | | 263,104 | | Total assets measured at fair value | | $ | 408,137 | | | $ | 1,108,126 | | | $ | 0 | | | $ | 1,516,263 | | Liabilities: | | | | | | | | | | | | | | | | | Derivative instruments | | $ | 0 | | | $ | 10,275 | | | $ | 0 | | | $ | 10,275 | | Total liabilities measured at fair value | | $ | 0 | | | $ | 10,275 | | | $ | 0 | | | $ | 10,275 | |
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, 20172020 and December 31, 20162019 was as follows: | | | | | | | | | | | | | | | | | | | | September 30, 2017 | | | December 31, 2016 | | | (Dollars in thousands) | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | | Margin Borrowing Facility | | $ | 76,518 | | | $ | 76,518 | | | $ | 66,646 | | | $ | 66,646 | | 7.75% Subordinated Notes due 2045 (1) | | | 96,588 | | | | 100,448 | | | | 96,497 | | | | 95,697 | | 7.875% Subordinated Notes due 2047 (2) | | | 125,829 | | | | 130,009 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 298,935 | | | $ | 306,975 | | | $ | 163,143 | | | $ | 162,343 | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | | December 31, 2019 | | (Dollars in thousands) | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | | Margin Borrowing Facility (1) | | $ | 0 | | | $ | 0 | | | $ | 73,629 | | | $ | 73,629 | | 7.75% Subordinated Notes due 2045 (2) | | | 0 | | | | 0 | | | | 96,864 | | | | 100,264 | | 7.875% Subordinated Notes due 2047 (3) | | | 126,253 | | | | 130,153 | | | | 126,147 | | | | 134,462 | | Total | | $ | 126,253 | | | $ | 130,153 | | | $ | 296,640 | | | $ | 308,355 | |
(1) | The Margin Borrowing Facility was fully paid down in August 2020. |
(2) | As of September 30, 2017 and December 31, 2016,2019, the carrying value and fair value of the 7.75% Subordinated Notes due 2045 are net of unamortized debt issuance cost of $3.4$3.1 million. In August 2020, the Company redeemed all of its outstanding 7.75% subordinated notes due 2045 and unamortized debt issuance cost of $3.1 million was written off and $3.5 million, respectively.included in the consolidated statements of operations as loss on the extinguishment of debt. |
(2)(3) | As of September 30, 2017,2020 and December 31, 2019, the carrying value and fair value of the 7.875% Subordinated Notes due 2047 are net of unamortized debt issuance cost of $4.2 million.$3.7 million and $3.9 million, respectively. |
The fair value of the margin borrowing facility approximates its carrying value due to the facility being due on demand. The subordinated notes due 2045 and 2047 are publicly traded instruments and are classified as Level 1 in the fair value hierarchy. There were no transfers between Level 1 and Level 2 during the quarters ended September 30, 2017 and 2016.22
GLOBAL INDEMNITY LIMITED GROUP, LLCFair Value of Alternative Investments Other invested assets consist of limited liability partnerships whose carrying value approximates fair value is based on net asset value per share as a practical expedient.value. The following table provides the fair value and future funding commitments related to these investments at September 30, 20172020 and December 31, 2016.2019. | | | | | | | | | | | | | | | | | | | | September 30, 2017 | | | December 31, 2016 | | | (Dollars in thousands) | | Fair Value | | | Future Funding
Commitment | | | Fair Value | | | Future Funding
Commitment | | Real Estate Fund, LP (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | EuropeanNon-Performing Loan Fund, LP (2) | | | 29,795 | | | | 14,214 | | | | 32,922 | | | | 15,714 | | Private Middle Market Loan Fund, LP (3) | | | 26,824 | | | | 11,776 | | | | 33,199 | | | | 9,054 | | Distressed Debt Fund, LP (4) | | | 16,934 | | | | 33,500 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 73,553 | | | $ | 59,490 | | | $ | 66,121 | | | $ | 24,768 | | | | | | | | | | | | | | | | | | |
| | 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) | | $ | 11,283 | | | $ | 14,214 | | | $ | 13,530 | | | $ | 14,214 | | Distressed Debt Fund, LP (2) | | | 16,979 | | | | 17,000 | | | | 23,966 | | | | 17,000 | | Mortgage Debt Fund, LP (3) | | | 9,487 | | | | 0 | | | | 9,783 | | | | 506 | | Total | | $ | 37,749 | | | $ | 31,214 | | | $ | 47,279 | | | $ | 31,720 | |
(1) | This limited partnership invests in real estate assets through a combination of direct or indirect investments in partnerships, limited liability companies, mortgage loans, and lines of credit. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company continues to hold an investment in this limited partnership and has written the fair value down to zero. |
(2) | This limited partnership invests in distressed securities and assets through senior and subordinated, secured and unsecured debt and equity, in both public and privatelarge-cap and middle-market companies. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the partnership agreement, the Company anticipates its interest in this partnership to be redeemed by 2020. |
(3)(2) | This limited partnership provides financing for middle market companies.invests in stressed and distressed securities and structured products. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the investment management agreement, the Company anticipates its interest to be redeemed no later than 2024. |
(4)(3) | This limited partnership invests in stressedREIT qualifying assets such as mortgage loans, investor property loans, and distressed debt instruments.commercial mortgage loans. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the partnership agreement, the Company anticipates its interest to be redeemed no later than 2027. |
Limited Liability Companies and Limited Partnerships with ownership interest exceeding 3%
The Company uses the equity method to account for investments in limited liability companies and limited partnerships where its ownership interest exceeds 3%. The equity method of accounting for an investment in a limited liability company and limited partnership requires that its cost basis be updated to account for the income or loss earned on the investment. The investment income or loss associated with these limited liability companies or limited partnerships, which is booked on a one quarter lag, is reflected in the consolidated statements of operations was $0.7in the amounts of $3.5 million and $0.9$1.3 million duringfor the quarters endended September 30, 20172020 and 2016,2019, respectively, and $2.4$(8.0) million and $3.7$1.4 million duringfor the nine months ended September 30, 20172020 and 2016,2019, respectively. Pricing The Company’s pricing vendors provide prices for all investment categories except for investments in limited partnerships whose fair value is based on net asset values as a practical expedient.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: Common stock | • | Equity security prices are received from all primary and secondary exchanges. |
Corporate and agency bonds are evaluated by utilizing a multi-dimensional relational model. For bonds with early redemption options, an option adjusted spread model is utilized. Both asset classes use standard inputs and incorporate security set up, defined sector breakdown, benchmark yields, apply base spreads, yield to maturity, and adjust for corporate actions. | • | 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 LIMITED GROUP, LLC Data from commercial vendors is aggregated with market information, then converted into a prepayment/spread/LIBOR curve model used for commercial mortgage obligations (“CMO”). CMOs are categorized with mortgage-backed securities in the tables listed above. For asset-backed securities, data derived from market information along with trustee and servicer reports is converted into spreads to interpolated swap yield curve. For both asset classes, evaluations utilize standard inputs plus new issue data, monthly payment information, and collateral performance. The evaluated pricing models incorporate discount rates, loan level information, prepayment speeds, treasury benchmarks, and LIBOR and swap curves. | • | 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. |
For obligations of state and political subdivisions, a multi-dimensional relational model is used to evaluate securities. The pricing models incorporate securityset-up, benchmark yields, apply base spreads, yield to worst or market convention, ratings updates, prepayment schedules and adjustments for material events notices.
U.S. treasuries are evaluated by obtaining feeds from a number of live data sources including active market makers and inter-dealer brokers.
For mortgage-backed securities, a matrix model correlation to a forward MBS trade or benchmarking is utilized to value a security.
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. |
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, 20172020 and 2016,2019, 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 | | $ | 2,931 | | | $ | 8,992 | | | $ | 2,754 | | | $ | 8,992 | | Current period provision for expected credit losses | | | 476 | | | | 0 | | | | 951 | | | | 0 | | Write-offs | | | (538 | ) | | | 0 | | | | (836 | ) | | | 0 | | Ending balance | | $ | 2,869 | | | $ | 8,992 | | | $ | 2,869 | | | $ | 8,992 | |
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 35%21% in the United States, 0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 27.08%19% in the Duchy of Luxembourg, 0.25% to 2.5% in Barbados,United Kingdom, and 25% onnon-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income tax rate of each country is applied against the expected annual taxable income of the Company in each country to estimate the annual income tax expense. Generally, during interim periods, the Company will divide total estimated annual income tax expense by total estimated annualpre-tax income to determine the expected annual income tax rate used to compute the income tax provision. The expected annual income tax rate is then applied against interimpre-tax income, excluding net realized gains and losses and limited partnership distributions, and that amount is then added to the actual income taxes on net realized gains and losses, discrete items and limited partnership distributions. However, when there is significant volatility in the expected effective tax rate, the Company records its actual income tax provision in lieu of the estimated effective income tax rate. GLOBAL INDEMNITY LIMITED
The Company’s income (loss) before income taxes from itsnon-U.S. subsidiaries and U.S. subsidiaries including the results of the quota share agreements between Global Indemnity Reinsurance and the Insurance Operations, for the quarters and nine months ended September 30, 20172020 and 20162019 were as follows: | Quarter Ended September 30, 2017: (Dollars in thousands) | | Non-U.S.
Subsidiaries | | | U.S.
Subsidiaries | | | Eliminations | | Total | | | Quarter Ended September 30, 2020 (Dollars in thousands) | | | Non-U.S. Subsidiaries | | | U.S. Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 50,812 | | | $ | 114,076 | | | $ | (38,834 | ) | | $ | 126,054 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 50,800 | | | $ | 58,245 | | | $ | — | | | $ | 109,045 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 50,392 | | | $ | 58,227 | | | $ | — | | | $ | 108,619 | | | Gross written premiums | | | $ | 13,085 | | | $ | 130,664 | | | $ | 0 | | | $ | 143,749 | | Net written premiums | | | $ | 13,085 | | | $ | 117,526 | | | $ | 0 | | | $ | 130,611 | | Net earned premiums | | | $ | 9,983 | | | $ | 130,319 | | | $ | 0 | | | $ | 140,302 | | Net investment income | | | 14,631 | | | | 6,584 | | | | (11,081 | ) | | 10,134 | | | | 4,054 | | | | 9,851 | | | | (2,159 | ) | | | 11,746 | | Net realized investment losses | | | (150 | ) | | | (813 | ) | | | — | | | (963 | ) | | Net realized investment gains | | | | 1,511 | | | | 5,812 | | | | 0 | | | | 7,323 | | Other income | | | 40 | | | | 2,254 | | | | — | | | 2,294 | | | | 164 | | | | 378 | | | | 0 | | | | 542 | | | | | | | | | | | | | | | | Total revenues | | | 64,913 | | | | 66,252 | | | | (11,081 | ) | | 120,084 | | | | 15,712 | | | | 146,360 | | | | (2,159 | ) | | | 159,913 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 31,044 | | | | 51,351 | | | | — | | | 82,395 | | | | 519 | | | | 96,629 | | | | 0 | | | | 97,148 | | Acquisition costs and other underwriting expenses | | | 21,922 | | | | 23,080 | | | | — | | | 45,002 | | | | 3,584 | | | | 49,684 | | | | 0 | | | | 53,268 | | Corporate and other operating expenses | | | 1,807 | | | | 2,823 | | | | — | | | 4,630 | | | | 17,283 | | | | 3,913 | | | | 0 | | | | 21,196 | | Interest expense | | | 4,679 | | | | 11,238 | | | | (11,081 | ) | | 4,836 | | | | 193 | | | | 5,586 | | | | (2,159 | ) | | | 3,620 | | | | | | | | | | | | | | | | Income (loss) before income taxes | | $ | 5,461 | | | $ | (22,240 | ) | | $ | — | | | $ | (16,779 | ) | | | | | | | | | | | | | | | | | Quarter Ended September 30, 2016: (Dollars in thousands) | | Non-U.S.
Subsidiaries | | | U.S.
Subsidiaries | | | Eliminations | | Total | | | Revenues: | | | | | | | | | | Gross premiums written | | $ | 51,900 | | | $ | 123,770 | | | $ | (42,101 | ) | | $ | 133,569 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 51,900 | | | $ | 63,151 | | | $ | — | | | $ | 115,051 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 54,155 | | | $ | 65,398 | | | $ | — | | | $ | 119,553 | | | Net investment income | | | 11,556 | | | | 5,828 | | | | (8,589 | ) | | 8,795 | | | Net realized investment gains | | | 58 | | | | 1,870 | | | | — | | | 1,928 | | | Other income (loss) | | | (10 | ) | | | 7,862 | | | | — | | | 7,852 | | | | | | | | | | | | | | | | | Total revenues | | | 65,759 | | | | 80,958 | | | | (8,589 | ) | | 138,128 | | | Losses and Expenses: | | | | | | | | | | Net losses and loss adjustment expenses | | | 27,932 | | | | 44,230 | | | | — | | | 72,162 | | | Acquisition costs and other underwriting expenses | | | 24,651 | | | | 23,478 | | | | — | | | 48,129 | | | Corporate and other operating expenses | | | 2,906 | | | | 2,100 | | | | — | | | 5,006 | | | Interest expense | | | 2,081 | | | | 8,741 | | | | (8,589 | ) | | 2,233 | | | | | | | | | | | | | | | | | Income before income taxes | | $ | 8,189 | | | $ | 2,409 | | | $ | — | | | $ | 10,598 | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2017: (Dollars in thousands) | | Non-U.S.
Subsidiaries | | | U.S.
Subsidiaries | | | Eliminations | | Total | | | Revenues: | | | | | | | | | | Gross premiums written | | $ | 164,975 | | | $ | 348,331 | | | $ | (119,607 | ) | | $ | 393,699 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 164,947 | | | $ | 179,401 | | | $ | — | | | $ | 344,348 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 150,384 | | | $ | 178,434 | | | $ | — | | | $ | 328,818 | | | Net investment income | | | 41,519 | | | | 16,786 | | | | (30,687 | ) | | 27,618 | | | Net realized investment gains (losses) | | | 87 | | | | (937 | ) | | | — | | | (850 | ) | | Other income | | | 213 | | | | 5,231 | | | | — | | | 5,444 | | | | | | | | | | | | | | | | | Total revenues | | | 192,203 | | | | 199,514 | | | | (30,687 | ) | | 361,030 | | | Losses and Expenses: | | | | | | | | | | Net losses and loss adjustment expenses | | | 74,780 | | | | 127,876 | | | | — | | | 202,656 | | | Acquisition costs and other underwriting expenses | | | 65,544 | | | | 69,466 | | | | — | | | 135,010 | | | Corporate and other operating expenses | | | 4,137 | | | | 6,908 | | | | — | | | 11,045 | | | Interest expense | | | 11,653 | | | | 31,099 | | | | (30,687 | ) | | 12,065 | | | | | | | | | | | | | | | | | Income (loss) before income taxes | | $ | 36,089 | | | $ | (35,835 | ) | | $ | — | | | $ | 254 | | | | | | | | | | | | | | | | | Loss on extinguishment of debt | | | | 3,060 | | | | 0 | | | | 0 | | | | 3,060 | | Loss before income taxes | | | $ | (8,927 | ) | | $ | (9,452 | ) | | $ | 0 | | | $ | (18,379 | ) |
Quarter Ended September 30, 2019 (Dollars in thousands) | | Non-U.S. Subsidiaries | | | U.S. Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross written premiums | | $ | 19,980 | | | $ | 137,197 | | | $ | 0 | | | $ | 157,177 | | Net written premiums | | $ | 19,990 | | | $ | 118,846 | | | $ | 0 | | | $ | 138,836 | | Net earned premiums | | $ | 19,512 | | | $ | 113,800 | | | $ | 0 | | | $ | 133,312 | | Net investment income | | | 7,212 | | | | 7,732 | | | | (3,596 | ) | | | 11,348 | | Net realized investment gains (losses) | | | 375 | | | | (3,065 | ) | | | 0 | | | | (2,690 | ) | Other income (loss) | | | (234 | ) | | | 498 | | | | 0 | | | | 264 | | Total revenues | | | 26,865 | | | | 118,965 | | | | (3,596 | ) | | | 142,234 | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 7,628 | | | | 65,955 | | | | 0 | | | | 73,583 | | Acquisition costs and other underwriting expenses | | | 6,201 | | | | 47,165 | | | | 0 | | | | 53,366 | | Corporate and other operating expenses | | | 1,514 | | | | 2,344 | | | | 0 | | | | 3,858 | | Interest expense | | | 351 | | | | 8,268 | | | | (3,596 | ) | | | 5,023 | | Income (loss) before income taxes | | $ | 11,171 | | | $ | (4,767 | ) | | $ | 0 | | | $ | 6,404 | |
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GLOBAL INDEMNITY LIMITEDGROUP, LLC Nine Months Ended September 30, 2020 (Dollars in thousands) | | Non-U.S. Subsidiaries | | | U.S. Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross written premiums | | $ | 46,654 | | | $ | 417,368 | | | $ | 0 | | | $ | 464,022 | | Net written premiums | | $ | 46,654 | | | $ | 370,333 | | | $ | 0 | | | $ | 416,987 | | Net earned premiums | | $ | 53,384 | | | $ | 373,233 | | | $ | 0 | | | $ | 426,617 | | Net investment income | | | 17,336 | | | | 11,324 | | | | (9,144 | ) | | | 19,516 | | Net realized investment losses | | | (3,867 | ) | | | (18,465 | ) | | | 0 | | | | (22,332 | ) | Other income | | | 148 | | | | 1,325 | | | | 0 | | | | 1,473 | | Total revenues | | | 67,001 | | | | 367,417 | | | | (9,144 | ) | | | 425,274 | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 12,874 | | | | 229,218 | | | | 0 | | | | 242,092 | | Acquisition costs and other underwriting expenses | | | 17,828 | | | | 145,430 | | | | 0 | | | | 163,258 | | Corporate and other operating expenses | | | 23,357 | | | | 10,680 | | | | 0 | | | | 34,037 | | Interest expense | | | 869 | | | | 21,472 | | | | (9,144 | ) | | | 13,197 | | Loss on extinguishment of debt | | | 3,060 | | | | 0 | | | | 0 | | | | 3,060 | | Income (loss) before income taxes | | $ | 9,013 | | | $ | (39,383 | ) | | $ | 0 | | | $ | (30,370 | ) |
| Nine Months Ended September 30, 2016: (Dollars in thousands) | | Non-U.S.
Subsidiaries | | | U.S.
Subsidiaries | | | Eliminations | | Total | | | Nine Months Ended September 30, 2019 (Dollars in thousands) | | | Non-U.S. Subsidiaries | | | U.S. Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 141,297 | | | $ | 394,312 | | | $ | (106,355 | ) | | $ | 429,254 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 141,283 | | | $ | 215,950 | | | $ | — | | | $ | 357,233 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 162,594 | | | $ | 196,399 | | | $ | — | | | $ | 358,993 | | | Gross written premiums | | | $ | 69,588 | | | $ | 409,111 | | | $ | 0 | | | $ | 478,699 | | Net written premiums | | | $ | 69,591 | | | $ | 351,730 | | | $ | 0 | | | $ | 421,321 | | Net earned premiums | | | $ | 52,798 | | | $ | 330,804 | | | $ | 0 | | | $ | 383,602 | | Net investment income | | | 36,791 | | | | 13,888 | | | | (25,576 | ) | | 25,103 | | | | 22,254 | | | | 20,824 | | | | (10,685 | ) | | | 32,393 | | Net realized investment gains (losses) | | | 128 | | | | (9,185 | ) | | | — | | | (9,057 | ) | | Other income | | | 17 | | | | 9,586 | | | | — | | | 9,603 | | | | | | | | | | | | | | | | | Net realized investment gains | | | | 1,768 | | | | 9,522 | | | | 0 | | | | 11,290 | | Other income (loss) | | | | (256 | ) | | | 1,530 | | | | 0 | | | | 1,274 | | Total revenues | | | 199,530 | | | | 210,688 | | | | (25,576 | ) | | 384,642 | | | | 76,564 | | | | 362,680 | | | | (10,685 | ) | | | 428,559 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 84,154 | | | | 130,903 | | | | — | | | 215,057 | | | | 24,076 | | | | 177,903 | | | | 0 | | | | 201,979 | | Acquisition costs and other underwriting expenses | | | 71,758 | | | | 77,003 | | | | — | | | 148,761 | | | | 16,556 | | | | 137,087 | | | | 0 | | | | 153,643 | | Corporate and other operating expenses | | | 7,181 | | | | 5,883 | | | | — | | | 13,064 | | | | 4,822 | | | | 6,880 | | | | 0 | | | | 11,702 | | Interest expense | | | 6,233 | | | | 26,020 | | | | (25,576 | ) | | 6,677 | | | | 1,059 | | | | 24,714 | | | | (10,685 | ) | | | 15,088 | | | | | | | | | | | | | | | | Income (loss) before income taxes | | $ | 30,204 | | | $ | (29,121 | ) | | $ | — | | | $ | 1,083 | | | | | | | | | | | | | | | | | Income before income taxes | | | $ | 30,051 | | | $ | 16,096 | | | $ | 0 | | | $ | 46,147 | |
The following table summarizes the components of income tax benefit:expense (benefit): | | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Current income tax expense: | | | | | | | | | | Current income tax expense (benefit): | | | | | | | | | | | | | | | | | | Foreign | | $ | 107 | | | $ | 84 | | | $ | 290 | | | $ | 289 | | | $ | 130 | | | $ | (17 | ) | | $ | 130 | | | $ | (35 | ) | U.S. Federal | | | 128 | | | | 146 | | | | 128 | | | 146 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | Total current income tax expense | | | 235 | | | | 230 | | | | 418 | | | 435 | | | | | | | | | | | | | | | | | Total current income tax expense (benefit) | | | | 130 | | | | (17 | ) | | | 130 | | | | (35 | ) | Deferred income tax expense (benefit): | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Federal | | | (8,090 | ) | | | 833 | | | | (13,611 | ) | | (10,847 | ) | | | (3,339 | ) | | | (300 | ) | | | (8,303 | ) | | | 5,198 | | | | | | | | | | | | | | | | Total deferred income tax expense (benefit) | | | (8,090 | ) | | | 833 | | | | (13,611 | ) | | (10,847 | ) | | | (3,339 | ) | | | (300 | ) | | | (8,303 | ) | | | 5,198 | | | | | | | | | | | | | | | | Total income tax expense (benefit) | | $ | (7,855 | ) | | $ | 1,063 | | | $ | (13,193 | ) | | $ | (10,412 | ) | | $ | (3,209 | ) | | $ | (317 | ) | | $ | (8,173 | ) | | $ | 5,163 | | | | | | | | | | | | | | | |
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, | | | | | Quarters Ended September 30, | | | 2020 | | | 2019 | | | (Dollars in thousands) | | 2017 | | 2016 | | | Amount | | | % of Pre- Tax Income | | | Amount | | | % of Pre- Tax Income | | | | | Amount | | | % of Pre-
Tax Income | | Amount | | % of Pre-
Tax Income | | | Expected tax provision at weighted average rate | | $ | (7,678 | ) | | | (45.8 | %) | | $ | 933 | | | 8.8 | % | | Expected tax provision at weighted average tax rate | | | $ | (1,985 | ) | | | 10.8 | % | | $ | (1,001 | ) | | | 15.6 | % | Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | Tax exempt interest | | | (40 | ) | | | (0.2 | ) | | (101 | ) | | (1.0 | ) | | | (1 | ) | | | 0 | | | | 0 | | | | 0 | | Dividend exclusion | | | (144 | ) | | | (0.9 | ) | | (3 | ) | | 0.0 | | | | (86 | ) | | | 0.5 | | | | (33 | ) | | | 0.5 | | Non-deductible interest | | | | 416 | | | | (2.3 | ) | | | 695 | | | | (10.8 | ) | Change in tax status | | | | (1,704 | ) | | | 9.3 | | | | 0 | | | | 0 | | Parent income treated as partnership for tax | | | | (146 | ) | | | 0.8 | | | | 0 | | | | 0 | | Other | | | 7 | | | | 0.1 | | | 234 | | | 2.2 | | | | 297 | | | | (1.6 | ) | | | 22 | | | | (0.3 | ) | | | | | | | | | | | | | | | Actual tax on continuing operations | | $ | (7,855 | ) | | | (46.8 | %) | | $ | 1,063 | | | 10.0 | % | | | | | | | | | | | | | | | | Effective income tax benefit | | | $ | (3,209 | ) | | | 17.5 | % | | $ | (317 | ) | | | 5.0 | % |
The effective income tax benefit rate for the quarter ended September 30, 20172020 was 46.8%17.5%, compared with an effective income tax benefit rate of 10.0%5.0% for the quarter ended September 30, 2016.2019. The increase in the income tax benefit rate is primarily due to losses incurred in the Company’s U.S. operations for the quarter ended September 30, 2017 2020 was primarily due to higher pre-tax loss for the Company’s U.S. subsidiaries for the quarter ended September 30, 2020as compared to a gainthe same period in 2016. Taxes2019 and the change in tax status which is the income tax benefit recognized on net insurance liabilities that were computed using a discrete period computation because a reliable estimate of an effectiveredomiciled from Bermuda at 0% tax rate could not be made. GLOBAL INDEMNITY LIMITED
to the United States at a 21% tax rate. | | | | | | | | | | Nine Months Ended September 30, | | | | | Nine Months Ended September 30, | | | 2020 | | | 2019 | | | (Dollars in thousands) | | 2017 | | 2016 | | | Amount | | | % of Pre- Tax Income | | | Amount | | | % of Pre- Tax Income | | | | | Amount | | | % of Pre-
Tax Income | | Amount | | % of Pre-
Tax Income | | | Expected tax provision at weighted average rate | | $ | (12,252 | ) | | | (4,823.6 | %) | | $ | (9,896 | ) | | (913.8 | %) | | Expected tax provision at weighted average tax rate | | | $ | (8,270 | ) | | | 27.2 | % | | $ | 3,380 | | | | 7.3 | % | Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | Tax exempt interest | | | (191 | ) | | | (75.2 | ) | | (304 | ) | | (28.1 | ) | | | (2 | ) | | | 0 | | | | (1 | ) | | | 0 | | Dividend exclusion | | | (410 | ) | | | (161.4 | ) | | (480 | ) | | (44.3 | ) | | | (198 | ) | | | 0.6 | | | | (256 | ) | | | (0.6 | ) | Non-deductible interest | | | | 1,773 | | | | (5.8 | ) | | | 2,063 | | | | 4.5 | | Change in tax status | | | | (1,704 | ) | | | 5.6 | | | | 0 | | | | 0 | | Parent income treated as partnership for tax | | | | (146 | ) | | | 0.5 | | | | 0 | | | | 0 | | Other | | | (340 | ) | | | (133.9 | ) | | 268 | | | 24.8 | | | | 374 | | | | (1.2 | ) | | | (23 | ) | | | 0 | | | | | | | | | | | | | | | | Actual tax on continuing operations | | $ | (13,193 | ) | | | (5,194.1 | %) | | $ | (10,412 | ) | | (961.4 | %) | | | | | | | | | | | | | | | | Effective income tax expense (benefit) | | | $ | (8,173 | ) | | | 26.9 | % | | $ | 5,163 | | | | 11.2 | % |
The effective income tax benefit rate for the nine months ended September 30, 20172020 was 5,194.1%26.9%, compared with an effective income tax benefitexpense rate of 961.4%11.2% for the nine months ended September 30, 2016.2019. The increase in the income tax benefit rate is primarily due to higher losses incurred in the Company’s U.S. operations for the nine months ended September 30, 2017 compared2020 was primarily due to a pre-tax loss for the Company’s U.S. subsidiaries for the nine months ended September 30, 2016. Taxes2020as 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 computed using a discrete period computation because a reliable estimate of an effectiveredomiciled from Bermuda at 0% tax rate could not be made.to the United States at a 21% tax rate. The Company has a net operating loss (“NOL”) carryforward of $24.9 million as of September 30, 2020, which begins to expire in 2036 based on when the original NOL was generated. The Company’s NOL carryforward as of December 31, 2019 was $21.9 million. The Company has a Section 163(j) (“163(j)”) carryforward of $6.8 million and $9.0 million as of September 30, 2020 and December 31, 2019, respectively, which can be carried forward indefinitely. The 163(j) carryforward relates to the limitation on the deduction for business interest expense paid or accrued. The Company had an alternative minimum tax (“AMT”) credit carryforward of $11.0 million as of December 31, 2019. Under the provisions of the CARES Act, the Company filed a request for a full refund in 2020. The Company received $5.5 27
GLOBAL INDEMNITY GROUP, LLC million and $11.0 million of the AMT credit carryforward during the quarter and nine months ended September 30, 20172020, respectively. 8.Liability for Unpaid Losses and December 31, 2016, which can be carried forward indefinitely. The Company has a net operating loss (“NOL”) carryforward of $21.8 million as of September 30, 2017, which begins to expire in 2035 based on when the original NOL was generated, and a NOL carryforward of $3.2 million as of December 31, 2016. The Company has a Section 163(j) (“163(j)”) carryforward of $6.0 million and $8.1 million as of September 30, 2017 and December 31, 2016, respectively, which can be carried forward indefinitely. The 163(j) carryforward is for disqualified interest paid or accrued to a related entity that is not subject to U.S. tax.Loss Adjustment Expenses 6. | 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, | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Balance at beginning of period | | $ | 615,763 | | | $ | 683,850 | | | $ | 651,042 | | | $ | 680,047 | | | $ | 651,073 | | | $ | 608,773 | | | $ | 630,181 | | | $ | 680,031 | | Less: Ceded reinsurance receivables | | | 104,245 | | | | 111,579 | | | | 130,439 | | | 108,130 | | | | 87,221 | | | | 59,834 | | | | 76,273 | | | | 109,342 | | | | | | | | | | | | | | | | Net balance at beginning of period | | | 511,518 | | | | 572,271 | | | | 520,603 | | | 571,917 | | | | 563,852 | | | | 548,939 | | | | 553,908 | | | | 570,689 | | Purchased reserves, gross | | | 9,063 | | | | 1,410 | | | | 18,024 | | | 1,410 | | | Purchased reserves ceded | | | 63 | | | | 641 | | | | 573 | | | 641 | | | | | | | | | | | | | | | | | Purchased reserves, net of third party reinsurance | | | 9,126 | | | | 2,051 | | | | 18,597 | | | 2,051 | | | | | | | | | | | | | | | | | Incurred losses and loss adjustment expenses related to: | | | | | | | | | | | | | | | | | | | | | | | | | Current year | | | 91,766 | | | | 81,579 | | | | 237,460 | | | 239,991 | | | | 108,859 | | | | 80,533 | | | | 273,709 | | | | 225,022 | | Prior years | | | (9,371 | ) | | | (9,417 | ) | | | (34,804 | ) | | (24,934 | ) | | | (11,711 | ) | | | (6,950 | ) | | | (31,617 | ) | | | (23,043 | ) | | | | | | | | | | | | | | | Total incurred losses and loss adjustment expenses | | | 82,395 | | | | 72,162 | | | | 202,656 | | | 215,057 | | | | 97,148 | | | | 73,583 | | | | 242,092 | | | | 201,979 | | | | | | | | | | | | | | | | Paid losses and loss adjustment expenses related to: | | | | | | | | | | | | | | | | | | | | | | | | | Current year | | | 45,193 | | | | 49,704 | | | | 115,927 | | | 113,090 | | | | 60,114 | | | | 47,290 | | | | 119,541 | | | | 102,806 | | Prior years | | | 25,190 | | | | 35,147 | | | | 93,273 | | | 114,302 | | | | 29,612 | | | | 20,789 | | | | 105,185 | | | | 115,419 | | | | | | | | | | | | | | | | Total paid losses and loss adjustment expenses | | | 70,383 | | | | 84,851 | | | | 209,200 | | | 227,392 | | | | 89,726 | | | | 68,079 | | | | 224,726 | | | | 218,225 | | | | | | | | | | | | | | | | Net balance at end of period | | | 532,656 | | | | 561,633 | | | | 532,656 | | | 561,633 | | | | 571,274 | | | | 554,443 | | | | 571,274 | | | | 554,443 | | Plus: Ceded reinsurance receivables | | | 117,070 | | | | 102,749 | | | | 117,070 | | | 102,749 | | | | 98,656 | | | | 78,844 | | | | 98,656 | | | | 78,844 | | | | | | | | | | | | | | | | Balance at end of period | | $ | 649,726 | | | $ | 664,382 | | | $ | 649,726 | | | $ | 664,382 | | | $ | 669,930 | | | $ | 633,287 | | | $ | 669,930 | | | $ | 633,287 | | | | | | | | | | | | | | | |
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. GLOBAL INDEMNITY LIMITED
InDuring the third quarter of 2017,2020, the Company reduced its prior accident year loss reserves by $9.4$11.7 million, which consisted of a $7.3$3.5 million decrease related to Commercial Lines,Specialty, a $2.0 million decrease related to Specialty Property, a $1.3 million decrease related to Personal Lines,Farm, Ranch, & Stable, and a $0.8$4.9 million decrease related to Reinsurance Operations.
The $7.3$3.5 million reduction of prior accident year loss reserves related to Commercial LinesSpecialty primarily consisted of the following: | • | General Liability: A $2.5 million reduction in aggregate with $1.9 million of favorable development in the construction defect reserve category and $0.5 million of favorable development in the other general liability reserve categories. The reduction in the construction defect reserve category recognizes lower than expected claims frequency and severity in the 2005 through 2009 and 2012 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the main driver of the favorable development primarily in the 1995, 2005, 2007 through 2012 and 2015 accident years, partially offset by increases in the 2016 through 2018 accident years. |
| • | Property: An increase of $0.1 million in the 2019 accident year was partially offset by decreases in the 2017 and 2018 accident years. |
| • | Professional: A $1.1 million decrease primarily in the 2006 through 2010 accident years reflects lower than expected claims severity. |
General Liability: A $6.9The $2.0 million reduction in aggregate with $1.0 milliondecrease of favorable development in the construction defect reserve category and $5.9 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category recognizes lower than anticipated claims frequency and severity which ledprior accident year loss reserves related to reductionsSpecialty Property primarily in the 2005 through 2009 accident years. For the other general liability reserve categories, lower than expected claims severity was the primary driverconsisted of the favorable development mainly in accident years 2008 through 2016.following: | • | General Liability: A $0.2 million reduction primarily recognizes lower than expected claims severity in the 2017 and 2019 accident years. |
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GLOBAL INDEMNITY GROUP, LLC Professional Liability: A $0.2 million decrease in aggregate primarily reflects lower than expected claims severity in the 2010 through 2012 accident years which was partially offset by unfavorable development in the 2013 | • | Property: A $1.8 million decrease primarily in the 2017 accident year recognizes a reduction in the catastrophe reserve categories for subrogation recoveries from the California wildfires in the 2017 accident year. |
The $1.3 million reduction of prior accident year loss reserves related to Personal Lines reflectsFarm, Ranch, & Stable primarily consisted of the following: | • | Property: A $1.3 million decrease mainly recognizes a reduction in the catastrophe reserve category in the 2017 accident year for subrogation recoveries from the California wildfires and lower than anticipated claims severity in the 2018 accident year, partially offset by an increase in the 2019 accident year for the catastrophe reserve category. |
The $4.9 million decrease in subrogation recoveries involving the 2015 wildfire. The $0.8 million reductionprior accident year loss reserves related to Reinsurance Operations was from the property lines. Ultimate losses were lowered primarily in the 2015 accident year and partially offset by an increase in the 2016 accident year based on a review of the experience reported from cedants. There was a $3.2 million decrease in the property lines primarily in the 2009 through 2012 and 2014 through 2018 accident years, partially offset by an increase in the 2019 accident year. In addition, there was a reduction of $1.7 million in the professional lines in the 2014 and 2015 accident years.
InDuring the third quarter of 2016,2019, the Company reduced its prior accident year loss reserves by $9.4$7.0 million, which consisted of a $6.5$5.2 million decrease related to Commercial Lines and a $2.9Specialty, $1.3 million decrease related to Specialty Property, $1.2 million decrease related to Farm, Ranch, & Stable, and a $0.7 million increase related to Reinsurance Operations.
The $6.5$5.2 million reduction of prior accident year loss reserves related to Commercial LinesSpecialty primarily consisted of the following: | • | General Liability: A $4.4 million reduction in aggregate with $0.5 million of favorable development in the construction defect reserve category and $3.9 million of favorable development in the other general liability reserve categories. The decreases in the construction defect reserve category recognize lower than expected claims severity primarily in the 2004 through 2009, 2011 and 2012 accident years, partially offset by increases in the 2010 and 2016 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the primary driver of the favorable development mainly in accident years 1999 through 2014 accident years, partially offset by increases in the 2016 and 2017 accident years. |
| • | Commercial Auto Liability: A $0.6 million decrease in total, primarily in the 2012, 2013 and 2016 accident years. The decreases recognize lower than anticipated claims severity. |
General Liability: A $9.0The $1.3 million reduction in aggregate with $3.2 million of favorable development in the construction defect reserve category and $6.0 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category reflects the lower than expected claims frequency and severity which ledprior accident year loss reserves related to a reduction in the 2005 through 2015 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the driverSpecialty Property primarily consisted of the favorable development mainly in accident years 2004 through 2012.following: | • | General Liability: A $0.4 million decrease in aggregate primarily recognizes lower than anticipated claims severity mostly in the 2015, 2016 and 2018 accident years, partially offset by increases in the 2010, 2014 and 2017 accident years, recognizing higher than expected claims severity. |
| • | Property: A $0.9 million reduction recognizes an additional $0.6 million decrease in the catastrophe reserve category for anticipated subrogation recoveries from the California Camp wildfire loss in the 2018 accident year and a $0.2 million decrease in the 2017 accident year, mainly recognizing lower than expected claims severity. |
The $1.2 million reduction of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following: Property: A $2.1 | • | Property: A $1.1 million decrease primarily reflects ceded recoveries from a second accident quarter catastrophe in the 2018 accident year. |
The $0.7 million increase was due to higher than expected case incurred emergence in the property brokerage segment excluding catastrophe experience in the 2011 through 2015prior accident years. The $2.9 million reductionyear loss reserves related to Reinsurance Operations was fromprimarily consisted of the property lines. Ultimate losses were loweredfollowing:
| • | Property: A $0.7 million increase primarily in the 2012 and 2015 through 2017 accident years, partially offset by decreases in the 2011, 2014 and 2018 accident years. The accident year changes were based on a review of the experience reported from cedants. |
29
GLOBAL INDEMNITY GROUP, LLC During the first nine months of 2020, the Company reduced its prior accident year loss reserves by $31.6 million, which consisted of a $17.8 million decrease related to Commercial Specialty, a $6.6 million decrease related to Specialty Property, a $2.1 million decrease related to Farm, Ranch, & Stable, and a $5.1 million decrease related to Reinsurance Operations. The $17.8 million decrease in prior accident year loss reserves related to Commercial Specialty primarily consisted of the 2014following: | • | General Liability: A $20.5 million reduction in aggregate with $6.6 million of favorable development in the construction defect reserve category and $13.9 million of favorable development in the other general liability reserve categories. The reduction in the construction defect reserve category primarily recognizes lower than expected claims frequency and severity in the 2005 through 2009, 2012, 2015 and 2017 accident years, slightly offset by an increase in the 2016 accident year. For the other general liability reserve categories, lower than anticipated claims severity was the main driver of the favorable development primarily in the 2005 through 2015 accident years, partially offset by increases in the 2016 through 2019 accident years. |
| • | Professional: A $1.9 million decrease mainly in the 2007 through 2010 and 2019 accident years recognizes lower than expected claims severity. |
| • | Commercial Auto Liability: A $1.0 million reduction primarily in the 2010 and 2012 through 2016 accident years recognizes lower than anticipated claims severity. |
| • | Workers Compensation: A $0.2 million decrease primarily in loss adjustment expense reserves in the 2012 and accident years prior to 2005. |
| • | Property: An increase of $5.8 million primarily recognizes higher than expected claims severity mainly in the 2017 through 2019 accident years. The bulk of the increase was in the 2018 accident year which reflects a higher estimated ultimate for Hurricane Michael. The increase in ultimate resulted from receiving additional information in the second quarter for a Property Brokerage claim. |
The $6.6 million decrease in prior accident year loss reserves related to Specialty Property primarily consisted of the following: | • | General Liability: A $2.0 million decrease primarily recognizes lower than expected claims severity mainly in the 2015 through 2019 accident years. |
| • | Property: A $4.6 million decrease reflects a $1.8 million reduction in the third quarter primarily in the 2017 accident year which recognizes a decrease in the catastrophe reserve categories for subrogation recoveries from the California wildfires. A year-to-date reduction through June totaled $2.8 million mainly reflected lower than anticipated claims severity in the 2015 through 2018 accident years, partially offset by an increase in the 2019 accident year due to higher than expected claims severity. |
The $2.1 million decrease in prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following: | • | Property: A $2.0 million decrease mainly reflects lower than anticipated claims severity in the 2016 through 2018 accident years and a reduction in the catastrophe reserve category in the 2017 accident year for subrogation recoveries from the California wildfires, partially offset by an increase in the 2019 accident year. |
| • | General Liability: A $0.1 million decrease primarily recognizes lower than expected claims severity mainly in the 2015 through 2016 and 2018 through 2019 accident years, mostly offset by an increase in the 2013 accident year due to higher than anticipated claims severity. |
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 $3.4 million decrease in the property lines primarily in the 2009 through 2010 and 2012 through 2017 accident years, partially offset by an increase in the 2019 accident year. In addition, there was a reduction of $1.7 million in the professional lines in the 2014 and 2015 accident years. 30
GLOBAL INDEMNITY GROUP, LLC During the first nine months of 2017,2019, the Company reduced its prior accident year loss reserves by $34.8$23.0 million, which consisted of a $26.2$12.1 million decrease related to Commercial Lines, a $4.5Specialty, $10.5 million decrease related to Personal Lines,Specialty Property, $4.0 million decrease related to Farm, Ranch, & Stable, and a $4.1$3.5 million decreaseincrease related to Reinsurance Operations. The $26.2$12.1 million reduction of prior accident year loss reserves related to Commercial LinesSpecialty primarily consisted of the following: General Liability: A $17.1 million reduction in aggregate with $6.0 | • | General Liability: A $9.6 million reduction in aggregate with $1.0 million of favorable development in the construction defect reserve category and $8.6 million of favorable development in the other general liability reserve categories. The decreases in the construction defect reserve category recognize lower than expected claims frequency and severity in the 2004 through 2009, 2011 and 2012 accident years, partially offset by increases in the construction defect reserve category and $11.1 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category recognizes lower than anticipated claims frequency and severity which led to reductions primarily in the 2005 through 2010 and 2012 through 2016 accident years. For the other general liability reserve categories, lower than expected claims severity was the primary driver of the favorable development mainly in the 2005 through 2014 accident years.GLOBAL INDEMNITY LIMITED
Professional Liability: A $3.7 million decrease in aggregate primarily reflects lower than expected claims severity in the 2006 through 2008 and 2011 through 2012 accident years.
Property: A $5.4 million reduction in aggregate with $3.2 million of favorable development in the property excluding catastrophe reserve categories and $2.2 million of favorable development in the property catastrophe reserve categories. The favorable development in the reserve categories excluding catastrophe experience reflects lower than expected claims frequency and severity in the 2011 through 2015 accident years. For the property catastrophe reserve categories, lower than anticipated claims severity was the driver of the favorable development in the 2011 through 2016 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the primary driver of the favorable development mainly in accident years 1999 through 2014, 2016 and 2017, partially offset by increases in the 2015 and 2018 accident years which reflects higher than expected claims severity.
|
| • | Commercial Auto Liability: A $1.4 million decrease in total, primarily in the 2000 through 2002, 2010, 2012 and 2013 accident years. The decreases recognize lower than anticipated claims severity. |
| • | Property: A $0.9 million decrease in aggregate mainly recognizes lower than anticipated claims severity primarily in the 2012 through 2017 accident years, partially offset by increases in the 2010 and 2018 accident years. |
| • | Professional: A $1.1 million decrease primarily in the 2009 and 2010 accident years reflects lower than expected claims severity. |
| • | Reinsurance: A $1.0 million increase was recognized based on a review of expected ceded recoverables by reinsurer. The increase was primarily in the general liability reserve categories and older accident years. |
The $4.5$10.5 million reduction of prior accident year loss reserves related to Personal LinesSpecialty Property primarily consisted of the following: Property: A $3.9 million reduction in the property reserve categories, both including and excluding catastrophes. The decrease reflects lower than expected case incurred emergence, primarily in the 2016 accident year and the aforementioned $1.3 million favorable development from the 2015 wildfire.
General Liability: A $0.6 million reduction in the agriculture reserve categories. The favorable development was primarily due to lower than expected case incurred emergence in the 2016 accident year partially offset by higher than expected development in the dwelling liability reserve category for the 2015 | • | Property: A $10.1 million reduction recognizes an $8.9 million decrease in the catastrophe reserve category for subrogation recoveries from the California Camp wildfire loss in the 2018 accident year. The remaining $1.2 million decrease was primarily in the 2016 and 2017 accident years, mainly recognizing lower than expected claims severity. |
| • | General Liability: A $0.4 million decrease in aggregate primarily recognizes lower than anticipated claims severity mostly in the 2015 and 2016 accident years, partially offset by increases in the 2010 and 2017 accident years, recognizing higher than expected claims severity. |
The $4.1$4.0 million reduction of prior accident year loss reservereserves related to Reinsurance Operations was from the property lines. Ultimate losses were lowered in the 2013 through 2015 accident years and partially offset by an increase in the 2016 accident year based on a reviewFarm, Ranch, & Stable primarily consisted of the experience reported from cedants.following: | • | Liability: A $1.7 million decrease in total, mainly recognizes lower than expected claims severity in the 2016 and 2017 accident years, partially offset by increases in the 2013 through 2015 accident years. |
| • | Property: A $2.2 million reduction in aggregate recognizes a $2.0 million decrease in the 2018 accident year which is comprised of a $1.1 million decrease reflecting ceded recoveries from a second accident quarter catastrophe and a $0.9 million decrease reflecting lower than expected claims frequency and severity. Decreases in the 2015 through 2017 accident years primarily reflects lower than expected claims severity, partially offset by an increase in the 2013 accident year. |
In the first nine months of 2016, the Company decreased itsThe $3.5 million increase in prior accident year loss reserves by $24.9 million, which consisted of an $18.8 million decrease related to Commercial Lines and a $6.1 million decrease related to Reinsurance Operations.
The $18.8 million decrease related to Commercial LinesOperations primarily consisted of the following:
| • | Property: A $3.8 million increase in aggregate reflects an increase of $7.6 million in the 2018 accident year for Typhoon Jebi and decreases totaling $4.1 million in the 2010 through 2017 accident years. |
31
GLOBAL INDEMNITY GROUP, LLC General Liability: A $21.1 million reduction in aggregate with $4.8 million of favorable development in the construction defect reserve category and $16.3 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category reflects the lower than expected claims frequency and severity which led to a reduction in the 2005 through 2015 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the driver of the favorable development mainly in accident years 2004 through 2012. | • | Professional: A $0.3 million decrease primarily in the 2008 and 2010 accident years, partially offset by an increase in the 2007 accident year based on a review of the experience reported from the cedants. |
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 | | $ | 0 | | | $ | 73,629 | | 7.75% Subordinated Notes due 2045 | | | 0 | | | | 96,864 | | 7.875% Subordinated Notes due 2047 | | | 126,253 | | | | 126,147 | | Total | | $ | 126,253 | | | $ | 296,640 | |
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 0.8% and 1.9% at September 30, 2020 and December 31, 2019, respectively. This facility is due on demand. The borrowings are subject to maintenance margin, which is a minimum account balance that must be maintained. A $0.8decline in market conditions could require an additional deposit of collateral. As of December 31, 2019, approximately $88.2 million increasein securities were deposited as collateral to support borrowings. The Company did 0t have any securities that were deposited as collateral at September 30, 2020. The amount borrowed against the margin account may fluctuate as routine investment transactions, such as dividends received, investment income received, maturities and pay-downs, impact cash balances. The margin facility contains customary events of default, including, without limitation, insolvency, failure to make required payments, failure to comply with any representations or warranties, failure to adequately assure future performance, and failure of a guarantor to perform under its guarantee. The amount outstanding on the Company’s margin borrowing facility was $73.6 million as of December 31, 2019. The Company did 0t have any amounts outstanding on the margin borrowing facility as of September 30, 2020. The Company recorded interest expense related to the Margin Borrowing Facility of approximately $0.1 million and $0.5 million for the quarters ended September 30, 2020 and 2019, respectively, and $0.5 million and $1.4 million for the nine months ended September 30, 2020 and 2019, respectively. 7.75% Subordinated Notes due 2045 The Company redeemed the entire $100 million in aggregate principal amount of the outstanding 7.75% Subordinated Notes due 2045 (“2045 Notes”) plus accrued and unpaid interest on the 2045 Notes redeemed to, but not including, the Redemption Date of August 15, 2020. In connection with the redemption, the Company wrote off deferred issuance costs of $3.1 million which is recognized as a $0.5 million increaseloss on extinguishment of debt in thenon-catastrophe segments and a $0.3 million increase in the catastrophe segments. The increases reflect higher than expected case incurred emergence primarily in the 2012 through 2015 accident years. The $6.1 million reduction related to Reinsurance Operations was from the property lines. Ultimate losses were loweredits consolidated statements of operations for the 2013 through 2015 accident years due to lower than expected emergence of catastrophe losses.quarter and nine months ended September 30, 2020.
Interest expense, including amortization of deferred issuance costs through the date of redemption, recognized on the 2045 Notes was $1.0 million and $2.0 million for the quarters ended September 30, 2020 and 2019, respectively, and $4.9 million and $5.9 million for the nine months ended September 30, 2020 and 2019, respectively. 7.875% Subordinated Notes due 2047 On March 23, 2017, the CompanyGlobal Indemnity Limited issued Subordinated Notes due in 2047 in the aggregate principal amount of $120.0 million through an underwritten public offering (the “2047 Notes”). Pursuant to the underwriting agreement, the CompanyGlobal Indemnity Limited granted the underwriters a 30 day option to purchase up to an additional $18 million aggregate principal amount of the 2047 Notes solely to cover over-allotments, if any. On March 30, 2017, the underwriters exercised their over-allotment option in the amount of $10 million principal amount of the 2047 Notes. As a result, the aggregate principal amount of the 2047 Notes increased to $130.0 million. The sale of the 2047 Notes pursuant to the over-allotment option closed on March 30, 2017. The 2047 Notes bear interest at an annual rate equal to 7.875%, payable quarterly in arrears on January 15, April 15, July 15, and October 15 of each year, commencing July 15, 2017. The 2047 Notes mature on April 15, 2047. The Company has the 32
GLOBAL INDEMNITY GROUP, LLC right to redeem the 2047 Notes in $25 increments, in whole or in part, on and after April 15, 2022, or on any interest payment GLOBAL INDEMNITY LIMITED
date thereafter, at a redemption price equal to 100% of the principal amount of the 2047 Notes being redeemed plus accrued and unpaid interest to, but not including, the date of redemption. If the Company redeems only a portion of the 2047 Notes on any date of redemption, the Company may subsequently redeem additional 2047 Notes. 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, including the Company’s 7.75% subordinated notes for $100.0 million due 2045 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 facilities.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 $4.2 million in deferred issuance costs associated with the 2047 Notes, which is being amortized over the term of the 2047 Notes. Interest expense, including amortization of deferred issuance costs, recognized on the 2047 Notes was $2.6 million for each of the quarters ended September 30, 2020 and $5.42019 and $7.8 million for each of the nine months ended September 30, 2020 and 2019. 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 | | 7.875% Subordinated Notes due 2047 | | $ | 130,000 | | | $ | (3,747 | ) | | $ | 126,253 | | | | $ | 130,000 | | | $ | (3,747 | ) | | $ | 126,253 | |
| | December 31, 2019 | | (Dollars in thousands) | | Outstanding Principal | | | Unamortized Debt Issuance Costs | | | Net Carrying Amount | | 7.75% Subordinated Notes due 2045 | | $ | 100,000 | | | $ | (3,136 | ) | | $ | 96,864 | | 7.875% Subordinated Notes due 2047 | | | 130,000 | | | | (3,853 | ) | | | 126,147 | | | | $ | 230,000 | | | $ | (6,989 | ) | | $ | 223,011 | |
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 7.875% Subordinated Notes due 2047 (the "Series Trustee" and, together with the Original Trustee, the "Trustees") entered into a Fourth Supplemental Indenture, dated as of August 28, 2020 (the "Fourth Supplemental Indenture"), to the base indenture, dated as of August 12, 2015 (as supplemented, the "Indenture"). 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 2045 Notes, which were fully redeemed in August 2020, and the 2047 Notes with the same obligations and duties as the Company under the Indenture (including the due and punctual performance and observance of all of the covenants and conditions to be performed by the Company, including, without limitation, the obligation to pay the principal of, and interest on, the 2047 Notes when due whether at maturity, by acceleration, redemption or otherwise), and with the same rights, benefits and privileges of the Company thereunder. Notwithstanding the foregoing, GBLI Holdings, LLC's obligations (including the obligation to pay the principal of and interest in respect of the 2047 Notes) are subject to subordination to all monetary obligations or liabilities of GBLI Holdings, LLC owing to any regulated reinsurance or insurance company that is a direct or indirect subsidiary of the Company, in addition to indebtedness of GBLI Holdings, LLC for borrowed money. If the Company pays any amount with respect to the subordinated note obligations, the Company is entitled to be reimbursed by GBLI Holdings, LLC within 10 business days after a demand is made to GBLI Holding, LLC by the Company. In consideration for becoming a subordinated co-obligor on the subordinated notes, GBLI Holdings, LLC received a promissory note from Global Indemnity Limited with a principal amount of $230 million due April 15, 2047 that has since been assigned to an affiliate. This promissory note was settled in August 2020. 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, $4.1 million, were offset against the Additional Paid-in Capital account of Global Indemnity Limited, according to the Company’s policy regarding the treatment of treasury shares. Please see Note 2 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 policy regarding the treatment of 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, 4,000 Series A Preferred Interests at a price of $1,000 per Series A Preferred Interest, for the aggregate purchase price of $4,000,000. The issuance of Series A Preferred Interests to Wyncote was made pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Series A Preferred Interests are not convertible into or exchangeable for any other securities or property of the Company. The shares are redeemable at the discretion of the Company after five years or at the discretion of the holders upon the occurrence of a change in control of the Company. While the preferred shares are non-voting, the preferred shareholders are entitled to appoint 2 additional members to the Company’s Board of Directors whenever the “Unpaid Targeted Priority Return” (as defined in the applicable Share Designation) with respect to the preferred shares exceed zero immediately following six or more “Distribution Dates” (as defined in the applicable Share Designation), whether or not such Distribution Dates occur consecutively. 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 | | | 396 | | (2) | $ | 24.95 | | | | 0 | | | | 0 | | Total | | | 396 | | | $ | 24.95 | | | | 0 | | | | | |
(1) | Based on settlement date. |
(2) Surrendered by employees as payment of taxes withheld on the vesting of restricted stock. There were 0 class A commons shares that were surrendered or repurchased during the quarter ended September 30, 2019. 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 | | | 3,124 | | (2) | $ | 29.63 | | | | 0 | | | | 0 | | February 1-29, 2020 | | | 1,600 | | (2) | $ | 31.13 | | | | 0 | | | | 0 | | August 1-31, 2020 | | | 396 | | | $ | 24.95 | | | | 0 | | | | 0 | | Total | | | 5,120 | | | $ | 29.74 | | | | 0 | | | | | |
(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 | | | 7,945 | | (2) | $ | 36.23 | | | 0 | | 0 | February 1-28, 2019 | | | 19,083 | | (2) | $ | 34.59 | | | 0 | | 0 | Total | | | 27,028 | | | $ | 35.07 | | | 0 | | |
(1) | Based on settlement date. |
(2) | Surrendered by employees as payment of taxes withheld on the vesting of restricted stock. |
There were 0 class B common shares that were surrendered or repurchased during the quarters and nine months ended September 30, 2017, respectively.2020 or 2019. 35
GLOBAL INDEMNITY GROUP, LLC As of September 30, 2020, the Company’s class A common shares were held by approximately 190 shareholders of record. There were 4 holders of record of the Company’s class B common shares, all of whom are affiliated investment funds of Fox Paine & Company, LLC, as of September 30, 2020. The Company’s preferred shares were held by 1 holder of record, an affiliate of Fox Paine & Company, LLC, as of September 30, 2020. Please see Note 12 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 20162019 Annual Report onForm 10-K for more information on the Company’s Margin Borrowing Facilities and the 7.75% Subordinated Notes due 2045.repurchase program. No A ordinary sharesDividends / Distributions
Dividend & distribution payments of $0.25 per common share were repurchaseddeclared during the quarters ended September 30, 2017 or 2016. During the nine months ended September 30, 2017 and 2016, the Company repurchased 29,551 shares and 28,099 shares, respectively, with an average price paid2020 as follows: Approval Date | | Record Date | | Payment Date | | Total Dividends / Distributions Declared (Dollars in thousands) | | February 9, 2020 (1) | | March 24, 2020 | | March 31, 2020 | | $ | 3,539 | | June 7, 2020 (1) | | June 23, 2020 | | June 30, 2020 | | | 3,545 | | September 13, 2020 (2) | | September 25, 2020 | | September 30, 2020 | | | 3,552 | | Various (3) | | Various | | Various | | | 337 | | Total | | | | | | $ | 10,973 | |
| (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 $39.24$0.25 per common share and $ 28.64 per share, respectively. The Company repurchased these shares from employees as payment for the tax liability incurred upon the vesting of the employee’s restricted stock in accordance with the Company’s Share Incentive Plan. There were no B ordinary shares that were repurchaseddeclared during the quartersnine months ended September 30, 2017 or 2016.2019 as follows:
Approval Date | | Record Date | | Payment Date | | Total Dividends Declared (Dollars in thousands) | | February 10, 2019 | | March 22, 2019 | | March 29, 2019 | | $ | 3,521 | | June 2, 2019 | | June 21, 2019 | | June 28, 2019 | | | 3,525 | | September 15, 2019 | | September 26, 2019 | | October 2, 2019 | | | 3,528 | | Various (1) | | Various | | Various | | | 191 | | Total | | | | | | $ | 10,765 | |
| (1) | Represents dividends declared on unvested shares, net of forfeitures. |
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 $0.6 million and $0.3 million, respectively. Accrued preferred distributions were less than $0.1 million as of September 30, 2020 and were included in other liabilities on the consolidated balance sheets. Please see Note 1312 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 20162019 Annual Report onForm 10-K for more information on the Company’s repurchasedividend program. 36
GLOBAL INDEMNITY GROUP, LLC 9.11. | Related Party Transactions |
Fox Paine & Company (“Fox Paine”)Entities As of September 30, 2017,2020, 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 owned shares havingown approximately 84%77.5% of the Company’s total outstanding voting power. As of September 30, 2020, Fox Mercury Investments, L.P. and certain of its affiliates (collectively, the “FM Entities”) separately beneficially own approximately 4.8% of the Company’s total voting power. The Fox Paine hasFunds have the right to appoint a number of the Company’s Directors equal in aggregate to the pro rata percentage of the voting shares ofpower in the Company beneficially held by the Fox Paine forFunds, FM Entities and Fox Paine & Company, LLC (collectively, “Fox Paine Entities”) so long as the Fox Paine holdsEntities beneficially own a majority of the outstanding class B common shares of the Company and shares representing an aggregate of 25% or more of the total voting power in the Company. The Fox Paine controlsFunds control the election of all of the Company’s Directors due to itstheir controlling share ownership. The Company’s Chairman is a memberthe chief executive and founder of Fox Paine.Paine & Company, LLC. On August 27, 2020, the Company issued and sold to Wyncote LLC, an affiliate of Fox Paine & Company, LLC, 4,000 Series A Cumulative Fixed Rate Preferred Interests at a price of $1,000 per Series A Preferred Interest, for the aggregate purchase price of $4,000,000. While the preferred shares are non-voting, the preferred shareholders are entitled to appoint two additional members to the Company’s Board of Directors whenever the “Unpaid Targeted Priority Return” with respect to the preferred shares exceed zero immediately following six or more “Distribution Dates”, whether or not such Distribution Dates occur consecutively. See Note 10 for additional information on the Series A Cumulative Fixed Rate Preferred Interests. 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 $550,000 per year (since execution of the Management Agreement in 2013), and (ii) increase Fox Paine & Company, LLC’s base Annual Service Fee by $550,000 per year. On August 28, 2020, in connection with the Redomestication, the Company and Fox Paine & Company, LLC entered into the Third Amended and Restated Management Agreement effective as of August 28, 2020 (the “Management Agreement”). The Management Agreement amends and restates the Second Amended and Restated Management Agreement, dated as of May 6, 2020, between Fox Paine & Company, LLC and Global Indemnity Limited, to reflect the assumption by Global Indemnity Group, LLC of the obligations under the Management Agreement and to make related conforming changes and immaterial modifications to the Management Agreement. Management fee expense of $0.6 million and $0.5 million was incurred during the quarters ended September 30, 2020 and 2019, respectively, and management fee expense of $2.0 million and $1.5 million was incurred during the nine months ended September 30, 2020 and 2019, respectively. Prepaid management fees, which were included in other assets on the consolidated balance sheets, were $2.5 million and $1.4 million as of September 30, 2020 and December 31, 2019, respectively. 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. The Company incurred management fees of $0.6 million and $0.5 million during the quarters ended September 30, GLOBAL INDEMNITY LIMITED
2017 and 2016, respectively, and $1.6 million and $1.5 million during the nine months ended September 30, 2017 and 2016, respectively, as partEach of the annual management fee paid toCompany’s transactions with Fox Paine. AsPaine & Company, LLC described below was reviewed and approved by the Company’s Conflicts Committee or Audit Committee, which is composed of September 30, 2017independent directors, and December 31, 2016, unpaid management fees, which were included in other liabilities on the consolidated balance sheets, were $6.3 million and $4.6 million, respectively.
On September 17, 2017,Board of Directors (other than Saul A. Fox, Chairman of the Board of Directors of the Company and Chief Executive of Fox Paine entered into a confidentiality agreement whereby Fox Paine agrees to keep confidential proprietary information, as defined in the confidentiality agreement, it receives regarding the Company from time to time, including proprietary information it may receive from director or director nominees appointed by Fox Paine.
Crystal & Company
The Company incurred $0.1 million and $0.2 million in brokerage fees to Crystal & Company, an insurance broker, during the quarter and nine months ended September 30, 2016, respectively. James W. Crystal, the chairman and chief executive officer of Crystal & Company, wasLLC, who is not a member of the Company’sConflicts Committee and was not a member of Global Indemnity Limited’s Audit Committee and recused himself from the Board of Directors until he resigned on July 24, 2016.Directors’ deliberations).
10. | Commitments and Contingencies |
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 $2.0 million which was accrued in the 4th quarter of 2018, which is the period in which the transaction was completed, and was paid in May 2019. 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 $10.0 million, which was accrued at September 30, 2020, and will be paid in a subsequent period. The $10.0 million fee was approved by the Conflicts Committee. 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 $50 million commitment to purchase an alternative investment vehicle which is comprised of Europeannon-performing loans. As of September 30, 2017,2020, the Company has funded $35.8 million of this commitment leaving $14.2 million as unfunded. In 2016, the Company entered into a $40 million commitment with an investment manager that provides financing for middle market companies. As of September 30, 2017, the Company has funded $28.2 million of this commitment leaving $11.8 million as unfunded.
In 2017, the Company entered into a $50 million commitment to purchase an alternative investment vehicle comprised of stressed and distressed debt instruments.securities and structured products. As of September 30, 2017,2020, the Company has funded $16.5$33.0 million of this commitment leaving $33.5$17.0 million as unfunded. In 2019, the Company entered into a $10 million commitment to purchase an alternative investment vehicle which is comprised of mortgage loans and other real-estate related investments. As of September 30, 2020, the Company has fully funded this commitment. 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. 11.13. | Share-Based Compensation Plans |
Effective January 1, 2017,
In connection with the Company adopted new accounting guidance which changed several aspectsRedomestication, the 2018 Share Incentive Plan was amended and restated to reflect Global Indemnity Group, LLC’s assumption of the accounting for share-based payment transactions. Under the new guidance, all excess tax benefits and tax deficiencies associated with share-based payment awards are required to be recognized as an income tax benefit or expense in net income with the corresponding cash flows recognized as an operating activity in the Consolidated Statement of Cash Flow as opposed to being reported separately as a financing activity. Excess tax benefits and deficiencies are no longer recognized in additionalpaid-in-capital. The new guidance removes the requirement to delay recognition of any excess tax benefit when there is no current taxes payable to which the benefit would be applied. The new guidance also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur, rather than estimating forfeitures upon issuancesponsorship of the award. GLOBAL INDEMNITY LIMITED
Upon adoptionplan and other changes deemed necessary and appropriate to reflect the completion of this new accounting guidance, the Company elected to retain its policy of accruing the compensation cost based on the number of awards that are expected to vest. The adoption of this accounting guidance did not result in any cumulative adjustment or restatement. The provisions of this new guidance were adopted on a prospective basis and did not have a material impact on the Company’s financial position, results of operations or cash flows.Redomestication.
Options NoNaN stock options were awarded during the quarters and nine months ended September 30, 2017 or 2016. No2020 and 2019. NaN unvested stock options were forfeited during the quarters ended September 30, 2017 and 2016.
The Company did not award any stock options during the nine months ended September 30, 20172020 or 2016. No unvested stock options were forfeited during the nine months ended September 30, 2017. 200,000 unvested stock options were forfeited during the nine months ended September 30, 2016.2019.
Restricted Shares / Restricted Stock Units NoThere were 0 restricted class A common shares were issuedgranted to key employees during the quarters ended September 30, 20172020 and 2016.2019 or the nine months ended September 30, 2020.
During the nine months ended September 30, 2017,2019, the Company granted 22,50336,180 restricted class A ordinarycommon shares, with a weighted average grant date value of $38.21$35.82 per share, to key employees under the Plan. These9,063 of these shares vested immediately. 27,117 of these shares will vest as follows: 16.5%, 16.5%, and 17.0% of the granted stock vest | • | 16.5% vested on January 1, 2018, January 1, 2019, and January 1, 2020, 16.5% and 17.0% of the restricted stock will vest on January 1, 2021 and January 1, 2022, respectively. |
| • | Subject to Board approval, 50% of restricted stock will vest 100%, no later than March 15, 2022, following a re-measurement of 2018 results as of December 31, 2021. |
There were 0 restricted stock units granted to Board approval, 50% of granted stock vests 100%, no later than March 15,key employees during the quarter ended September 30, 2020 following are-measurement of 2016 results as of December 31,and 2019. During the nine months ended September 30, 2016,2020, the Company granted 121,346 A ordinary shares,161,238 restricted stock units, with a weighted average grant date value of $28.97$30.32 per share, to key employees under the Plan. Of3,375 of these restricted stock units will vest evenly over the shares granted duringnext three years on January 1, 2021, January 1, 2022 and January 1, 2023. 66,957 of these restricted stock units will vest as follows: | • | 10.0%, 20.0%, 30.0% and 40.0% of the restricted stock units will vest on June 18, 2021, June 18, 2022, June 18, 2023 and June 18, 2024, respectively. |
The remaining 90,906 restricted stock units will vest as follows: | • | 16.5%, 16.5%, and 17.0% of the restricted stock units will vest on January 1, 2021, January 1, 2022, and January 1, 2023, respectively. |
| • | Subject to Board approval, 50% of restricted stock units will vest 100%, no later than March 15, 2023, following a re-measurement of 2019 results as of December 31, 2022. |
39
GLOBAL INDEMNITY GROUP, LLC During the nine months ended September 30, 2016, 11,199 were2019, the Company granted to the Company’s Chief Executive Officer and vest 33 1/3 on each subsequent anniversary175,498 restricted stock units, with a weighted average grant date value of the grant for a period of three years subject to atrue-up of bonus year underwriting results as of the third anniversary of the grant. 5,309 were granted to another key employee and were due to vest 100% on February 7, 2019. These shares were forfeited during the nine months ended September 30, 2017 as the key employee is no longer employed by the company. 8,253 were issued to other key employees and vest 33% on the first and second anniversary of the grant and vest 34% on the third anniversary of the grant contingent on meeting certain performance objectives and subject to Board approval. The remaining 96,585 shares were granted$30.18 per unit, to key employees andunder the Plan. These restricted stock units will vest as follows: 16.5% vested on January 1, 2017. 16.5% and 17.0% of the granted stock will vest on January 1, 2018 and January 1, 2019, respectively.
Subject to Board approval 50% of granted stock vests 100%, no later than March 15, 2019, following are-measurement of 2015 results as of December 31, 2018. | • | 10.0%, 20.0%, 30.0% and 40.0% of the restricted stock units will vest on June 18, 2021, June 18, 2022, June 18, 2023 and June 18, 2024, respectively. |
During the quarters ended September 30, 20172020 and 2016,2019, the Company granted 6,24529,893 and 8,80219,275 class A ordinarycommon shares, respectively, at a weighted average grant date value of $42.40$22.58 and $29.70$24.97 per share, respectively, tonon-employee directors of the Company under the Plan. During the nine months ended September 30, 20172020 and 2016,2019, the Company granted 19,71381,502 and 28,41650,661 class A ordinarycommon shares, respectively, at a weighted average grant date value of $39.82$24.85 and $29.40$28.50 per share, respectively, tonon-employee directors of the Company under the Plan. All of thethese shares granted tonon-employee directors of the Company in 20172020 and 20162019 were fully vested but are subject to certain restrictions. During the quarter and nine months ended September 30, 2020, the Company also granted 41,667 restricted stock units to a non-employee director that vest ratably over three years on January 1, 2022, January 1, 2023, and January 1, 2024. GLOBAL INDEMNITY LIMITED14.Earnings Per Share
Earnings per share have been computed using the weighted average number of ordinarycommon shares and ordinarycommon 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) | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Net income (loss) | | $ | (8,924 | ) | | $ | 9,535 | | | $ | 13,447 | | | $ | 11,495 | | | | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | | | | Weighted average shares outstanding – basic | | | 17,343,292 | | | | 17,254,843 | | | | 17,331,840 | | | | 17,241,040 | | | | | | | | | | | | | | | | | | | Net income (loss) per share | | $ | (0.51 | ) | | $ | 0.55 | | | $ | 0.78 | | | $ | 0.67 | | | | | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | | | | | Weighted average shares outstanding – diluted (1) | | | 17,343,292 | | | | 17,540,060 | | | | 17,684,519 | | | | 17,515,854 | | | | | | | | | | | | | | | | | | | Net income (loss) per share | | $ | (0.51 | ) | | $ | 0.54 | | | $ | 0.76 | | | $ | 0 .66 | | | | | | | | | | | | | | | | | | |
| | 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) | | $ | (15,170 | ) | | $ | 6,721 | | | $ | (22,197 | ) | | $ | 40,984 | | Less: preferred stock distributions | | | 42 | | | | — | | | | 42 | | | | — | | Net income (loss) available to common shareholders | | $ | (15,212 | ) | | $ | 6,721 | | | $ | (22,239 | ) | | $ | 40,984 | | | | | | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | | | | | Weighted average shares for basic earnings per share | | | 14,304,426 | | | | 14,202,859 | | | | 14,276,594 | | | | 14,181,530 | | Non-vested restricted stock | | | — | | | | 23,059 | | | | — | | | | 19,201 | | Non-vested restricted stock units | | | — | | | | 0 | | | | — | | | | 2,954 | | Options | | | — | | | | 101,839 | | | | — | | | | 125,176 | | Weighted average shares for diluted earnings per share (1) | | | 14,304,426 | | | | 14,327,757 | | | | 14,276,594 | | | | 14,328,861 | | | | | | | | | | | | | | | | | | | Earnings per share - Basic | | $ | (1.06 | ) | | $ | 0.47 | | | $ | (1.56 | ) | | $ | 2.89 | | Earnings per share - Diluted | | $ | (1.06 | ) | | $ | 0.47 | | | $ | (1.56 | ) | | $ | 2.86 | |
(1) | For the quarter and nine months ended September 30, 2017, “weighted2020, weighted average shares outstanding – basic”basic was used to calculate “diluteddiluted earnings per share”share due to a net loss for the period.these periods. |
A reconciliation of weighted average shares for basic earnings per share to weighted average shares for diluted earnings per share is as follows:
| | | | | | | | | | | | | | | | | | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Weighted average shares for basic earnings per share | | | 17,343,292 | | | | 17,254,843 | | | | 17,331,840 | | | | 17,241,040 | | Non-vested restricted stock | | | — | | | | 176,087 | | | | 149,490 | | | | 165,011 | | Options | | | — | | | | 109,130 | | | | 203,189 | | | | 109,803 | | | | | | | | | | | | | | | | | | | Weighted average shares for diluted earnings per share | | | 17,343,292 | | | | 17,540,060 | | | | 17,684,519 | | | | 17,515,854 | | | | | | | | | | | | | | | | | | |
If the Company had not incurred a loss in the quarter ended September 30, 2017, 17,721,9542020, 14,444,326 weighted average shares would have been used to compute the diluted loss per share calculation. In addition to the basic shares, weighted average shares for the diluted calculation which would have included 164,69318,218 shares ofnon-vested restricted stock, 48,846 shares of non-vested restricted stock units, and 213,96972,836 share equivalents for options. If the Company had not incurred a loss in the nine months ended September 30, 2020, 14,421,393 weighted average shares would have been used to compute the diluted loss per share calculation. In addition to the basic shares, weighted average shares for the diluted calculation would have included 15,366 shares of non-vested restricted stock, 36,796 shares of non-vested restricted stock units, and 92,637 share equivalents for options. The weighted average shares outstanding used to determine dilutive earnings per share does not include 572,957 shares for the quarter and nine months ended September 30, 2016 do not include 300,0002020 and 500,000 shares for the quarter and nine months ended September 30, 2019 which were deemed to be anti-dilutive. There were no anti-dilutive shares for the quarter or nine months ended September 30, 2017. 40
GLOBAL INDEMNITY GROUP, LLC 13.15. | Segment Information |
The Company manages its business through three4 business segments. Commercial LinesSpecialty offers specialty property and casualty products designed for product lines such as Small Business Binding Authority, Property Brokerage, and Programs. Personal LinesSpecialty Property offers specialty personal lines property and agricultural coverage.casualty insurance products. Farm, Ranch, & Stable offers 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. Reinsurance Operations provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies. During the 1st quarter of 2017, the Companyre-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions of business will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportable segments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included as part of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs written by American Reliable Insurance Company, which was previously included within the Personal Lines segment, is now aggregated within the Commercial Lines segment. Accordingly, the segment results for the quarter and nine months ended September 30, 2016 have been revised to reflect these changes.
GLOBAL INDEMNITY LIMITED
The following are tabulations of business segment information for the quarters and nine months ended September 30, 20172020 and 2016.2019: | Quarter Ended September 30, 2017: (Dollars in thousands) | | Commercial
Lines (1) | | Personal
Lines (1) | | Reinsurance
Operations (2) | | Total | | | Quarter Ended September 30, 2020 (Dollars in thousands) | | | Commercial Specialty | | (1) | Specialty Property | | (1) | Farm, Ranch, & Stable | | (1) | Reinsurance Operations | | (2) | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 53,113 | | | $ | 60,962 | (6) | | $ | 11,979 | | | $ | 126,054 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 46,471 | | | $ | 50,607 | | | $ | 11,967 | | | $ | 109,045 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 44,778 | | | $ | 52,268 | | | $ | 11,573 | | | $ | 108,619 | | | Gross written premiums | | | $ | 74,971 | | | $ | 34,730 | | | $ | 19,443 | | | $ | 14,605 | | | $ | 143,749 | | Net written premiums | | | $ | 69,074 | | | $ | 29,971 | | | $ | 16,961 | | | $ | 14,605 | | | $ | 130,611 | | Net earned premiums | | | $ | 73,887 | | | $ | 31,388 | | | $ | 19,978 | | | $ | 15,049 | | | $ | 140,302 | | Other income | | | — | | | 2,254 | | | 40 | | | 2,294 | | | | 0 | | | | 450 | | | | 35 | | | | 112 | | | | 597 | | | | | | | | | | | | | | | | Total revenues | | | 44,778 | | | 54,522 | | | 11,613 | | | 110,913 | | | | 73,887 | | | | 31,838 | | | | 20,013 | | | | 15,161 | | | | 140,899 | | | | | | | | | | | | | | | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 19,095 | | | 42,534 | | | 20,766 | | | 82,395 | | | | 42,879 | | | | 34,430 | | | | 14,649 | | | | 5,190 | | | | 97,148 | | Acquisition costs and other underwriting expenses | | | 18,237 | (3) | | 22,689 | (4) | | 4,076 | | | 45,002 | | | | 26,943 | | | | 13,364 | | | | 7,443 | | | | 5,518 | | | | 53,268 | | | | | | | | | | | | | | | | Income (loss) from segments | | $ | 7,446 | | | $ | (10,701 | ) | | $ | (13,229 | ) | | $ | (16,484 | ) | | $ | 4,065 | | | $ | (15,956 | ) | | $ | (2,079 | ) | | $ | 4,453 | | | $ | (9,517 | ) | | | | | | | | | | | | | | Unallocated Items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | 10,134 | | | | | | | | | | | | | | | | | | | | 11,746 | | Net realized investment loss | | | | | | | | (963 | ) | | Net realized investment gains | | | | | | | | | | | | | | | | | | | | 7,323 | | Other loss | | | | | | | | | | | | | | | | | | | | (55 | ) | Corporate and other operating expenses | | | | | | | | (4,630 | ) | | | | | | | | | | | | | | | | | | | (21,196 | ) | Interest expense | | | | | | | | (4,836 | ) | | | | | | | | | | | | | | | | | | | (3,620 | ) | | | | | | | | | | | | Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | (3,060 | ) | Loss before income taxes | | | | | | | | (16,779 | ) | | | | | | | | | | | | | | | | | | | (18,379 | ) | Income tax benefit | | | | | | | | 7,855 | | | | | | | | | | | | | | | | | | | | 3,209 | | | | | | | | | | | | | Net loss | | | | | | | | (8,924 | ) | | | | | | | | | | | | | | | | | | | (15,170 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Segment assets | | | $ | 752,002 | | | $ | 207,831 | | | $ | 137,697 | | | $ | 269,771 | | | $ | 1,367,301 | | Corporate assets | | | | | | | | | | | | | | | | | | | | 572,456 | | Total assets | | $ | 911,412 | | | $ | 481,357 | | | $ | 737,921 | (5) | | $ | 2,130,690 | | | | | | | | | | | | | | | | | | | $ | 1,939,757 | | | | | | | | | | | | | | | |
(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. |
(3) | Includes federal excise tax of $127 relating to cessions from Commercial Lines to Reinsurance Operations. |
(4) | Includes federal excise tax of $262 relating to cessions from Personal Lines to Reinsurance Operations. |
(5) | Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries. |
(6) | Includes ($1,427) of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement. |
41
GLOBAL INDEMNITY LIMITEDGROUP, 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 | | $ | 73,175 | | | $ | 42,611 | | | $ | 21,410 | | | $ | 19,981 | | | $ | 157,177 | | Net written premiums | | $ | 62,925 | | | $ | 37,628 | | | $ | 18,294 | | | $ | 19,989 | | | $ | 138,836 | | Net earned premiums | | $ | 60,869 | | | $ | 34,554 | | | $ | 18,377 | | | $ | 19,512 | | | $ | 133,312 | | Other income (loss) | | | 0 | | | | 465 | | | | 34 | | | | (235 | ) | | | 264 | | Total revenues | | | 60,869 | | | | 35,019 | | | | 18,411 | | | | 19,277 | | | | 133,576 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 27,389 | | | | 25,997 | | | | 10,939 | | | | 9,258 | | | | 73,583 | | Acquisition costs and other underwriting expenses | | | 24,820 | | | | 14,571 | | | | 7,776 | | | | 6,199 | | | | 53,366 | | Income (loss) from segments | | $ | 8,660 | | | $ | (5,549 | ) | | $ | (304 | ) | | $ | 3,820 | | | $ | 6,627 | | Unallocated Items: | | | | | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | | | | | 11,348 | | Net realized investment loss | | | | | | | | | | | | | | | | | | | (2,690 | ) | Corporate and other operating expenses | | | | | | | | | | | | | | | | | | | (3,858 | ) | Interest expense | | | | | | | | | | | | | | | | | | | (5,023 | ) | Income before income taxes | | | | | | | | | | | | | | | | | | | 6,404 | | Income tax benefit | | | | | | | | | | | | | | | | | | | 317 | | Net income | | | | | | | | | | | | | | | | | | | 6,721 | | | | | | | | | | | | | | | | | | | | | | | Segment assets | | $ | 705,260 | | | $ | 246,080 | | | $ | 136,420 | | | $ | 346,137 | | | $ | 1,433,897 | | Corporate assets | | | | | | | | | | | | | | | | | | | 650,259 | | Total assets | | | | | | | | | | | | | | | | | | $ | 2,084,156 | |
| | | | | | | | | | | | | | | | | Quarter Ended September 30, 2016: (Dollars in thousands) | | Commercial
Lines (1) | | | Personal
Lines (1) | | | Reinsurance
Operations (2) | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 49,505 | | | $ | 74,266 | (6) | | $ | 9,798 | | | $ | 133,569 | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 45,074 | | | $ | 60,179 | | | $ | 9,798 | | | $ | 115,051 | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 47,774 | | | $ | 61,221 | | | $ | 10,558 | | | $ | 119,553 | | Other income (loss) | | | 6,872 | | | | 991 | | | | (11 | ) | | | 7,852 | | | | | | | | | | | | | | | | | | | Total revenues | | | 54,646 | | | | 62,212 | | | | 10,547 | | | | 127,405 | | | | | | | | | | | | | | | | | | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 23,848 | | | | 42,927 | | | | 5,387 | | | | 72,162 | | Acquisition costs and other underwriting expenses | | | 20,048 | (3) | | | 24,411 | (4) | | | 3,670 | | | | 48,129 | | | | | | | | | | | | | | | | | | | Income (loss) from segments | | $ | 10,750 | | | $ | (5,126 | ) | | $ | 1,490 | | | $ | 7,114 | | | | | | | | | | | | | | | | | | | Unallocated Items: | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | 8,795 | | Net realized investment gains | | | | | | | | | | | | | | | 1,928 | | Corporate and other operating expenses | | | | | | | | | | | | | | | (5,006 | ) | Interest expense | | | | | | | | | | | | | | | (2,233 | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | 10,598 | | Income tax expense | | | | | | | | | | | | | | | (1,063 | ) | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 9,535 | | | | | | | | | | | | | | | | | | | Total assets | | $ | 770,255 | | | $ | 499,202 | | | $ | 712,358 | (5) | | $ | 1,981,815 | | | | | | | | | | | | | | | | | | |
(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 | | $ | 243,099 | | | $ | 107,951 | | | $ | 64,798 | | | $ | 48,174 | | | $ | 464,022 | | Net written premiums | | $ | 219,437 | | | $ | 93,053 | | | $ | 56,323 | | | $ | 48,174 | | | $ | 416,987 | | Net earned premiums | | $ | 211,329 | | | $ | 99,147 | | | $ | 57,691 | | | $ | 58,450 | | | $ | 426,617 | | Other income | | | 0 | | | | 1,306 | | | | 107 | | | | 96 | | | | 1,509 | | Total revenues | | | 211,329 | | | | 100,453 | | | | 57,798 | | | | 58,546 | | | | 428,126 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 109,191 | | | | 65,619 | | | | 37,698 | | | | 29,584 | | | | 242,092 | | Acquisition costs and other underwriting expenses | | | 79,452 | | | | 41,357 | | | | 22,687 | | | | 19,762 | | | | 163,258 | | Income (loss) from segments | | $ | 22,686 | | | $ | (6,523 | ) | | $ | (2,587 | ) | | $ | 9,200 | | | $ | 22,776 | | Unallocated Items: | | | | | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | | | | | 19,516 | | Net realized investment loss | | | | | | | | | | | | | | | | | | | (22,332 | ) | Other loss | | | | | | | | | | | | | | | | | | | (36 | ) | Corporate and other operating expenses | | | | | | | | | | | | | | | | | | | (34,037 | ) | Interest expense | | | | | | | | | | | | | | | | | | | (13,197 | ) | Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | (3,060 | ) | Loss before income taxes | | | | | | | | | | | | | | | | | | | (30,370 | ) | Income tax benefit | | | | | | | | | | | | | | | | | | | 8,173 | | Net loss | | | | | | | | | | | | | | | | | | | (22,197 | ) | | | | | | | | | | | | | | | | | | | | | | Segment assets | | $ | 752,002 | | | $ | 207,831 | | | $ | 137,697 | | | $ | 269,771 | | | $ | 1,367,301 | | Corporate assets | | | | | | | | | | | | | | | | | | | 572,456 | | Total assets | | | | | | | | | | | | | | | | | | $ | 1,939,757 | |
(3)(1) | Includes federal excise tax of $130 relating to cessions from Commercial Lines to Reinsurance Operations. |
(4) | Includes federal excise tax of $306 relating to cessions from Personal Lines to Reinsurance Operations. |
(5) | Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries. |
(6) | Includes $7,328 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement. |
| | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2017: (Dollars in thousands) | | Commercial
Lines (1) | | | Personal
Lines (1) | | | Reinsurance
Operations (2) | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 155,776 | | | $ | 192,551 | (6) | | $ | 45,372 | | | $ | 393,699 | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 137,025 | | | $ | 161,979 | | | $ | 45,344 | | | $ | 344,348 | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 133,289 | | | $ | 164,102 | | | $ | 31,427 | | | $ | 328,818 | | Other income | | | 78 | | | | 5,153 | | | | 213 | | | | 5,444 | | | | | | | | | | | | | | | | | | | Total revenues | | | 133,367 | | | | 169,255 | | | | 31,640 | | | | 334,262 | | | | | | | | | | | | | | | | | | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 53,688 | | | | 120,410 | | | | 28,558 | | | | 202,656 | | Acquisition costs and other underwriting expenses | | | 55,398 | (3) | | | 69,281 | (4) | | | 10,331 | | | | 135,010 | | | | | | | | | | | | | | | | | | | Income (loss) from segments | | $ | 24,281 | | | $ | (20,436 | ) | | $ | (7,249 | ) | | $ | (3,404 | ) | | | | | | | | | | | | | | | | | | Unallocated Items: | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | 27,618 | | Net realized investment loss | | | | | | | | | | | | | | | (850 | ) | Corporate and other operating expenses | | | | | | | | | | | | | | | (11,045 | ) | Interest expense | | | | | | | | | | | | | | | (12,065 | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | 254 | | Income tax benefit | | | | | | | | | | | | | | | 13,193 | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 13,447 | | | | | | | | | | | | | | | | | | | Total assets | | $ | 911,412 | | | $ | 481,357 | | | $ | 737,921 | (5) | | $ | 2,130,690 | | | | | | | | | | | | | | | | | | |
(1) | Includes business ceded to the Company’s Reinsurance Operations. This quota share agreement was cancelled effective January 1, 2018. |
GLOBAL INDEMNITY LIMITED
(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 | | $ | 214,467 | | | $ | 128,771 | | | $ | 65,872 | | | $ | 69,589 | | | $ | 478,699 | | Net written premiums | | $ | 185,202 | | | $ | 110,668 | | | $ | 55,861 | | | $ | 69,590 | | | $ | 421,321 | | Net earned premiums | | $ | 173,215 | | | $ | 104,740 | | | $ | 52,849 | | | $ | 52,798 | | | $ | 383,602 | | Other income (loss) | | | 0 | | | | 1,406 | | | | 96 | | | | (228 | ) | | | 1,274 | | Total revenues | | | 173,215 | | | | 106,146 | | | | 52,945 | | | | 52,570 | | | | 384,876 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 81,731 | | | | 57,611 | | | | 32,203 | | | | 30,434 | | | | 201,979 | | Acquisition costs and other underwriting expenses | | | 70,522 | | | | 44,163 | | | | 22,403 | | | | 16,555 | | | | 153,643 | | Income (loss) from segments | | $ | 20,962 | | | $ | 4,372 | | | $ | (1,661 | ) | | $ | 5,581 | | | $ | 29,254 | | Unallocated Items: | | | | | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | | | | | 32,393 | | Net realized investment gain | | | | | | | | | | | | | | | | | | | 11,290 | | Corporate and other operating expenses | | | | | | | | | | | | | | | | | | | (11,702 | ) | Interest expense | | | | | | | | | | | | | | | | | | | (15,088 | ) | Income before income taxes | | | | | | | | | | | | | | | | | | | 46,147 | | Income tax expense | | | | | | | | | | | | | | | | | | | (5,163 | ) | Net income | | | | | | | | | | | | | | | | | | | 40,984 | | | | | | | | | | | | | | | | | | | | | | | Segment assets | | $ | 705,260 | | | $ | 246,080 | | | $ | 136,420 | | | $ | 346,137 | | | $ | 1,433,897 | | Corporate assets | | | | | | | | | | | | | | | | | | | 650,259 | | Total assets | | | | | | | | | | | | | | | | | | $ | 2,084,156 | |
(3)(1) | Includes federal excise tax of $366 relating to cessions from Commercial Lines to Reinsurance Operations. |
(4) | Includes federal excise tax of $821 relating to cessions from Personal Lines to Reinsurance Operations. |
(5) | Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries. |
(6) | Includes ($185) of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement. |
| | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2016: (Dollars in thousands) | | Commercial
Lines (1) | | | Personal
Lines (1) | | | Reinsurance
Operations (2) | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 155,686 | | | $ | 238,627 | (6) | | $ | 34,941 | | | $ | 429,254 | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 140,199 | | | $ | 182,107 | | | $ | 34,927 | | | $ | 357,233 | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 142,749 | | | $ | 184,581 | | | $ | 31,663 | | | $ | 358,993 | | Other income | | | 6,872 | | | | 2,714 | | | | 17 | | | | 9,603 | | | | | | | | | | | | | | | | | | | Total revenues | | | 149,621 | | | | 187,295 | | | | 31,680 | | | | 368,596 | | | | | | | | | | | | | | | | | | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 78,813 | | | | 122,540 | | | | 13,704 | | | | 215,057 | | Acquisition costs and other underwriting expenses | | | 60,784 | (3) | | | 76,349 | (4) | | | 11,628 | | | | 148,761 | | | | | | | | | | | | | | | | | | | Income (loss) from segments | | $ | 10,024 | | | $ | (11,594 | ) | | $ | 6,348 | | | $ | 4,778 | | | | | | | | | | | | | | | | | | | Unallocated Items: | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | 25,103 | | Net realized investment losses | | | | | | | | | | | | | | | (9,057 | ) | Corporate and other operating expenses | | | | | | | | | | | | | | | (13,064 | ) | Interest expense | | | | | | | | | | | | | | | (6,677 | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | 1,083 | | Income tax benefit | | | | | | | | | | | | | | | 10,412 | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 11,495 | | | | | | | | | | | | | | | | | | | Total assets | | $ | 770,255 | | | $ | 499,202 | | | $ | 712,358 | (5) | | $ | 1,981,815 | | | | | | | | | | | | | | | | | | |
(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 100% owned subsidiary of the Company. See Note 9 for information on the Company’s debt obligations. 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 | | $ | 212,050 | | | $ | 48,940 | | | $ | 1,156,475 | | | $ | 0 | | | $ | 1,417,465 | | Cash and cash equivalents | | | 13,765 | | | | 2,575 | | | | 20,871 | | | | 0 | | | | 37,211 | | Investments in subsidiaries | | | 491,851 | | | | 387,913 | | | | 339,384 | | | | (1,219,148 | ) | | | 0 | | Due from subsidiaries and affiliates | | | (3,999 | ) | | | (7,522 | ) | | | 11,521 | | | | 0 | | | | 0 | | Notes receivable – affiliate | | | 11,283 | | | | 0 | | | | 0 | | | | (11,283 | ) | | | 0 | | Interest receivable – affiliate | | | 16 | | | | 0 | | | | 0 | | | | (16 | ) | | | 0 | | Premiums receivable, net | | | 0 | | | | 0 | | | | 109,820 | | | | 0 | | | | 109,820 | | Reinsurance receivables, net | | | 0 | | | | 0 | | | | 112,633 | | | | 0 | | | | 112,633 | | Funds held by ceding insurers | | | 0 | | | | 0 | | | | 46,894 | | | | 0 | | | | 46,894 | | Federal income taxes receivable | | | 0 | | | | 2,892 | | | | (2,892 | ) | | | 0 | | | | 0 | | Deferred federal income taxes | | | 0 | | | | 38,805 | | | | (3,505 | ) | | | 0 | | | | 35,300 | | Deferred acquisition costs | | | 0 | | | | 0 | | | | 67,470 | | | | 0 | | | | 67,470 | | Intangible assets | | | 0 | | | | 0 | | | | 21,094 | | | | 0 | | | | 21,094 | | Goodwill | | | 0 | | | | 0 | | | | 6,521 | | | | 0 | | | | 6,521 | | Prepaid reinsurance premiums | | | 0 | | | | 0 | | | | 15,558 | | | | 0 | | | | 15,558 | | Other assets | | | 13,240 | | | | 19,444 | | | | 40,854 | | | | (3,747 | ) | | | 69,791 | | Total assets | | $ | 738,206 | | | $ | 493,047 | | | $ | 1,942,698 | | | $ | (1,234,194 | ) | | $ | 1,939,757 | | | | | | | | | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | Unpaid losses and loss adjustment expenses | | $ | 0 | | | $ | 0 | | | $ | 669,930 | | | $ | 0 | | | $ | 669,930 | | Unearned premiums | | | 0 | | | | 0 | | | | 304,074 | | | | 0 | | | | 304,074 | | Ceded balances payable | | | 0 | | | | 0 | | | | 9,576 | | | | 0 | | | | 9,576 | | Payable for Securities | | | 2,207 | | | | 0 | | | | 3,423 | | | | 0 | | | | 5,630 | | Contingent commissions | | | 0 | | | | 0 | | | | 11,329 | | | | 0 | | | | 11,329 | | Debt | | | 0 | | | | 130,000 | | | | 0 | | | | (3,747 | ) | | | 126,253 | | Notes payable – affiliates | | | 0 | | | | 0 | | | | 11,283 | | | | (11,283 | ) | | | 0 | | Accrued interest payable – affiliates | | | 0 | | | | 0 | | | | 16 | | | | (16 | ) | | | 0 | | Other liabilities | | | 15,286 | | | | 23,663 | | | | 53,303 | | | | 0 | | | | 92,252 | | Total liabilities | | | 17,493 | | | | 153,663 | | | | 1,062,934 | | | | (15,046 | ) | | | 1,219,044 | | | | | | | | | | | | | | | | | | | | | | | Shareholders’ equity | | | | | | | | | | | | | | | | | | | | | Total shareholders’ equity | | | 720,713 | | | | 339,384 | | | | 879,764 | | | | (1,219,148 | ) | | | 720,713 | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | $ | 738,206 | | | $ | 493,047 | | | $ | 1,942,698 | | | $ | (1,234,194 | ) | | $ | 1,939,757 | |
(3)(1) | Includes federal excise tax of $386 relating to cessions from Commercial Lines to Reinsurance Operations. |
(4) | Includes federal excise tax of $923 relating to cessions from Personal Lines to Reinsurance Operations. |
(5) | Comprisedall other subsidiaries of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries.Group, LLC and eliminations |
(6)(2) | Includes $30,910 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement.Parent co-obligor and subsidiary co-obligor consolidating adjustments |
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 | | $ | 44,468 | | | $ | 257,317 | | | $ | 1,261,757 | | | $ | 0 | | | $ | 1,563,542 | | Cash and cash equivalents | | | 977 | | | | 2,663 | | | | 40,631 | | | | 0 | | | | 44,271 | | Investments in subsidiaries | | | 1,218,491 | | | | 355,777 | | | | 434,278 | | | | (2,008,546 | ) | | | 0 | | Due from subsidiaries and affiliates | | | (3,612 | ) | | | (3,965 | ) | | | 7,577 | | | | 0 | | | | 0 | | Notes receivable – affiliate | | | 0 | | | | 80,049 | | | | 445,498 | | | | (525,547 | ) | | | 0 | | Interest receivable – affiliate | | | 0 | | | | 5,014 | | | | 17,258 | | | | (22,272 | ) | | | 0 | | Premiums receivable, net | | | 0 | | | | 0 | | | | 118,035 | | | | 0 | | | | 118,035 | | Reinsurance receivables, net | | | 0 | | | | 0 | | | | 83,938 | | | | 0 | | | | 83,938 | | Funds held by ceding insurers | | | 0 | | | | 0 | | | | 48,580 | | | | 0 | | | | 48,580 | | Federal income taxes receivable | | | 0 | | | | 14,197 | | | | (3,208 | ) | | | 0 | | | | 10,989 | | Deferred federal income taxes | | | 0 | | | | 31,833 | | | | (756 | ) | | | 0 | | | | 31,077 | | Deferred acquisition costs | | | 0 | | | | 0 | | | | 70,677 | | | | 0 | | | | 70,677 | | Intangible assets | | | 0 | | | | 0 | | | | 21,491 | | | | 0 | | | | 21,491 | | Goodwill | | | 0 | | | | 0 | | | | 6,521 | | | | 0 | | | | 6,521 | | Prepaid reinsurance premiums | | | 0 | | | | 0 | | | | 16,716 | | | | 0 | | | | 16,716 | | Other assets | | | 9,394 | | | | 12,622 | | | | 45,021 | | | | (6,989 | ) | | | 60,048 | | Total assets | | $ | 1,269,718 | | | $ | 755,507 | | | $ | 2,614,014 | | | $ | (2,563,354 | ) | | $ | 2,075,885 | | | | | | | | | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | Unpaid losses and loss adjustment expenses | | $ | 0 | | | $ | 0 | | | $ | 630,181 | | | $ | 0 | | | $ | 630,181 | | Unearned premiums | | | 0 | | | | 0 | | | | 314,861 | | | | 0 | | | | 314,861 | | Ceded balances payable | | | 0 | | | | 0 | | | | 20,404 | | | | 0 | | | | 20,404 | | Payable for securities purchased | | | 0 | | | | 0 | | | | 850 | | | | 0 | | | | 850 | | Contingent commissions | | | 0 | | | | 0 | | | | 11,928 | | | | 0 | | | | 11,928 | | Debt | | | 0 | | | | 303,629 | | | | 0 | | | | (6,989 | ) | | | 296,640 | | Notes payable – affiliates | | | 520,498 | | | | 0 | | | | 5,049 | | | | (525,547 | ) | | | 0 | | Accrued interest payable – affiliates | | | 20,343 | | | | 0 | | | | 1,929 | | | | (22,272 | ) | | | 0 | | Other liabilities | | | 2,068 | | | | 17,600 | | | | 54,544 | | | | 0 | | | | 74,212 | | Total liabilities | | | 542,909 | | | | 321,229 | | | | 1,039,746 | | | | (554,808 | ) | | | 1,349,076 | | | | | | | | | | | | | | | | | | | | | | | Shareholders’ equity | | | | | | | | | | | | | | | | | | | | | Total shareholders’ equity | | | 726,809 | | | | 434,278 | | | | 1,574,268 | | | | (2,008,546 | ) | | | 726,809 | | | | | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | $ | 1,269,718 | | | $ | 755,507 | | | $ | 2,614,014 | | | $ | (2,563,354 | ) | | $ | 2,075,885 | |
14.(1) | Includes all other subsidiaries of Global Indemnity Limited and eliminations |
(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 | | $ | 0 | | | $ | 0 | | | $ | 140,302 | | | $ | 0 | | | $ | 140,302 | | Net investment income | | | 1,300 | | | | 4,642 | | | | 5,976 | | | | (172 | ) | | | 11,746 | | Net realized investment gains | | | 451 | | | | 4,107 | | | | 2,765 | | | | 0 | | | | 7,323 | | Other income (loss) | | | (1 | ) | | | 0 | | | | 543 | | | | 0 | | | | 542 | | Total revenues | | | 1,750 | | | | 8,749 | | | | 149,586 | | | | (172 | ) | | | 159,913 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 0 | | | | 0 | | | | 97,148 | | | | 0 | | | | 97,148 | | Acquisition costs and other underwriting expenses | | | 0 | | | | 0 | | | | 53,268 | | | | 0 | | | | 53,268 | | Corporate and other operating expenses | | | 17,324 | | | | 3,662 | | | | 210 | | | | 0 | | | | 21,196 | | Interest expense | | | 179 | | | | 3,569 | | | | 44 | | | | (172 | ) | | | 3,620 | | Loss on extinguishment of debt | | | 3,060 | | | | 0 | | | | 0 | | | | 0 | | | | 3,060 | | Income (loss) before equity in net income (loss) of subsidiaries and income taxes | | | (18,813 | ) | | | 1,518 | | | | (1,084 | ) | | | 0 | | | | (18,379 | ) | Equity in net income (loss) of subsidiaries | | | 3,643 | | | | (10,312 | ) | | | (5,784 | ) | | | 12,453 | | | | 0 | | Loss before income taxes | | | (15,170 | ) | | | (8,794 | ) | | | (6,868 | ) | | | 12,453 | | | | (18,379 | ) | Income tax benefit | | | 0 | | | | (3,010 | ) | | | (199 | ) | | | 0 | | | | (3,209 | ) | Net loss | | $ | (15,170 | ) | | $ | (5,784 | ) | | $ | (6,669 | ) | | $ | 12,453 | | | $ | (15,170 | ) |
(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 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 | | $ | 0 | | | $ | 0 | | | $ | 133,312 | | | $ | 0 | | | $ | 133,312 | | Net investment income | | | 393 | | | | 2,798 | | | | 8,442 | | | | (285 | ) | | | 11,348 | | Net realized investment gains (losses) | | | (101 | ) | | | (3,525 | ) | | | 936 | | | | 0 | | | | (2,690 | ) | Other income | | | 0 | | | | 0 | | | | 264 | | | | 0 | | | | 264 | | Total revenues | | | 292 | | | | (727 | ) | | | 142,954 | | | | (285 | ) | | | 142,234 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 0 | | | | 0 | | | | 73,583 | | | | 0 | | | | 73,583 | | Acquisition costs and other underwriting expenses | | | 0 | | | | 0 | | | | 53,366 | | | | 0 | | | | 53,366 | | Corporate and other operating expenses | | | 1,320 | | | | 2,159 | | | | 379 | | | | 0 | | | | 3,858 | | Interest expense | | | 278 | | | | 4,957 | | | | 73 | | | | (285 | ) | | | 5,023 | | Income (loss) before equity in net income (loss) of subsidiaries and income taxes | | | (1,306 | ) | | | (7,843 | ) | | | 15,553 | | | | — | | | | 6,404 | | Equity in net income (loss) of subsidiaries | | | 8,027 | | | | 1,699 | | | | (4,462 | ) | | | (5,264 | ) | | | 0 | | Income (loss) before income taxes | | | 6,721 | | | | (6,144 | ) | | | 11,091 | | | | (5,264 | ) | | | 6,404 | | Income tax expense (benefit) | | | 0 | | | | (1,682 | ) | | | 1,365 | | | | 0 | | | | (317 | ) | Net income (loss) | | $ | 6,721 | | | $ | (4,462 | ) | | $ | 9,726 | | | $ | (5,264 | ) | | $ | 6,721 | |
(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 | | $ | 0 | | | $ | 0 | | | $ | 426,617 | | | $ | 0 | | | $ | 426,617 | | Net investment income (loss) | | | 1,898 | | | | (3,870 | ) | | | 22,203 | | | | (715 | ) | | | 19,516 | | Net realized investment gains (losses) | | | (2,295 | ) | | | (36,600 | ) | | | 16,563 | | | | 0 | | | | (22,332 | ) | Other income (loss) | | | (1 | ) | | | 19 | | | | 1,455 | | | | 0 | | | | 1,473 | | Total revenues | | | (398 | ) | | | (40,451 | ) | | | 466,838 | | | | (715 | ) | | | 425,274 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 0 | | | | 0 | | | | 242,092 | | | | 0 | | | | 242,092 | | Acquisition costs and other underwriting expenses | | | 0 | | | | 0 | | | | 163,258 | | | | 0 | | | | 163,258 | | Corporate and other operating expenses | | | 23,466 | | | | 10,143 | | | | 428 | | | | 0 | | | | 34,037 | | Interest expense | | | 732 | �� | | | 13,005 | | | | 175 | | | | (715 | ) | | | 13,197 | | Loss on extinguishment of debt | | | 3,060 | | | | 0 | | | | 0 | | | | 0 | | | | 3,060 | | Income (loss) before equity in net income (loss) of subsidiaries and income taxes | | | (27,656 | ) | | | (63,599 | ) | | | 60,885 | | | | 0 | | | | (30,370 | ) | Equity in net income (loss) of subsidiaries | | | 5,459 | | | | 22,509 | | | | (25,649 | ) | | | (2,319 | ) | | | 0 | | Income (loss) before income taxes | | | (22,197 | ) | | | (41,090 | ) | | | 35,236 | | | | (2,319 | ) | | | (30,370 | ) | Income tax expense (benefit) | | | 0 | | | | (15,441 | ) | | | 7,268 | | | | 0 | | | | (8,173 | ) | Net income (loss) | | $ | (22,197 | ) | | $ | (25,649 | ) | | $ | 27,968 | | | $ | (2,319 | ) | | $ | (22,197 | ) |
(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 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 | | $ | 0 | | | $ | 0 | | | $ | 383,602 | | | $ | 0 | | | $ | 383,602 | | Net investment income | | | 1,764 | | | | 5,743 | | | | 25,747 | | | | (861 | ) | | | 32,393 | | Net realized investment gains | | | 298 | | | | 7,969 | | | | 3,023 | | | | 0 | | | | 11,290 | | Other income | | | 0 | | | | 30 | | | | 1,244 | | | | 0 | | | | 1,274 | | Total revenues | | | 2,062 | | | | 13,742 | | | | 413,616 | | | | (861 | ) | | | 428,559 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 0 | | | | 0 | | | | 201,979 | | | | 0 | | | | 201,979 | | Acquisition costs and other underwriting expenses | | | 0 | | | | 0 | | | | 153,643 | | | | 0 | | | | 153,643 | | Corporate and other operating expenses | | | 4,306 | | | | 6,406 | | | | 990 | | | | 0 | | | | 11,702 | | Interest expense | | | 829 | | | | 14,875 | | | | 245 | | | | (861 | ) | | | 15,088 | | Income (loss) before equity in net income of subsidiaries and income taxes | | | (3,073 | ) | | | (7,539 | ) | | | 56,759 | | | | 0 | | | | 46,147 | | Equity in net income of subsidiaries | | | 44,057 | | | | 16,597 | | | | 10,903 | | | | (71,557 | ) | | | 0 | | Income before income taxes | | | 40,984 | | | | 9,058 | | | | 67,662 | | | | (71,557 | ) | | | 46,147 | | Income tax expense (benefit) | | | 0 | | | | (1,845 | ) | | | 7,008 | | | | 0 | | | | 5,163 | | Net income | | $ | 40,984 | | | $ | 10,903 | | | $ | 60,654 | | | $ | (71,557 | ) | | $ | 40,984 | |
(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 | | $ | (15,170 | ) | | $ | (5,784 | ) | | $ | (6,669 | ) | | $ | 12,453 | | | $ | (15,170 | ) | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | Unrealized holding gains (losses) | | | (1,310 | ) | | | (1,049 | ) | | | 1,911 | | | | 0 | | | | (448 | ) | Equity in other comprehensive income of unconsolidated subsidiaries | | | (561 | ) | | | 1,596 | | | | 603 | | | | (1,638 | ) | | | 0 | | Reclassification adjustment for gains included in net income | | | (102 | ) | | | 56 | | | | (2,058 | ) | | | 0 | | | | (2,104 | ) | Unrealized foreign currency translation gains | | | 0 | | | | 0 | | | | 579 | | | | 0 | | | | 579 | | Other comprehensive income, net of tax | | | (1,973 | ) | | | 603 | | | | 1,035 | | | | (1,638 | ) | | | (1,973 | ) | | | | | | | | | | | | | | | | | | | | | | Comprehensive loss, net of tax | | $ | (17,143 | ) | | $ | (5,181 | ) | | $ | (5,634 | ) | | $ | 10,815 | | | $ | (17,143 | ) |
(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) | | $ | 6,721 | | | $ | (4,462 | ) | | $ | 9,726 | | | $ | (5,264 | ) | | $ | 6,721 | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | Unrealized holding gains (losses) | | | 0 | | | | 0 | | | | 9,421 | | | | 0 | | | | 9,421 | | Equity in other comprehensive income of unconsolidated subsidiaries | | | 8,772 | | | | 4,711 | | | | 4,703 | | | | (18,186 | ) | | | 0 | | Portion of other-than-temporary impairment losses recognized in other comprehensive income | | | 0 | | | | 0 | | | | (2 | ) | | | 0 | | | | (2 | ) | Reclassification adjustment for gains included in net income | | | 0 | | | | (8 | ) | | | (839 | ) | | | 0 | | | | (847 | ) | Unrealized foreign currency translation losses | | | 0 | | | | 0 | | | | 200 | | | | 0 | | | | 200 | | Other comprehensive income, net of tax | | | 8,772 | | | | 4,703 | | | | 13,483 | | | | (18,186 | ) | | | 8,772 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income, net of tax | | $ | 15,493 | | | $ | 241 | | | $ | 23,209 | | | $ | (23,450 | ) | | $ | 15,493 | |
(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) | | $ | (22,197 | ) | | $ | (25,649 | ) | | $ | 27,968 | | | $ | (2,319 | ) | | $ | (22,197 | ) | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | Unrealized holding gains | | | 322 | | | | (257 | ) | | | 30,683 | | | | 0 | | | | 30,748 | | Equity in other comprehensive income (loss) of unconsolidated subsidiaries | | | 17,891 | | | | 8,643 | | | | 8,405 | | | | (34,939 | ) | | | 0 | | Reclassification adjustment for (gains) losses included in net income | | | (102 | ) | | | 19 | | | | (13,122 | ) | | | 0 | | | | (13,205 | ) | Unrealized foreign currency translation gains | | | 0 | | | | 0 | | | | 568 | | | | 0 | | | | 568 | | Other comprehensive income, net of tax | | | 18,111 | | | | 8,405 | | | | 26,534 | | | | (34,939 | ) | | | 18,111 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income (loss), net of tax | | $ | (4,086 | ) | | $ | (17,244 | ) | | $ | 54,502 | | | $ | (37,258 | ) | | $ | (4,086 | ) |
(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 | | $ | 40,984 | | | $ | 10,903 | | | $ | 60,654 | | | $ | (71,557 | ) | | $ | 40,984 | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income, net of tax: | | | | | | | | | | | | | | | | | | | | | Unrealized holding gains | | | 880 | | | | 1,567 | | | | 46,436 | | | | 0 | | | | 48,883 | | Equity in other comprehensive income (loss) of unconsolidated subsidiaries | | | 46,226 | | | | 24,201 | | | | 26,003 | | | | (96,430 | ) | | | 0 | | Portion of other-than-temporary impairment losses recognized in other comprehensive losses | | | 0 | | | | 0 | | | | (4 | ) | | | 0 | | | | (4 | ) | Reclassification adjustment for (gains) losses included in net income | | | (561 | ) | | | 235 | | | | (2,339 | ) | | | 0 | | | | (2,665 | ) | Unrealized foreign currency translation gains | | | 0 | | | | 0 | | | | 331 | | | | 0 | | | | 331 | | Other comprehensive income, net of tax | | | 46,545 | | | | 26,003 | | | | 70,427 | | | | (96,430 | ) | | | 46,545 | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income, net of tax | | $ | 87,529 | | | $ | 36,906 | | | $ | 131,081 | | | $ | (167,987 | ) | | $ | 87,529 | |
(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 | | $ | (10,423 | ) | | $ | 1,526 | | | $ | 42,833 | | | $ | 33,936 | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | Proceeds from sale of fixed maturities | | | 18,451 | | | | 36,898 | | | | 545,613 | | | | 600,962 | | Proceeds from sale of equity securities | | | 103,002 | | | | 460,924 | | | | 0 | | | | 563,926 | | Proceeds from maturity of fixed maturities | | | 280 | | | | 0 | | | | 89,595 | | | | 89,875 | | Proceeds from other invested assets | | | 1,700 | | | | 123 | | | | 0 | | | | 1,823 | | Amounts paid in connection with derivatives | | | 0 | | | | (20,130 | ) | | | 0 | | | | (20,130 | ) | Purchases of fixed maturities | | | (185,692 | ) | | | (50,283 | ) | | | (466,752 | ) | | | (702,727 | ) | Purchases of equity securities | | | (107,228 | ) | | | (286,735 | ) | | | 0 | | | | (393,963 | ) | Purchases of other invested assets | | | 0 | | | | (297 | ) | | | 0 | | | | (297 | ) | Net cash provided by (used for) investing activities | | | (169,487 | ) | | | 140,500 | | | | 168,456 | | | | 139,469 | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | Net borrowings under margin borrowing facility | | | 0 | | | | (73,629 | ) | | | 0 | | | | (73,629 | ) | Proceeds (repayment) of note to affiliates | | | 0 | | | | 5,049 | | | | (5,049 | ) | | | 0 | | Dividends paid to shareholders | | | (10,683 | ) | | | 0 | | | | 0 | | | | (10,683 | ) | Issuance of series A cumulative fixed rate preferred shares | | | 4,000 | | | | — | | | | 0 | | | | 4,000 | | Dividends from subsidiaries | | | 226,000 | | | | — | | | | (226,000 | ) | | | 0 | | Capital contribution | | | (26,466 | ) | | | 26,466 | | | | 0 | | | | 0 | | Purchase of class A common shares | | | (153 | ) | | | 0 | | | | 0 | | | | (153 | ) | Redemption of subordinated notes | | | 0 | | | | (100,000 | ) | | | 0 | | | | (100,000 | ) | Net cash provided by (used for) financing activities | | | 192,698 | | | | (142,114 | ) | | | (231,049 | ) | | | (180,465 | ) | | | | | | | | | | | | | | | | | | Net change in cash and cash equivalents | | | 12,788 | | | | (88 | ) | | | (19,760 | ) | | | (7,060 | ) | Cash and cash equivalents at beginning of period | | | 977 | | | | 2,663 | | | | 40,631 | | | | 44,271 | | Cash and cash equivalents at end of period | | $ | 13,765 | | | $ | 2,575 | | | $ | 20,871 | | | $ | 37,211 | |
| (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 | | $ | 1,718 | | | $ | 2,593 | | | $ | 41,619 | | | $ | 45,930 | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | Proceeds from sale of fixed maturities | | | 48,393 | | | | 101,525 | | | | 492,131 | | | | 642,049 | | Proceeds from sale of equity securities | | | 7,300 | | | | 198,912 | | | | 0 | | | | 206,212 | | Proceeds from maturity of fixed maturities | | | 0 | | | | 0 | | | | 113,480 | | | | 113,480 | | Proceeds from other invested assets | | | 3,161 | | | | 11,040 | | | | 0 | | | | 14,201 | | Amounts paid in connection with derivatives | | | 0 | | | | (12,516 | ) | | | 0 | | | | (12,516 | ) | Purchases of fixed maturities | | | (10,548 | ) | | | (24,280 | ) | | | (666,856 | ) | | | (701,684 | ) | Purchases of equity securities | | | (40,564 | ) | | | (285,408 | ) | | | 0 | | | | (325,972 | ) | Purchases of other invested assets | | | 0 | | | | (3,500 | ) | | | 0 | | | | (3,500 | ) | Net cash provided by (used for) investing activities | | | 7,742 | | | | (14,227 | ) | | | (61,245 | ) | | | (67,730 | ) | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | Net borrowings under margin borrowing facility | | | 0 | | | | 8,561 | | | | 0 | | | | 8,561 | | Dividends paid to shareholders | | | (7,130 | ) | | | 0 | | | | 0 | | | | (7,130 | ) | Purchase of class A common shares | | | (947 | ) | | | 0 | | | | 0 | | | | (947 | ) | Net cash provided by (used for) financing activities | | | (8,077 | ) | | | 8,561 | | | | 0 | | | | 484 | | | | | | | | | | | | | | | | | | | Net change in cash and cash equivalents | | | 1,383 | | | | (3,073 | ) | | | (19,626 | ) | | | (21,316 | ) | Cash and cash equivalents at beginning of period | | | 2,221 | | | | 26,039 | | | | 71,237 | | | | 99,497 | | Cash and cash equivalents at end of period | | $ | 3,604 | | | $ | 22,966 | | | $ | 51,611 | | | $ | 78,181 | |
(1) | Includes all other subsidiaries of Global Indemnity Limited and eliminations |
17. | New Accounting Pronouncements |
In May, 2017, the Financial Accounting Standards Board (“FASB”)Adopted in 2020
In March, 2020, the FASB issued updatednew accounting guidance which clarifies whether changesthat affected a variety of topics in the Codification. The amendments in this update are meant to make the terms or conditions of a share-based payment award require an entityCodification easier to understand and easier to apply modification accounting.by eliminating inconsistencies and providing clarification. This guidance is effective for all entities for annual periods, andfiscal years beginning after December 15, 2019 including interim periods within those annual periods, beginning after December 15, 2017. Earlyfiscal years. The Company adopted this guidance on January 1, 2020. The adoption is permitted. Although the Company is still evaluating the impact of this new accounting guidance the Company doesdid not anticipate it will have a material impact on itsthe Company’s financial condition, results of operations, or cash flows. In March, 2017,August, 2018, the FASB issued new accounting guidance which amends the amortization period forremoved, modified, and added certain purchased callable debt securities held at a premium. Under current generally accepted accounting principles,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 generally amortize the premium as an adjustment of yield over the contractual life of the instruments. Under the new guidance, the amortizations period would be shortened to the earliest call date.that calculate net asset value. This guidance is effective for public business entities for fiscal years, and interim periods within thoseall fiscal years beginning after December 15, 2018. Early adoption is permitted.2019 including interim periods within those fiscal years. The Company is still evaluating the impact ofadopted this guidance on itsJanuary 1, 2020. The adoption of this new accounting guidance did not have a material impact on the Company’s financial condition, results of operations, andor cash flows. 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 GLOBAL INDEMNITY LIMITED
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. Early adoption is permitted for interim or annual goodwill impairment tests performedThe Company adopted this guidance on testing dates after January 1, 2017. Although the Company is still evaluating the impact2020. The adoption of this new accounting guidance the Company doesdid not anticipate it will have a material impact on itsthe Company’s financial condition, results of operations, or cash flows. In January, 2017, the FASB amended The Accounting Standards Codification to incorporate SEC Staff Announcements at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force (EITF) Meetings. The announcement from September 22, 2016 specifically addresses Accounting Standards Update (ASU)No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASUNo. 2016-02, Leases (Topic 842); and ASUNo. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and provides the SEC staff view that a registrant should evaluate ASUs that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those ASUs on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact that adoption of the ASUs referenced in this announcement is expected to have on the financial statements, then in addition to making a statement to that effect, that registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. In this regard, the SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. Also, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. This guidance, which is effective immediately, has been adopted by the Company.
In February, 2016, the FASB issued ASUNo. 2016-02, Leases (Topic 842). The new guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Upon adoption, the Company expects to report higher assets and liabilities as a result of recognizingright-of-use assets and corresponding lease liabilities on the Consolidated Balance Sheets. The Company expects the new guidance to have minimal impact on the Consolidated Statement of Operations or Consolidated Statement of Cash Flows.
In June, 2016, the FASB issued ASU2016-13, Financial Instruments – Credit Losses (Topic 326). The new accounting guidance addressesaddressing the measurement of credit losses on financial instruments. ForThe new guidance requires financial assets heldmeasured at amortized cost, basis,which includes but are not limited to premiums receivable and reinsurance receivables, to be presented at the new guidance replacesnet amount expected to be collected over the incurred loss impairment methodologylife of the asset using an allowance for credit losses. Changes in current GAAP with a methodology that reflectsthe 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 requires considerationsupportable forecasts that affect the collectability of a broader range of information for credit loss estimates.the financial assets. For available for sale debt securities, credit losses should be measured similar to current GAAP;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. ThisIn 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 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early applicationon January 1, 2020 using a modified-retrospective approach. The adoption of this new accounting guidance is permitted as of the fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. This guidance will be applied using a modified-retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is still evaluatingand the impact of this guidance on itsthe Company’s financial condition, results of operations, and cash flows. In May, 2014, the FASB issued (ASU)No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidanceflows is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Longdescribed primarily within Note 3 and short duration insurance contracts, which comprise the majority of the Company’s revenues, are excluded from this accounting guidance. While insurance contracts are not within the scope of this guidance, the Company is currently still evaluating whether its revenue recognition policy for fee income will be impacted by this updated guidance. Fee income related to policies written by the Company was $0.6 million for the nine months ended September 30, 2017. This guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Although the Company is still evaluating the impact of this new guidance, the Company does not anticipate it will have a material impact on its financial condition, results of operations, or cash flows.Note 6.
Please see Note 22 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 20162019 Annual Report onForm 10-K for more information on accounting pronouncements issued in 2016 which havebut not been implemented in 2017.yet adopted. 55
GLOBAL INDEMNITY LIMITED GROUP, LLCItem 2. MANAGEMENT’SMANAGEMENT'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"Cautionary Note Regarding Forward-Looking Statements”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 Form10-K for the year ended December 31, 2016.2019. Recent Developments On March 23, 2017,
COVID-19 The global outbreak of COVID-19 presents significant risks to the Company issued Subordinated Notes due in 2047which the Company is not able to fully evaluate at the current time. The COVID-19 pandemic may affect the Company’s operations in the aggregate principal amountfourth quarter and may continue to do so indefinitely, thereafter. The Company may experience reductions in premium volume, delays in the collection of $120.0 million throughpremiums, 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 underwritten public offering. Pursuantextended period of time even after the pandemic ends. Redomestication On August 28, 2020, the Company completed its plan to redomesticate to the underwriting agreement, the Company granted the underwriters a 30 day option to purchase up to an additional $18 million aggregate principal amount of the 2047 Notes solely to cover over-allotments, if any. On March 30, 2017, the underwriters exercised their over-allotment option in the amount of $10 million principal amount of the 2047 Notes. As a result, the aggregate principal amount of the 2047 Notes increased to $130.0 million. The sale of the 2047 Notes pursuant to the over-allotment option closed on March 30, 2017. SeeUnited States. Please see Note 72 of the notes to the consolidated financial statements in Item 1of1 of Part I of this report for additional information on this debt issuance.the redomestication. Redemption of Debt In April, 2017,August 2020, the Company entered intoredeemed 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 $50dividend 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 commitment to purchase an alternative investment vehicle comprised of stressed and distressed debt instruments. As ofduring the nine months ended September 30, 2017,2020. A.M. Best Rating A.M. Best has seven Rating Categories in the Company has funded $16.5 millionA.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 this commitment leaving $33.5 million as unfunded. Hurricanes Harvey, Irma, and Maria made landfall duringplus or minus to show additional gradation of the third quarter of 2017. The Company’s current estimate of net loss is approximately $30.6 million from Hurricanes Harvey, Irma, and Maria. Hurricanes Harvey, Irma and Maria impacted U.S.ratings. On September 23, 2020, A.M. Best assigned the companies in the Insurance Operations by $12.9 million and Reinsurance Operations by $17.7 million. Actual losses from these events may vary materially from the Company’s current estimate due to the inherent uncertainties resulting from several factors, including the preliminary naturea financial strength rating of the loss data available and potential inaccuracies and inadequacies of the data provided.
Effective September 16, 2017, David J.W. Bruce, Jason B. Hurwitz, and Arik Rashkes were appointed to the Company’s Board of Directors."A" (Excellent).
Overview The Company’s Commercial LinesSpecialty segment distributesells its property and casualty insurance products through a group of approximately 120185 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 LinesSpecialty operates predominantly in the excess and surplus lines marketplace. The Company manages its 56
GLOBAL INDEMNITY GROUP, LLC Commercial LinesSpecialty segment via product classifications. These product classifications are: 1) Penn-America, which includes property and general liability products for small commercial businesses distributedsold through a select network of wholesale general agents with specific binding authority; 2) United National, which includes property, general liability, and professional lines products distributedsold through program administrators with specific binding authority; 3) Diamond State, which includes property, casualty, and professional lines products distributedsold 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 distributedsold through aggregators, brokers, and retail agents. The Company’s Personal LinesSpecialty Property segment, primarily via American Reliable, offers specialty personal lines property and agricultural coveragecasualty insurance products through a group of approximately 270225 agents, primarily comprised of wholesale general agents, with specific binding authority inauthority. 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 admitted marketplace. GLOBAL INDEMNITY LIMITED
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 consisting solely of the operations of Global Indemnity Reinsurance, provides reinsurance solutions through brokers and on a direct basis. Global Indemnity Reinsurance is a Bermuda based treaty reinsurer for specialty property and casualty insurance and reinsurance companies. Global Indemnity Reinsurance conducts business in Bermuda and is focused on usingIt uses its capital capacity to write catastrophe-oriented placementsniche and other niche or specialty-focused treaties meetingand 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 Form10-K for the year ended December 31, 2016.2019. There have been no significant changes to any of these policies or underlying methodologies during the current year.year except for the following. 57
GLOBAL INDEMNITY LIMITED GROUP, LLCEffective 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, 20172020 and 2016:2019: | | | | Quarters Ended
September 30, | | % | | Nine Months Ended
September 30, | | % | | | Quarters Ended September 30, | | | % | | | Nine Months Ended September 30, | | | % | | | (Dollars in thousands) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | Change | | Gross premiums written | | $ | 126,054 | | | $ | 133,569 | | | (5.6 | %) | | $ | 393,699 | | | $ | 429,254 | | | (8.3 | %) | | Gross written premiums | | | $ | 143,749 | | | $ | 157,177 | | | | (8.5 | %) | | $ | 464,022 | | | $ | 478,699 | | | | (3.1 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 109,045 | | | $ | 115,051 | | | (5.2 | %) | | $ | 344,348 | | | $ | 357,233 | | | (3.6 | %) | | Net written premiums | | | $ | 130,611 | | | $ | 138,836 | | | | (5.9 | %) | | $ | 416,987 | | | $ | 421,321 | | | | (1.0 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 108,619 | | | $ | 119,553 | | | (9.1 | %) | | $ | 328,818 | | | $ | 358,993 | | | (8.4 | %) | | Net earned premiums | | | $ | 140,302 | | | $ | 133,312 | | | | 5.2 | % | | $ | 426,617 | | | $ | 383,602 | | | | 11.2 | % | Other income | | | 2,294 | | | 7,852 | | | (70.8 | %) | | 5,444 | | | 9,603 | | | (43.3 | %) | | | 597 | | | | 264 | | | | 126.1 | % | | | 1,509 | | | | 1,274 | | | | 18.4 | % | Total revenues | | | | 140,899 | | | | 133,576 | | | | 5.5 | % | | | 428,126 | | | | 384,876 | | | | 11.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 110,913 | | | 127,405 | | | (12.9 | %) | | 334,262 | | | 368,596 | | | (9.3 | %) | | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 82,395 | | | 72,162 | | | 14.2 | % | | 202,656 | | | 215,057 | | | (5.8 | %) | | | 97,148 | | | | 73,583 | | | | 32.0 | % | | | 242,092 | | | | 201,979 | | | | 19.9 | % | Acquisition costs and other underwriting expenses | | | 45,002 | | | 48,129 | | | (6.5 | %) | | 135,010 | | | 148,761 | | | (9.2 | %) | | | 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 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | | (16,484 | ) | | 7,114 | | | (331.7 | %) | | (3,404 | ) | | 4,778 | | | (171.2 | %) | | Net investment income | | | 10,134 | | | 8,795 | | | 15.2 | % | | 27,618 | | | 25,103 | | | 10.0 | % | | | 11,746 | | | | 11,348 | | | | 3.5 | % | | | 19,516 | | | | 32,393 | | | | (39.8 | %) | Net realized investment gains (losses) | | | (963 | ) | | 1,928 | | | (149.9 | %) | | (850 | ) | | (9,057 | ) | | (90.6 | %) | | | 7,323 | | | | (2,690 | ) | | NM | | | | (22,332 | ) | | | 11,290 | | | NM | | Other loss | | | | (55 | ) | | | — | | | | 100.0 | % | | | (36 | ) | | | — | | | | 100.0 | % | Corporate and other operating expenses | | | (4,630 | ) | | (5,006 | ) | | (7.5 | %) | | (11,045 | ) | | (13,064 | ) | | (15.5 | %) | | | (21,196 | ) | | | (3,858 | ) | | NM | | | | (34,037 | ) | | | (11,702 | ) | | | 190.9 | % | Interest expense | | | (4,836 | ) | | (2,233 | ) | | 116.6 | % | | (12,065 | ) | | (6,677 | ) | | 80.7 | % | | | (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 (loss) before income taxes | | | (16,779 | ) | | 10,598 | | | (258.3 | %) | | 254 | | | 1,083 | | | (76.5 | %) | | Income tax (expense) benefit | | | 7,855 | | | (1,063 | ) | | NM | | | 13,193 | | | 10,412 | | | 26.7 | % | | | | | | | | | | | | | | | | | | | | | | Income tax expense (benefit) | | | | (3,209 | ) | | | (317 | ) | | NM | | | | (8,173 | ) | | | 5,163 | | | NM | | Net income (loss) | | $ | (8,924 | ) | | $ | 9,535 | | | (193.6 | %) | | $ | 13,447 | | | $ | 11,495 | | | 17.0 | % | | $ | (15,170 | ) | | $ | 6,721 | | | NM | | | $ | (22,197 | ) | | $ | 40,984 | | | | (154.2 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio(1): | | | 75.9 | % | | 60.3 | % | | | | 61.6 | % | | 59.9 | % | | | | Loss ratio (1): | | | | 69.2 | % | | | 55.2 | % | | | | | | | 56.7 | % | | | 52.7 | % | | | | | Expense ratio(2) | | | 41.4 | % | | 40.3 | % | | | | 41.1 | % | | 41.4 | % | | | | | 38.0 | % | | | 40.0 | % | | | | | | | 38.3 | % | | | 40.1 | % | | | | | | | | | | | | | | | | | | | | | | | Combined ratio(3) | | | 117.3 | % | | 100.6 | % | | | | 102.7 | % | | 101.3 | % | | | | | 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 premiums earned.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 premiums earned.earned premiums. |
(3) | The combined ratio is a GAAP financial measure and is the sum of the Company’s loss and expense ratios. |
During the 1st quarter of 2017, the Companyre-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions of business will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportable segments changed slightly. Accordingly, the segment results, presented below, for the quarter and nine months ended September 30, 2016 have been revised to reflect these changes. See Note 13 for additional information regarding segments.
58
GLOBAL INDEMNITY LIMITED GROUP, LLCPremiums The following table summarizes the change in premium volume by business segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | % | | | Nine Months Ended
September 30, | | | % | | | (Dollars in thousands) | | 2017 | | | 2016 | | | Change | | | 2017 | | | 2016 | | | Change | | Gross premiums written(1) | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines(3) (4) | | $ | 60,962 | | | $ | 74,266 | | | | (17.9 | %) | | $ | 192,551 | | | $ | 238,627 | | | | (19.3 | %) | Commercial Lines(4) | | | 53,113 | | | | 49,505 | | | | 7.3 | % | | | 155,776 | | | | 155,686 | | | | 0.1 | % | Reinsurance(5) | | | 11,979 | | | | 9,798 | | | | 22.3 | % | | | 45,372 | | | | 34,941 | | | | 29.9 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total gross premiums written | | $ | 126,054 | | | $ | 133,569 | | | | (5.6 | %) | | $ | 393,699 | | | $ | 429,254 | | | | (8.3 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Ceded premiums written | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines(4) | | $ | 10,355 | | | $ | 14,087 | | | | (26.5 | %) | | $ | 30,572 | | | $ | 56,520 | | | | (45.9 | %) | Commercial Lines(4) | | | 6,642 | | | | 4,431 | | | | 49.9 | % | | | 18,751 | | | | 15,487 | | | | 21.1 | % | Reinsurance(5) | | | 12 | | | | — | | | | 0.0 | % | | | 28 | | | | 14 | | | | 100.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total ceded premiums written | | $ | 17,009 | | | $ | 18,518 | | | | (8.1 | %) | | $ | 49,351 | | | $ | 72,021 | | | | (31.5 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written(2) | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines(4) | | $ | 50,607 | | | $ | 60,179 | | | | (15.9 | %) | | $ | 161,979 | | | $ | 182,107 | | | | (11.1 | %) | Commercial Lines(4) | | | 46,471 | | | | 45,074 | | | | 3.1 | % | | | 137,025 | | | | 140,199 | | | | (2.3 | %) | Reinsurance(5) | | | 11,967 | | | | 9,798 | | | | 22.1 | % | | | 45,344 | | | | 34,927 | | | | 29.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total net premiums written | | $ | 109,045 | | | $ | 115,051 | | | | (5.2 | %) | | $ | 344,348 | | | $ | 357,233 | | | | (3.6 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines(4) | | $ | 52,268 | | | $ | 61,221 | | | | (14.6 | %) | | $ | 164,102 | | | $ | 184,581 | | | | (11.1 | %) | Commercial Lines(4) | | | 44,778 | | | | 47,774 | | | | (6.3 | %) | | | 133,289 | | | | 142,749 | | | | (6.6 | %) | Reinsurance(5) | | | 11,573 | | | | 10,558 | | | | 9.6 | % | | | 31,427 | | | | 31,663 | | | | (0.7 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Total net premiums earned | | $ | 108,619 | | | $ | 119,553 | | | | (9.1 | %) | | $ | 328,818 | | | $ | 358,993 | | | | (8.4 | %) | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 written 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 written equal gross written premiums written less ceded premiums written.written premiums. |
(3) | Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of ($1.4) million and $7.3 million during the quarters ended September 30, 2017 and 2016, respectively, and ($0.2) million and $30.9 million during the nine months ended September 30, 2017 and 2016, respectively. |
(4) | Includes business ceded to the Company’s Reinsurance Operations. |
(5) | External business only, excluding business assumed from affiliates. |
Gross written premiums written decreased by 5.6%8.5% and 8.3%3.1% for the quarter and nine months ended September 30, 2017, respectively, as compared to same periods in 2016. Gross premiums written include business written by American Reliable that is ceded to insurance entities owned by Assurant under a 100% quota share reinsurance agreement in the amount of ($1.4) million and $7.3 million for the quarters ended September 30, 2017 and 2016, respectively, and ($0.2) million and $30.9 million for the nine months ended September 30, 2017 and 2016, respectively. Excluding the business that is ceded 100% to insurance entities owned by Assurant, gross premiums written increased by 1.0% for the quarter ended September 30, 20172020 as compared to same period in 2016.2019. The growth in gross premiums writtendecrease is mainly due to increased production within one of the Company’s Commercial Lines programs as a result of providing additional commission incentives for increased business, the introduction of a new program within the Company’s Commercial Lines, and increased gross premiums written within the Company’s Reinsurance Operations due to a new mortgage insurance treaty written in the fourth quarter of 2016. This increase was partially offset by declines in gross written premiums due to the discontinuance of one unprofitable program within the Company’s Commercial Lines, a targeted 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 Company’s Personal Lines, and underwriting actions taken within the Company’s Personal Lines to improve profitability. Excluding the business that is ceded 100% to insurance entities owned by Assurant, grossresult of Covid-19. These reductions in premiums written decreased by 1.1% for the nine months ended September 30, 2017 as compared to the same period in 2016. The decline is mainly due to the discontinuance of one unprofitable program within the Company’s Commercial Lines, a targeted reduction of catastrophe exposed business within the Company’s Personal Lines, and underwriting actions taken within the Company’s Personal Lines to improve profitability. This decline waswere partially offset by an increaseorganic 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 gross premiums written within the Company’s2019.
59
GLOBAL INDEMNITY LIMITED GROUP, LLCReinsurance Operations due to a new mortgage insurance treaty written in the fourth quarter of 2016, the introduction of a new program within the Company’s Commercial Lines, and increased production within two of the Company’s Commercial Lines programs as a result of providing additional commission incentives for increased business.
Net Retention The ratio of net written premiums written to gross written premiums written 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, | | | | | | Nine Months Ended
September 30, | | | | | | (Dollars in thousands) | | 2017 | | | 2016 | | | Change | | | 2017 | | | 2016 | | | Change | | Personal Lines(1) | | | 81.1 | % | | | 89.9 | % | | | (8.8 | ) | | | 84.0 | % | | | 87.7 | % | | | (3.6 | ) | Commercial Lines | | | 87.5 | % | | | 91.0 | % | | | (3.6 | ) | | | 88.0 | % | | | 90.1 | % | | | (2.1 | ) | Reinsurance | | | 99.9 | % | | | 100.0 | % | | | (0.1 | ) | | | 99.9 | % | | | 100.0 | % | | | 0.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total(1) | | | 85.5 | % | | | 91.1 | % | | | (5.6 | ) | | | 87.4 | % | | | 89.7 | % | | | (2.3 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
(1) | Excludes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement ($1.4) million and $7.3 million during the quarters ended September 30, 2017 and 2016, respectively, and ($0.2) million and $30.9 million during the nine months ended September 30, 2017 and 2016, respectively. |
The net premium retention for the quarter and nine months ended September 30, 2017 decreased2020 increased by 8.82.6 points and 3.61.9 points, respectively, for Personal Lines and decreased by 3.6 points and 2.1 points, respectively, for Commercial Lines as compared to the same period in 20162019. This increase in retention is primarily due todriven by the Property Catastrophe Quota ShareTreatythat became effective on April 15, 2017. Please seerestructuring of the Liquidity and Capital Resource sectionCompany’s catastrophe reinsurance treaties as well as a change in Item 2the mix of Part I of this report for additional information on the Property Catastrophe Quota Share.business. Net Premiums Earned
Net Earned Premiums Net earned premiums earned within the Personal LinesCommercial Specialty segment decreasedincreased by 14.6%21.4% and 11.1%22.0% for the quarter and nine months ended September 30, 2017,2020, respectively, as compared to the same period in 20162019. The increase in net earned premiums was primarily due to a declinegrowth in gross premiums written as well as the cedinga result of additional premiums under the property catastrophe treaties.organic growth from existing agents, pricing increases, and several new programs. Property net earned premiums earned were $44.3$34.8 million and $52.3$28.1 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and $139.5$97.2 million and $158.9$82.1 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. Casualty net earned premiums earned were $8.0$39.1 million and $8.9$32.8 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and $24.6$114.1 million and $25.7$91.1 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. Net earned premiums earned within the Commercial LinesSpecialty Property segment decreased by 6.3%9.2% and 6.6%5.3% for the quarter and nine months ended September 30, 2017,2020, respectively, as compared to the same period in 2016. The decline in net premiums earned was2019 primarily due to the Company discontinuing onea continued reduction of its programs within the Commercial Lines as well as the Company ceding additional premiums under the new Property Catastrophe Quota Share Treaty which was effective April 15, 2017. In addition, the net premiums earned during the nine months ended September 30, 2017 were also impacted bycatastrophe exposed business and a slight declinereduction in gross premiums written within the Commercial Lines’ small business program experienced in 2016.not providing an adequate return on capital. Property net earned premiums earned were $22.0$29.3 million and $25.7$31.9 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and $67.6$92.2 million and $77.8$96.7 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. Casualty net earned premiums earned were $22.8$2.1 million and $22.1$2.6 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and $65.7$7.0 million and $64.9$8.1 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. Net earned premiums earned within the Reinsurance OperationsFarm, Ranch, & Stable segment increased by 9.6%8.7% and 9.2% for the quarter and nine months ended September 30, 20172020, respectively, as compared to the same period in 2016. This2019. The increase in net earned premiums was primarily due to a new mortgage treatygrowth in premiums written in the fourth quarterprior periods as a result of 2016 which is expected to earn out over an eight year period. Thisrate increases and new mortgage insurance treaty will not be renewed. Net premiums earned within the Reinsurance Operations segment decreased by 0.7% for the nine months ended September 30, 2017 as compared to the same period in 2016 primarily due to reduced levels of property writings due to a competitive marketplace partially offset by the new mortgage treaty.agent appointments. Property net earned premiums earned were $10.4$15.0 million and $9.5$13.1 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and $27.8$42.1 million and $28.9$37.7 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. Casualty net earned premiums earned were $1.2$5.0 million and $1.0$5.3 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and $3.6$15.6 million and $2.8$15.2 million for the nine months ended September 30, 20172020 and 2016,2019, 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 LIMITEDGROUP, LLC Reserves Reserves
Management’s best estimate at September 30, 20172020 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 $649.7$669.9 million and $532.7$571.3 million, respectively, as of September 30, 2017.2020. A breakout of the Company’s gross and net reserves, excluding the effects of the Company’s intercompany pooling arrangements and intercompany stop loss and quota share reinsurance agreements, as of September 30, 20172020, is as follows: | | | | Gross Reserves | | | Gross Reserves | | | (Dollars in thousands) | | Case | | | IBNR (1) | | | Total | | | Case | | | IBNR (1) | | | Total | | Personal Lines | | $ | 49,576 | | | $ | 79,577 | | | $ | 129,153 | | | Commercial Lines | | | 110,757 | | | | 323,000 | | | | 433,757 | | | 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 | | | 17,512 | | | | 69,304 | | | | 86,816 | | | | 56,627 | | | | 89,144 | | | | 145,771 | | | | | | | | | | | | | Total | | $ | 177,845 | | | $ | 471,881 | | | $ | 649,726 | | | $ | 235,690 | | | $ | 434,240 | | | $ | 669,930 | | | | | | | | | | | | | | | | | Net Reserves (2) | | | | (Dollars in thousands) | | Case | | | IBNR (1) | | | Total | | | Personal Lines | | $ | 32,469 | | | $ | 63,087 | | | $ | 95,556 | | | Commercial Lines | | | 85,980 | | | | 264,468 | | | | 350,448 | | | Reinsurance Operations | | | 17,512 | | | | 69,140 | | | | 86,652 | | | | | | | | | | | | | | Total | | $ | 135,961 | | | $ | 396,695 | | | $ | 532,656 | | | | | | | | | | | | | |
| | 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 $237.5$273.7 million for claims occurring during the nine months ended September 30, 2017:2020: | | | | | | Severity Change | | | | | | | Severity Change | | | (Dollars in thousands) | | | | | -10% | | | -5% | | | 0% | | | 5% | | | 10% | | (Dollars in thousands) | | | -10% | | | -5% | | | 0% | | | 5% | | | 10% | | Frequency Change | | | -5 | % | | $ | (34,438 | ) | | $ | (23,156 | ) | | $ | (11,875 | ) | | $ | (594 | ) | | $ | 10,688 | | | -5% | | | | (39,687 | ) | | | (26,686 | ) | | | (13,685 | ) | | | (684 | ) | | | 12,317 | | | | | -3 | % | | | (30,163 | ) | | | (18,644 | ) | | | (7,125 | ) | | | 4,394 | | | | 15,913 | | | -3% | | | | (34,760 | ) | | | (21,485 | ) | | | (8,211 | ) | | | 5,063 | | | | 18,338 | | | | | -2 | % | | | (28,025 | ) | | | (16,388 | ) | | | (4,750 | ) | | | 6,887 | | | | 18,525 | | | -2% | | | | (32,297 | ) | | | (18,885 | ) | | | (5,474 | ) | | | 7,937 | | | | 21,349 | | | | | -1 | % | | | (25,888 | ) | | | (14,131 | ) | | | (2,375 | ) | | | 9,381 | | | | 21,138 | | | -1% | | | | (29,833 | ) | | | (16,285 | ) | | | (2,737 | ) | | | 10,811 | | | | 24,359 | | | | | 0 | % | | | (23,750 | ) | | | (11,875 | ) | | | 0 | | | | 11,875 | | | | 23,750 | | | 0% | | | | (27,370 | ) | | | (13,685 | ) | | | — | | | | 13,685 | | | | 27,370 | | | | | 1 | % | | | (21,613 | ) | | | (9,619 | ) | | | 2,375 | | | | 14,369 | | | | 26,363 | | | 1% | | | | (24,907 | ) | | | (11,085 | ) | | | 2,737 | | | | 16,559 | | | | 30,381 | | | | | 2 | % | | | (19,475 | ) | | | (7,363 | ) | | | 4,750 | | | | 16,863 | | | | 28,975 | | | 2% | | | | (22,443 | ) | | | (8,485 | ) | | | 5,474 | | | | 19,433 | | | | 33,391 | | | | | 3 | % | | | (17,338 | ) | | | (5,106 | ) | | | 7,125 | | | | 19,356 | | | | 31,588 | | | 3% | | | | (19,980 | ) | | | (5,885 | ) | | | 8,211 | | | | 22,307 | | | | 36,402 | | | | | 5 | % | | | (13,063 | ) | | | (594 | ) | | | 11,875 | | | | 24,344 | | | | 36,813 | | | 5% | | | | (15,054 | ) | | | (684 | ) | | | 13,685 | | | | 28,054 | | | | 42,424 | |
The Company’s net reserves for losses and loss adjustment expenses of $532.7$571.3 million as of September 30, 20172020 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 LIMITED GROUP, LLCUnderwriting Results The following table compares the Company’s combined ratios by segment:
| | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | Nine Months Ended
September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Personal Lines | | | 124.8 | % | | | 110.0 | % | | | 115.6 | % | | | 107.8 | % | Commercial Lines | | | 83.4 | % | | | 91.9 | % | | | 81.9 | % | | | 97.8 | % | Reinsurance | | | 214.7 | % | | | 85.8 | % | | | 123.8 | % | | | 80.0 | % | | | | | | | | | | | | | | | | | | Total | | | 117.3 | % | | | 100.6 | % | | | 102.7 | % | | | 101.3 | % | | | | | | | | | | | | | | | | | |
Personal LinesCommercial Specialty
The components of income and loss from the Company’s Personal LinesCommercial Specialty segment and corresponding underwriting ratios are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | %
Change | | | Nine Months Ended
September 30, | | | %
Change | | | (Dollars in thousands) | | 2017 (3) | | | 2016 (3) | | | | 2017 (3) | | | 2016 (3) | | | Gross premiums written(1) | | $ | 60,962 | | | $ | 74,266 | | | | (17.9 | %) | | $ | 192,551 | | | $ | 238,627 | | | | (19.3 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 50,607 | | | $ | 60,179 | | | | (15.9 | %) | | $ | 161,979 | | | $ | 182,107 | | | | (11.1 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 52,268 | | | $ | 61,221 | | | | (14.6 | %) | | $ | 164,102 | | | $ | 184,581 | | | | (11.1 | %) | Other income | | | 2,254 | | | | 991 | | | | 127.4 | % | | | 5,153 | | | | 2,714 | | | | 89.9 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 54,522 | | | | 62,212 | | | | (12.4 | %) | | | 169,255 | | | | 187,295 | | | | (9.6 | %) | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 42,534 | | | | 42,927 | | | | (0.9 | %) | | | 120,410 | | | | 122,540 | | | | (1.7 | %) | Acquisition costs and other underwriting expenses (2) | | | 22,689 | | | | 24,411 | | | | (7.1 | %) | | | 69,281 | | | | 76,349 | | | | (9.3 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | $ | (10,701 | ) | | $ | (5,126 | ) | | | 108.8 | % | | $ | (20,436 | ) | | $ | (11,594 | ) | | | 76.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | Point
Change | | | Nine Months Ended
September 30, | | | Point
Change | | | | | 2017 (3) | | | 2016 (3) | | | | 2017 (3) | | | 2016 (3) | | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year | | | 83.9 | % | | | 70.1 | % | | | 13.8 | | | | 76.1 | % | | | 66.4 | % | | | 9.7 | | Prior accident year | | | (2.5 | %) | | | 0.0 | % | | | (2.5 | ) | | | (2.7 | %) | | | 0.0 | % | | | (2.7 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Calendar year loss ratio | | | 81.4 | % | | | 70.1 | % | | | 11.3 | | | | 73.4 | % | | | 66.4 | % | | | 7.0 | | Expense ratio | | | 43.4 | % | | | 39.9 | % | | | 3.5 | | | | 42.2 | % | | | 41.4 | % | | | 0.8 | | | | | | | | | | | | | | | | | | | | | | | | | | | Combined ratio | | | 124.8 | % | | | 110.0 | % | | | 14.8 | | | | 115.6 | % | | | 107.8 | % | | | 7.8 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of ($1.4) million and $7.3 million during the quarters ended September 30, 2017 and 2016, respectively, and ($0.2) million and $30.9 million during the nine months ended September 30, 2017 and 2016, respectively. |
(2) | Includes excise tax related to cessions from the Company’s Personal Lines to its Reinsurance Operations of $0.3 million during each of the quarters ended September 30, 2017 and 2016, and $0.8 million and $0.9 million for the nine months ended September 30, 2017 and 2016, respectively. |
(3) | Includes business ceded to the Company’s Reinsurance Operations.Operations under a quota share agreement. This quota share agreement was cancelled effective January 1, 2018. |
Premiums62
See “Result of Operations” above for a discussion on premiums.
GLOBAL INDEMNITY LIMITED GROUP, LLCOther Income
Other income was $2.3 million and $1.0 million for the quarters ended September 30, 2017 and 2016, respectively, and $5.2 million and $2.7 million for the nine months ended September 30, 2017 and 2016, respectively. Other income is primarily comprised of fee income on installments, commission income and accrued interest on the anticipated indemnification of unpaid loss and loss adjustment expense reserves. In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., former parent of American Reliable, any variance paid related to the loss indemnification will be subject to interest of 5% compounded semi-annually. The increase in other income is primarily the result of the Company increasing its estimate of unpaid losses and loss adjustment expenses that would be indemnified by $9.2 million and $18.7 million during the quarter and nine months ended September 30, 2017, respectively.
Loss Ratio
The current accident year losses and loss ratio is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | %
Change | | | Nine Months Ended
September 30, | | | %
Change | | | (Dollars in thousands) | | 2017 | | | 2016 | | | | 2017 | | | 2016 | | | Property losses | | | | | | | | | | | | | | | | | | | | | | | | | Catastrophe | | $ | 11,424 | | | $ | 9,318 | | | | 22.6 | % | | $ | 35,048 | | | $ | 28,594 | | | | 22.6 | % | Non-catastrophe | | | 26,530 | | | | 26,649 | | | | (0.4 | %) | | | 72,923 | | | | 74,817 | | | | (2.5 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Property losses | | | 37,954 | | | | 35,967 | | | | 5.5 | % | | | 107,971 | | | | 103,411 | | | | 4.4 | % | Casualty losses | | | 5,898 | | | | 6,960 | | | | (15.3 | %) | | | 16,942 | | | | 19,129 | | | | (11.4 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Total accident year losses | | $ | 43,852 | | | $ | 42,927 | | | | 2.2 | % | | $ | 124,913 | | | $ | 122,540 | | | | 1.9 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | Point
Change | | | Nine Months Ended
September 30, | | | Point
Change | | | | | 2017 | | | 2016 | | | | 2017 | | | 2016 | | | Current accident year loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | | | | | | | | | Catastrophe | | | 25.8 | % | | | 17.8 | % | | | 8.0 | | | | 25.1 | % | | | 18.0 | % | | | 7.1 | | Non-catastrophe | | | 59.9 | % | | | 50.9 | % | | | 9.0 | | | | 52.3 | % | | | 47.1 | % | | | 5.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Property loss ratio | | | 85.7 | % | | | 68.7 | % | | | 17.0 | | | | 77.4 | % | | | 65.1 | % | | | 12.3 | | Casualty loss ratio | | | 73.7 | % | | | 78.2 | % | | | (4.5 | ) | | | 68.8 | % | | | 74.4 | % | | | (5.6 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total accident year loss ratio | | | 83.9 | % | | | 70.1 | % | | | 13.8 | | | | 76.1 | % | | | 66.4 | % | | | 9.7 | | | | | | | | | | | | | | | | | | | | | | | | | | |
The current accident year catastrophe loss ratio increased by 8.0 points and 7.1 points during the quarter and nine months ended September 30, 2017, respectively, as compared to the same period in 2016 driven by higher losses in the mobile home reserve category from hurricanes Harvey and Irma in the 3rd quarter of 2017 and higher losses in the agriculture reserve category from convective storms in the first six months of 2017.
The current accident yearnon-catastrophe property loss ratio increased by 9.0 points and 5.2 points during the quarter and nine months ended September 30, 2017, respectively, as compared to the same period in 2016. The increase in the loss ratio is driven by higher claims frequency and severity compared to last year.
The current accident year casualty loss ratio improved by 4.5 points and 5.6 points during the quarter and nine months ended September 30, 2017 as compared to the same period in 2016. The improvement in the loss ratio reflects lower reported claims frequency in each of the accident quarters of 2017 compared to the same accident quarters last year.
The calendar year loss ratio for the quarter and nine months ended September 30, 2017 includes a decrease of $1.3 million, or 2.5 percentage points, and a decrease of $4.5 million, or 2.7 percentage points, respectively, related to reserve development on prior accident years. There were no changes to net prior accident year losses during the quarter and nine months ended September 30, 2016. Please see Note 6 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.
GLOBAL INDEMNITY LIMITED
Reconciliation ofnon-GAAP financial measures and ratios The table below reconciles thenon-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 thenon-GAAP measures or ratios are useful to investors when evaluating the Company’sCompany's underwriting performance as trends in the Company’s Personal Lineswithin Commercial Specialty may be obscured by prior accident year adjustments. Thesenon-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, | | | | | Quarters Ended September 30, | | Nine Months Ended September 30, | | | | | | 2017 | | 2016 | | 2017 | | 2016 | | | (Dollars in thousands) | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | | | Losses $ | | Loss
Ratio | | Losses $ | | | Loss
Ratio | | Losses $ | | Loss
Ratio | | Losses $ | | | Loss
Ratio | | | 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) | | $ | 26,530 | | | 59.9 | % | | $ | 26,649 | | | | 50.9 | % | | $ | 72,923 | | | 52.3 | % | | $ | 74,817 | | | | 47.1 | % | | $ | 14,769 | | | | 42.4 | % | | $ | 13,641 | | | | 48.5 | % | | $ | 41,581 | | | | 42.8 | % | | $ | 35,694 | | | | 43.5 | % | Effect of prior accident year | | | 17 | | | | — | | | | — | | | | — | | | (1,885 | ) | | (1.4 | %) | | | — | | | | — | | | | (568 | ) | | | (1.6 | %) | | | 16 | | | | 0.1 | % | | | (238 | ) | | | (0.2 | %) | | | (959 | ) | | | (1.2 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Non catastrophe property losses and ratio (2) | | $ | 26,547 | | | 59.9 | % | | $ | 26,649 | | | | 50.9 | % | | $ | 71,038 | | | 50.9 | % | | $ | 74,817 | | | | 47.1 | % | | $ | 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) | | $ | 11,424 | | | 25.8 | % | | $ | 9,318 | | | | 17.8 | % | | $ | 35,048 | | | 25.1 | % | | $ | 28,594 | | | | 18.0 | % | | $ | 9,537 | | | | 27.4 | % | | $ | 1,731 | | | | 6.2 | % | | $ | 23,116 | | | | 23.8 | % | | $ | 7,088 | | | | 8.6 | % | Effect of prior accident year | | | (1,241 | ) | | (2.8 | %) | | | — | | | | — | | | (2,055 | ) | | (1.4 | %) | | | — | | | | — | | | | 626 | | | | 1.8 | % | | | (14 | ) | | | (0.1 | %) | | | 6,063 | | | | 6.2 | % | | | 34 | | | | 0.1 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Catastrophe losses and ratio (2) | | $ | 10,183 | | | 23.0 | % | | $ | 9,318 | | | | 17.8 | % | | $ | 32,993 | | | 23.6 | % | | $ | 28,594 | | | | 18.0 | % | | $ | 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) | | $ | 37,954 | | | 85.7 | % | | $ | 35,967 | | | | 68.7 | % | | $ | 107,971 | | | 77.4 | % | | $ | 103,411 | | | | 65.1 | % | | $ | 24,306 | | | | 69.8 | % | | $ | 15,372 | | | | 54.7 | % | | $ | 64,697 | | | | 66.6 | % | | $ | 42,782 | | | | 52.1 | % | Effect of prior accident year | | | (1,224 | ) | | (2.8 | %) | | | — | | | | — | | | (3,940 | ) | | (2.8 | %) | | | — | | | | — | | | | 58 | | | | 0.2 | % | | | 2 | | | | — | % | | | 5,825 | | | | 6.0 | % | | | (925 | ) | | | (1.1 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Total property losses and ratio (2) | | $ | 36,730 | | | 82.9 | % | | $ | 35,967 | | | | 68.7 | % | | $ | 104,031 | | | 74.6 | % | | $ | 103,411 | | | | 65.1 | % | | $ | 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) | | $ | 5,898 | | | 73.7 | % | | $ | 6,960 | | | | 78.2 | % | | $ | 16,942 | | | 68.8 | % | | $ | 19,129 | | | | 74.4 | % | | $ | 22,119 | | | | 56.6 | % | | $ | 17,205 | | | | 52.5 | % | | $ | 62,289 | | | | 54.6 | % | | $ | 51,023 | | | | 56.0 | % | Effect of prior accident year | | | (94 | ) | | (1.2 | %) | | | — | | | | — | | | (563 | ) | | (2.3 | %) | | | — | | | | — | | | | (3,604 | ) | | | (9.2 | %) | | | (5,190 | ) | | | (15.8 | %) | | | (23,620 | ) | | | (20.7 | %) | | | (11,149 | ) | | | (12.2 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Casualty losses and ratio (2) | | $ | 5,804 | | | 72.5 | % | | $ | 6,960 | | | | 78.2 | % | | $ | 16,379 | | | 66.5 | % | | $ | 19,129 | | | | 74.4 | % | | $ | 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) | | $ | 43,852 | | | 83.9 | % | | $ | 42,927 | | | | 70.1 | % | | $ | 124,913 | | | 76.1 | % | | $ | 122,540 | | | | 66.4 | % | | $ | 46,425 | | | | 62.8 | % | | $ | 32,577 | | | | 53.5 | % | | $ | 126,986 | | | | 60.1 | % | | $ | 93,805 | | | | 54.2 | % | Effect of prior accident year | | | (1,318 | ) | | (2.5 | %) | | | — | | | | — | | | (4,503 | ) | | (2.7 | %) | | | — | | | | — | | | | (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) | | $ | 42,534 | | | 81.4 | % | | $ | 42,927 | | | | 70.1 | % | | $ | 120,410 | | | 73.4 | % | | $ | 122,540 | | | | 66.4 | % | | $ | 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 |
Expense Ratios
The expense ratio increased by 3.5 points from 39.9% for the quarter ended September 30, 2016 to 43.4% for the quarter ended September 30, 2017 primarily due to a decline in net premiums earned. The expense ratio increased 0.8 points from 41.4% for the nine months ended September 30, 2016 to 42.2% for the nine months ended September 30, 2017.
GLOBAL INDEMNITY LIMITED
Commercial Lines
The components of income from the Company’s Commercial Lines segment and corresponding underwriting ratios are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | % | | | Nine Months Ended
September 30, | | | % | | | (Dollars in thousands) | | 2017 (2) | | | 2016 (2) | | | Change | | | 2017 (2) | | | 2016 (2) | | | Change | | Gross premiums written | | $ | 53,113 | | | $ | 49,505 | | | | 7.3 | % | | $ | 155,776 | | | $ | 155,686 | | | | 0.1 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 46,471 | | | $ | 45,074 | | | | 3.1 | % | | $ | 137,025 | | | $ | 140,199 | | | | (2.3 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 44,778 | | | $ | 47,774 | | | | (6.3 | %) | | $ | 133,289 | | | $ | 142,749 | | | | (6.6 | %) | Other income | | | — | | | | 6,872 | | | | (100.0 | %) | | | 78 | | | | 6,872 | | | | (98.9 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 44,778 | | | | 54,646 | | | | (18.1 | %) | | | 133,367 | | | | 149,621 | | | | (10.9 | %) | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 19,095 | | | | 23,848 | | | | (19.9 | %) | | | 53,688 | | | | 78,813 | | | | (31.9 | %) | Acquisition costs and other underwriting expenses (1) | | | 18,237 | | | | 20,048 | | | | (9.0 | %) | | | 55,398 | | | | 60,784 | | | | (8.9 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | $ | 7,446 | | | $ | 10,750 | | | | (30.7 | %) | | $ | 24,281 | | | $ | 10,024 | | | | 142.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | Point | | | Nine Months Ended
September 30, | | | Point | | | | | 2017 (2) | | | 2016 (2) | | | Change | | | 2017 (2) | | | 2016 (2) | | | Change | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year | | | 58.9 | % | | | 63.6 | % | | | (4.7 | ) | | | 59.9 | % | | | 68.4 | % | | | (8.5 | ) | Prior accident year | | | (16.2 | %) | | | (13.7 | %) | | | (2.5 | ) | | | (19.6 | %) | | | (13.2 | %) | | | (6.4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Calendar year loss ratio | | | 42.7 | % | | | 49.9 | % | | | (7.2 | ) | | | 40.3 | % | | | 55.2 | % | | | (14.9 | ) | Expense ratio | | | 40.7 | % | | | 42.0 | % | | | (1.3 | ) | | | 41.6 | % | | | 42.6 | % | | | (1.0 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Combined ratio | | | 83.4 | % | | | 91.9 | % | | | (8.5 | ) | | | 81.9 | % | | | 97.8 | % | | | (15.9 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Includes excise tax related to cessions from the Company’s Commercial Lines to its Reinsurance Operations of $0.1 million for the each of the quarters ended September 30, 2017 and 2016, and $0.4 million for each of the nine months ended September 30, 2017 and 2016. |
(2) | Includes business ceded to the Company’s Reinsurance Operations. |
Premiums See “Result of Operations” above for a discussion on consolidated premiums. Other Income63
Commercial Lines did not have any other income for the quarter ended September 30, 2017. Other income was $6.9 million for the quarter ended September 30, 2016, and $0.1 million and $6.9 million for the nine months ended September 30, 2017 and 2016, respectively. For the quarter and nine months ended September 30, 2016, other income of $6.9 million is comprised of the net gain on the asset sale of the Company’s wholly owned subsidiary, United National Specialty Insurance Company.
GLOBAL INDEMNITY LIMITED GROUP, LLCLoss Ratio The current accident year losses and loss ratio is summarized as follows: | | | | Quarters Ended
September 30, | | % | | Nine Months Ended
September 30, | | % | | | Quarters Ended September 30, | | | % | | | Nine Months Ended September 30, | | | % | | | (Dollars in thousands) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | | 2020 | | | 2019 | | | Change | | | 2020 | | | 2019 | | | Change | | Property losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-catastrophe | | | $ | 14,769 | | | $ | 13,641 | | | | 8.3 | % | | $ | 41,581 | | | $ | 35,694 | | | | 16.5 | % | Catastrophe | | $ | 3,873 | | | $ | 2,447 | | | 58.3 | % | | $ | 9,132 | | | $ | 13,110 | | | (30.3 | %) | | | 9,537 | | | | 1,731 | | | NM | | | | 23,116 | | | | 7,088 | | | NM | | Non-catastrophe | | | 8,401 | | | 12,049 | | | (30.3 | %) | | 30,073 | | | 42,889 | | | (29.9 | %) | | | | | | | | | | | | | | | | | | | | | | Property losses | | | 12,274 | | | 14,496 | | | (15.3 | %) | | 39,205 | | | 55,999 | | | (30.0 | %) | | | 24,306 | | | | 15,372 | | | | 58.1 | % | | | 64,697 | | | | 42,782 | | | | 51.2 | % | Casualty losses | | | 14,084 | | | 15,877 | | | (11.3 | %) | | 40,667 | | | 41,666 | | | (2.4 | %) | | | 22,119 | | | | 17,205 | | | | 28.6 | % | | | 62,289 | | | | 51,023 | | | | 22.1 | % | | | | | | | | | | | | | | | | | | | | | Total accident year losses | | $ | 26,358 | | | $ | 30,373 | | | (13.2 | %) | | $ | 79,872 | | | $ | 97,665 | | | (18.2 | %) | | $ | 46,425 | | | $ | 32,577 | | | | 42.5 | % | | $ | 126,986 | | | $ | 93,805 | | | | 35.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | Point | | Nine Months Ended
September 30, | | Point | | | | | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | | Current accident year loss ratio: | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | Catastrophe | | | 17.6 | % | | 9.5 | % | | 8.1 | | | 13.5 | % | | 16.8 | % | | (3.3 | ) | | Non-catastrophe | | | 38.1 | % | | 46.9 | % | | (8.8 | ) | | 44.5 | % | | 55.1 | % | | (10.6 | ) | | | | | | | | | | | | | | | | | | | | | | Property loss ratio | | | 55.7 | % | | 56.4 | % | | (0.7 | ) | | 58.0 | % | | 71.9 | % | | (13.9 | ) | | Casualty loss ratio | | | 61.9 | % | | 71.8 | % | | (9.9 | ) | | 61.9 | % | | 64.2 | % | | (2.3 | ) | | | | | | | | | | | | | | | | | | | | | | Total accident year loss ratio | | | 58.9 | % | | 63.6 | % | | (4.7 | ) | | 59.9 | % | | 68.4 | % | | (8.5 | ) | | | | | | | | | | | | | | | | | | | | | |
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 8.121.2 points during the quarter ended September 30, 20172020 as compared to the same period in 2016 primarily2019 due to the impacts from hurricanes Harveya higher claims frequency and Irma inseverity for the third accident quarter of 2017. and calendar quarter compared to last year. The current accident year catastrophe loss ratio improvedincreased by 3.315.2 points during the nine months ended September 30, 20172020 as compared to the same period in 2016 primarily2019 due to lowera higher claims frequency and severity in 2017.for the first nine months compared to last year. The current accident yearnon-catastrophe property casualty loss ratio improvedincreased by 8.8 points and 10.64.1 points during the quarter and nine months ended September 30, 2017, respectively,2020 as compared to the same period in 2016. The improvement2019 due to a slightly higher claims frequency for the third accident quarter and higher claims severity in the loss ratio reflects lower reported claims frequency in each of the accident quarters of 2017calendar quarter compared to the same accident quarters last year. The current accident year casualty loss ratio improved by 9.9 points and 2.31.4 points during the quarter and nine months ended September 30, 2017, respectively,2020 as compared to the same period in 2016. The improvement in the loss ratio is driven primarily by2019 due to a lower reported claims frequency asthrough the first nine months compared to the same period last year. The calendar year loss ratio for the quarter and nine months ended September 30, 20172020 includes a decrease of $7.3$3.5 million, or 16.24.8 percentage points, and a decrease of $26.2$17.8 million, or 19.68.4 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, 20162019 includes a decrease of $6.5$5.2 million, or 13.78.5 percentage points, and a decrease of $18.9$12.1 million, or 13.27.0 percentage points, respectively, related to reserve development on prior accident years. Please see Note 68 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 LIMITEDGROUP, 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 ofnon-GAAP financial measures and ratios The table below reconciles thenon-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 thenon-GAAP measures or ratios are useful to investors when evaluating the Company’sCompany's underwriting performance as trends in the Company’s Commercial Lineswithin Specialty Property may be obscured by prior accident year adjustments. Thesenon-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, | | | | | Quarters Ended September 30, | | Nine Months Ended September 30, | | | | | | 2017 | | 2016 | | 2017 | | 2016 | | | (Dollars in thousands) | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | | | Losses $ | | Loss
Ratio | | Losses $ | | Loss
Ratio | | Losses $ | | Loss
Ratio | | Losses $ | | Loss
Ratio | | | 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) | | $ | 8,401 | | | 38.1 | % | | 12,049 | | | 46.9 | % | | $ | 30,073 | | | 44.5 | % | | 42,889 | | | 55.1 | % | | $ | 15,264 | | | | 52.0 | % | | $ | 19,388 | | | | 60.7 | % | | $ | 40,689 | | | | 44.2 | % | | $ | 53,401 | | | | 55.2 | % | Effect of prior accident year | | | (356 | ) | | (1.6 | %) | | 2,093 | | | 8.2 | % | | (4,023 | ) | | (6.0 | %) | | 560 | | | 0.7 | % | | | 66 | | | | 0.2 | % | | | 368 | | | | 1.2 | % | | | (2,979 | ) | | | (3.2 | %) | | | 188 | | | | 0.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Non catastrophe property losses and ratio (2) | | $ | 8,045 | | | 36.5 | % | | 14,142 | | | 55.1 | % | | $ | 26,050 | | | 38.5 | % | | 43,449 | | | 55.8 | % | | $ | 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) | | $ | 3,873 | | | 17.6 | % | | 2,447 | | | 9.5 | % | | $ | 9,132 | | | 13.5 | % | | 13,110 | | | 16.8 | % | | $ | 20,060 | | | | 68.4 | % | | $ | 5,996 | | | | 18.8 | % | | $ | 28,367 | | | | 30.8 | % | | $ | 10,080 | | | | 10.4 | % | Effect of prior accident year | | | 212 | | | 1.0 | % | | (2 | ) | | 0.0 | % | | (1,331 | ) | | (2.0 | %) | | 299 | | | 0.4 | % | | | (1,828 | ) | | | (6.2 | %) | | | (1,297 | ) | | | (4.1 | %) | | | (1,619 | ) | | | (1.8 | %) | | | (10,286 | ) | | | (10.6 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Catastrophe losses and ratio (2) | | $ | 4,085 | | | 18.6 | % | | 2,445 | | | 9.5 | % | | $ | 7,801 | | | 11.5 | % | | 13,409 | | | 17.2 | % | | $ | 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) | | $ | 12,274 | | | 55.7 | % | | 14,496 | | | 56.4 | % | | $ | 39,205 | | | 58.0 | % | | 55,999 | | | 71.9 | % | | $ | 35,324 | | | | 120.4 | % | | $ | 25,384 | | | | 79.5 | % | | $ | 69,056 | | | | 75.0 | % | | $ | 63,481 | | | | 65.6 | % | Effect of prior accident year | | | (144 | ) | | (0.6 | %) | | 2,091 | | | 8.2 | % | | (5,354 | ) | | (8.0 | %) | | 859 | | | 1.1 | % | | | (1,762 | ) | | | (6.0 | %) | | | (929 | ) | | | (2.9 | %) | | | (4,598 | ) | | | (5.0 | %) | | | (10,098 | ) | | | (10.4 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Total property losses and ratio (2) | | $ | 12,130 | | | 55.1 | % | | 16,587 | | | 64.6 | % | | $ | 33,851 | | | 50.0 | % | | 56,858 | | | 73.0 | % | | $ | 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) | | $ | 14,084 | | | 61.9 | % | | $ | 15,877 | | | 71.8 | % | | $ | 40,667 | | | 61.9 | % | | $ | 41,666 | | | 64.2 | % | | $ | 1,109 | | | | 53.9 | % | | $ | 1,895 | | | | 72.4 | % | | $ | 3,154 | | | | 45.1 | % | | $ | 4,656 | | | | 57.6 | % | Effect of prior accident year | | | (7,119 | ) | | (31.3 | %) | | (8,616 | ) | | (39.0 | %) | | (20,830 | ) | | (31.7 | %) | | (19,711 | ) | | (30.4 | %) | | | (241 | ) | | | (11.7 | %) | | | (353 | ) | | | (13.5 | %) | | | (1,993 | ) | | | (28.5 | %) | | | (428 | ) | | | (5.3 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Casualty losses and ratio (2) | | $ | 6,965 | | | 30.6 | % | | $ | 7,261 | | | 32.8 | % | | $ | 19,837 | | | 30.2 | % | | $ | 21,955 | | | 33.8 | % | | $ | 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) | | $ | 26,358 | | | 58.9 | % | | $ | 30,373 | | | 63.6 | % | | $ | 79,872 | | | 59.9 | % | | $ | 97,665 | | | 68.4 | % | | $ | 36,433 | | | | 116.1 | % | | $ | 27,279 | | | | 78.9 | % | | $ | 72,210 | | | | 72.8 | % | | $ | 68,137 | | | | 65.1 | % | Effect of prior accident year | | | (7,263 | ) | | (16.2 | %) | | (6,525 | ) | | (13.7 | %) | | (26,184 | ) | | (19.6 | %) | | (18,852 | ) | | (13.2 | %) | | | (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) | | $ | 19,095 | | | 42.7 | % | | $ | 23,848 | | | 49.9 | % | | $ | 53,688 | | | 40.3 | % | | $ | 78,813 | | | 55.2 | % | | $ | 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 |
Expense RatiosPremiums
The expense ratio improved by 1.3 points from 42.0%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 quarterquarters ended September 30, 2016 to 40.7% for the quarter ended September 30, 2017. The expense ratio improved 1.0 points from 42.6%2020 and 2019 and $1.3 million and $1.4 million for the nine months ended September 30, 20162020 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 41.6%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, 2017. The improvement in2019 to 41.7% for the expense ratio isnine months ended September 30, 2020 primarily due to a reduction in compensation and travel cost partially offset by the impact of lower compensation expense.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 LIMITEDGROUP, 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) | | 2017 (1) | | | 2016 (1) | | | Change | | | 2017 (1) | | | 2016 (1) | | | Change | | Gross premiums written | | $ | 11,979 | | | $ | 9,798 | | | | 22.3 | % | | $ | 45,372 | | | $ | 34,941 | | | | 29.9 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 11,967 | | | $ | 9,798 | | | | 22.1 | % | | $ | 45,344 | | | $ | 34,927 | | | | 29.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 11,573 | | | $ | 10,558 | | | | 9.6 | % | | $ | 31,427 | | | $ | 31,663 | | | | (0.7 | %) | Other income | | | 40 | | | | (11 | ) | | | NM | | | | 213 | | | | 17 | | | | NM | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 11,613 | | | | 10,547 | | | | 10.1 | % | | | 31,640 | | | | 31,680 | | | | (0.1 | %) | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 20,766 | | | | 5,387 | | | | 285.5 | % | | | 28,558 | | | | 13,704 | | | | 108.4 | % | Acquisition costs and other underwriting expenses | | | 4,076 | | | | 3,670 | | | | 11.1 | % | | | 10,331 | | | | 11,628 | | | | (11.2 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | $ | (13,229 | ) | | $ | 1,490 | | | | NM | | | $ | (7,249 | ) | | $ | 6,348 | | | | (214.2 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | Point | | | Nine Months Ended
September 30, | | | Point | | | | | 2017 (1) | | | 2016 (1) | | | Change | | | 2017 (1) | | | 2016 (1) | | | Change | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year(2) | | | 186.3 | % | | | 78.4 | % | | | 107.9 | | | | 104.0 | % | | | 62.5 | % | | | 41.5 | | Prior accident year | | | (6.8 | %) | | | (27.4 | %) | | | 20.6 | | | | (13.1 | %) | | | (19.2 | %) | | | 6.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | Calendar year loss ratio(3) | | | 179.5 | % | | | 51.0 | % | | | 128.5 | | | | 90.9 | % | | | 43.3 | % | | | 47.6 | | Expense ratio | | | 35.2 | % | | | 34.8 | % | | | 0.4 | | | | 32.9 | % | | | 36.7 | % | | | (3.8 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Combined ratio | | | 214.7 | % | | | 85.8 | % | | | 128.9 | | | | 123.8 | % | | | 80.0 | % | | | 43.8 | | | | | | | | | | | | | | | | | | | | | | | | | | |
NM – not meaningful
| | 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.affiliates |
(3) | Most directly comparable GAAP ratio |
72
GLOBAL INDEMNITY GROUP, LLC Reconciliation ofnon-GAAP financial measures and ratios The table above includes a reconciliation of the current accident year loss ratio, which is anon-GAAP ratio, to its calendar year loss ratio, which is its most directly comparable GAAP ratio. The Company believes thisthe non-GAAP ratio is useful to investors when evaluating the Company’sCompany's underwriting performance as trends in the Company’sCompany's Reinsurance Operations may be obscured by prior accident year adjustments. Thisnon-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 Reinsurance OperationsThe Company recognized income of $0.04$0.1 million and a loss of $0.01 million forin both the quarters ended September 30, 2017quarter and 2016, respectively and income of $0.2 million and $0.02 million for the nine months ended September 30, 20172020 and 2016, respectively.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.
GLOBAL INDEMNITY LIMITED
Loss Ratio The current accident year loss ratio increased by 107.922.8 points during the quarter ended September 30, 20172020 as compared to the same period in 2016.2019. 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 was driven by the high frequencyreflects a mix of catastrophe events in the 3rd quarter including hurricanes Harvey, Irma and Maria.business shift to more casualty premium which has a higher expected loss ratio than property. The current accident year loss ratio increased by 41.58.4 points during the nine months ended September 30, 20172020 as compared to the same period in 2016. The2019 due to an increase in the property non-catastrophe loss ratio was mainly attributable toand the change in mix of business, as there is more casualty premium being written which has a higher impact from catastrophes through nine months of development as compared to the same period last year.expected loss ratio than property. The calendar year loss ratio for the quarter and nine months ended September 30, 20172020 includes a decrease of $0.8$4.9 million, or 6.832.3 percentage points, and a decrease of $4.1$5.1 million, or 13.18.8 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, 20162019 includes a decreasean increase of $2.9$0.7 million, or 27.43.4 percentage points, and a decreasean increase of $6.1$3.5 million, or 19.26.7 percentage points, respectively, related to reserve development on prior accident years. Please see Note 68 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development. Expense Ratio The expense ratio for the Company’s Reinsurance Operations increased by 0.44.9 points from 34.8%31.8% for the quarter ended September 30, 20162019 to 35.2%36.7% for the quarter ended September 30, 2017. The expense ratio improved2020 and increased by 3.82.4 points from 36.7%31.4% for the nine months ended September 30, 20162019 to 32.9%33.8% for the nine months ended September 30, 2017.2020. The improvementincrease in the expense ratio is primarily due to receivingan increase in commission expense resulting from a federal excise tax refund related to prior years.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 investments are managed distinctly according to assets supporting future insurance obligations and assets in excess of those supporting future insurance obligations. Assets supporting insurance obligations are referred to as the Insurance Obligations Portfolio. The Insurance Obligations Portfolio consists of cash and high-quality fixed income investments. Assets in excess of insurance obligations are referredportfolio, excluding cash, continues to as the Surplus Portfolio. The Surplus Portfolio targets higher returnsmaintain high quality with an AA- average rating and is comprised of cash, fixed income, common stocks, and alternative investments. The Insurance Obligations Portfolio has a market value of $845.7 million and the fixed income securities within have a credit quality ofAA- and duration of 3.1 years. The Surplus Reserve Portfolio has a market value of $782.3 million and the fixed income securities within have a credit quality ofA- and duration of 3.54.2 years.
Since
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 Company began managing its investments as two portfolios during the 2nd quarter, of 2017, year to date performance metrics are an approximation. The Insurance Obligations Portfolio returned 2.7%and decreased 37.6% for the nine months ended September 30, 2017 with net investment income of $13.4 million and realized gains of $0.5 million. The Surplus Portfolio returned 4.5% for the nine months ended September 30, 2017 with net investment income of $14.2 million and realized gains of $0.7 million. Net Investment Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarters Ended
September 30, | | | % | | | Nine Months Ended
September 30, | | | % | | | (Dollars in thousands) | | 2017 | | | 2016 | | | Change | | | 2017 | | | 2016 | | | Change | | Gross investment income(1) | | $ | 10,807 | | | $ | 9,782 | | | | 10.5 | % | | $ | 29,816 | | | $ | 29,293 | | | | 1.8 | % | Investment expenses | | | (673 | ) | | | (987 | ) | | | (31.8 | %) | | | (2,198 | ) | | | (4,190 | ) | | | (47.5 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net investment income | | $ | 10,134 | | | $ | 8,795 | | | | 15.2 | % | | $ | 27,618 | | | $ | 25,103 | | | | 10.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Excludes realized gains and losses |
Gross investment income increased by 10.5% for the quarter ended September 30, 2017 and increased 1.8% for the nine months ended September 30, 2017,2020, respectively, as compared withto the same periodsperiod in 2016.2019. The increase for the quarter ended was
GLOBAL INDEMNITY LIMITED
primarily due to an increase in yield within the fixed maturities portfolio. The increase for the nine months ended was due to an increase in yield and a larger investment portfolio,increased returns from alternative investments offset by a decrease in income related to the Company’sfixed 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 partnership investments.partnerships typically not reporting results until one to three months following the end of the reporting period. Investment expenses decreased by 31.8%0.5% and 47.5%7.5% for the quarter ended and nine months ended September 30, 2017,2020, respectively, as compared withto the same periodsperiod in 2016. The decrease is mainly attributable2019 due to $1.5 million in upfront fees paid in 2016including investment expenses related to enter intomutual funds as a newdirect offset to investment in middle market corporate debt and equity investments in limited liability companies.income. At September 30, 2017,2020, the Company held agency mortgage-backed securities with a market value of $95.9$289.7 million. Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 3.24.8 years as of September 30, 2017,2020, compared with 2.03.8 years as of September 30, 2016.2019. Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities, was 3.14.6 years as of September 30, 2017,2020, compared with 1.93.5 years as of September 30, 2016.2019. Changes in interest rates can cause principal payments on certain investments to extend or shorten which can impact duration. At September 30, 2017, theThe Company’s embedded book yield on its fixed maturities, not including cash, was 2.7% compared with 2.2% at2.4% as of September 30, 2016.2020, compared to 3.0% as of September 30, 2019. The embedded book yield on the $117.2$62.0 million of taxable municipal bonds in the Company’s portfolio, which includes $103.6 million of taxable municipal bonds, was 3.1%3.0% at September 30, 2017,2020, compared to an embedded book yield of 2.8%3.3% on the Company’s taxable municipal bond portfoliobonds of $170.7$55.6 million at September 30, 2016.2019. Net Realized Investment Gains (Losses) The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 20172020 and 20162019 were as follows: | | | | Quarters Ended
September 30, | | % | | Nine Months Ended
September 30, | | % | | | Quarters Ended September 30, | | | Nine Months Ended September 30, | | | (Dollars in thousands) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Common stock | | $ | 289 | | | $ | 2,989 | | | (90.3 | %) | | $ | 2,079 | | | $ | 7,056 | | | (70.5 | %) | | Equity securities | | | $ | 4,887 | | | $ | (1,465 | ) | | $ | (17,201 | ) | | $ | 17,860 | | Fixed maturities | | | 134 | | | 395 | | | (66.1 | %) | | 795 | | | 1,162 | | | (31.6 | %) | | | 2,276 | | | | 946 | | | | 17,028 | | | | 4,731 | | Interest rate swap | | | (366 | ) | | 758 | | | (148.3 | %) | | (2,016 | ) | | (12,794 | ) | | 84.2 | % | | Derivatives | | | | 160 | | | | (2,171 | ) | | | (22,159 | ) | | | (9,404 | ) | Other than temporary impairment losses | | | (1,020 | ) | | (2,214 | ) | | 53.9 | % | | (1,708 | ) | | (4,481 | ) | | 61.9 | % | | | — | | | | — | | | | — | | | | (1,897 | ) | | | | | | | | | | | | | | | | | | | Net realized investment gains (losses) | | $ | (963 | ) | | $ | 1,928 | | | (149.9 | %) | | $ | (850 | ) | | $ | (9,057 | ) | | 90.6 | % | | $ | 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 23 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 apre-tax basis for the quarters and nine months ended September 30, 20172020 and 2016.2019. 74
GLOBAL INDEMNITY GROUP, LLC Corporate and Other Operating Expenses Corporate and other operating expenses consist primarily 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 $4.6$21.2 million and $5.0$3.9 million during the quarters ended September 30, 20172020 and 2016,2019, respectively, and $11.0$34.0 million and $13.1$11.7 million during the nine months ended September 30, 20172020 and 2016,2019, respectively. This decreaseThe increase in corporate expenses is primarily due to incurring cost$10.0 million in connection with there-domestication in 2016 which the Company did not incur in 2017. Interest Expense
Interest expense increased 116.6% and 80.7% during the quarter and nine months ended September 30, 2017 as comparedadvisory fees related to the same periodredomestication as well as an increase in 2016. This increase is primarilylegal and professional fees due to the Company’s $130 million debt offering in March, 2017.redomestication. See Note 711 of the notes to the consolidated financial statements in Item 1 of Part I of this report for detailsadditional information on the Company’s debt.redomestication fee.
GLOBAL INDEMNITY LIMITED
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 The income
Income tax benefit was $7.9$3.2 million for the quarter ended September 30, 20172020 compared with an income tax expensebenefit of $1.1$0.3 million for the quarter ended September 30, 2016.2019. The increase in the income tax benefit iswas primarily due to losses incurred inhigher pre-tax loss for the Company’s U.S. operationssubsidiaries for the quarter ended September 30, 2017 2020as compared to a gainthe same period in 2016. The2019 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 $13.2$8.2 million for the nine months ended September 30, 20172020 compared with an income tax benefitexpense of $10.4$5.2 million for the nine months ended September 30, 2016.2019. The increase in the income tax benefit rate iswas primarily due to higher losses incurred ina pre-tax loss for the Company’s US operationsU.S. subsidiaries for the nine months ended September 30, 20172020as compared to a gain in the same period in 2016.2019 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 57 of the notes to the consolidated financial statements in Item 1 of Part I of this report for a comparison of income tax between periods. Net Income (Loss) The factors described above resulted in a net loss of $8.9$15.2 million and net income of $9.5$6.7 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and a net loss of $22.2 million and net income of $13.4 million and $11.5$41.0 million for the nine months ended September 30, 20172020 and 2016,2019, 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 U.S. 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; and its Reinsurance Operations: Company. Global Indemnity Reinsurance. The principal sources of cash that Global Indemnity requires to meet itsIndemnity’s short term and long term liquidity needs includinginclude but are not limited to the payment of corporate expenses, debt service payments, dividend payments to shareholders, and share repurchasesrepurchases. 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, and proceeds from sales and redemptions of investments.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. On October 29, 2015, Global Indemnity acquired rights, expiring December 31, 2019, to redeem an additional 3,397,031 ordinary shares for $78.1 million, which is subject to an annual 3% increase in price.
As of September 30, 2017,2020, the Company also had future funding commitments of $59.5$31.2 million related to investments. The timing of commitmentsHowever, the related to investments are currently in their harvest period and it is uncertain.unlikely that a capital call will be made. The future liquidity of Global Indemnity is dependent on the ability of its subsidiaries to pay dividends.
Global Indemnity’s U.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—“Regulation - Statutory Accounting Principles” in Item 1 of Part I of the Company’s 20162019 Annual Report on Form10-K. Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes, reserve calculation assumptions and surplus notes. See Note 1918 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 20162019 Annual Report on Form10-K for further information on dividend limitations related to the U.S. Insurance Companies. The U.S. Insurance Companies did not declare or pay any dividends during the quarter ended September 30, 2017. During theand nine months ended September 30, 2017, the United National Insurance Company, the Penn-America Insurance Company, and American Reliable declared dividends of $17.8 million, GLOBAL INDEMNITY LIMITED
2020. $7.9 million, and $3.3 million, respectively, which were paid in September, 2017. In addition, United National Insurance Company paid a $35.0 million dividend, which was previously declared in 2015, to its parent company, American Insurance Services, Inc. during the nine months ended September 30, 2017.
For 2017, the Company believes that Global Indemnity Reinsurance including distributions it could receive from its subsidiaries, should have sufficient liquidity and solvency to pay dividends. Global Indemnity Reinsurance iswas 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 20162019 Annual Report on Form10-K. In June, 2020, the Board of Directors of Global Indemnity Reinsurance did not declare or pay any dividends during the quarter or nine months ended September 30, 2017.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 written 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 used forprovided 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. |
the timing of the Company’s settlements with its reinsurers; and
the timing of the Company’s loss payments.
Net cash used forprovided by operating activities was $13.6$33.9 million and $45.9 million for the nine months ended September 30, 20172020 and net cash used by operating activities was $9.3 million for the nine months ended September 30, 2016.2019, respectively. The decrease in operating cash flows of approximately $4.3$12.0 million from the prior year was primarily a net result of the following items: | | | | Nine Months Ended September 30, | | | | | | Nine Months Ended September 30, | | | | | | (Dollars in thousands) | | 2017 | | | 2016 | | | Change | | | 2020 | | | 2019 | | | Change | | Net premiums collected | | $ | 323,239 | | | $ | 363,677 | | | $ | (40,438 | ) | | $ | 418,598 | | | $ | 417,803 | | | $ | 795 | | Net losses paid | | | (202,564 | ) | | | (225,631 | ) | | | 23,067 | | | | (231,038 | ) | | | (220,924 | ) | | | (10,114 | ) | Underwriting and corporate expenses | | | (150,012 | ) | | | (168,391 | ) | | | 18,379 | | | | (183,883 | ) | | | (174,526 | ) | | | (9,357 | ) | Net investment income | | | 25,572 | | | | 27,840 | | | | (2,268 | ) | | | 33,428 | | | | 38,700 | | | | (5,272 | ) | Net federal income taxes paid | | | (104 | ) | | | (263 | ) | | | 159 | | | Net federal income taxes recovered (paid) | | | | 10,859 | | | | (235 | ) | | | 11,094 | | Interest paid | | | (9,738 | ) | | | (6,578 | ) | | | (3,160 | ) | | | (14,028 | ) | | | (14,888 | ) | | | 860 | | | | | | | | | | | | | Net cash used for operating activities | | $ | (13,607 | ) | | $ | (9,346 | ) | | $ | (4,261 | ) | | | | | | | | | | | | | Net cash provided by (used for) operating activities | | | $ | 33,936 | | | $ | 45,930 | | | $ | (11,994 | ) |
See the consolidated statementstatements 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. Liquidity76
GLOBAL INDEMNITY GROUP, LLC Property Catastrophe Quota ShareLiquidity
Effective April 15, 2017,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 entered into an agreement to cede 50%cover business interruption claims regardless of its property catastrophe losses for all single occurrences over $3 million upterms, 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 a lossminimize the impact on the Company’s liquidity. However, given the ongoing uncertainty surrounding the duration, magnitude and geographic reach of $40 million. This treaty has an aggregate limit of $60 million and will expire on June 1, 2018. As a result of entering into this treaty,COVID-19, the Company did not renewis regularly evaluating the $20 million in excessimpact of $20 million layer ofCOVID-19 on its property catastrophe treaty on June 1, 2017.
GLOBAL INDEMNITY LIMITED
liquidity. PublicDividends / 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 Offering On March 23, 2017,
In August 2020, the Company issuedredeemed the 7.875% Subordinated Notes due 2047entire $100 million in the aggregate principal amount of $120.0 million through an underwritten public offering. Pursuant to the underwriting agreement, the Company granted the underwriters a 30 day option to purchase up to an additional $18 million aggregate principal amount of the 2047outstanding 2045 Notes solelyplus accrued and unpaid interest on the 2045 Notes redeemed to, cover over-allotments, if any. On March 30, 2017,but not including, the underwriters exercised their over-allotment option in the amountRedemption Date of $10 million principal amountAugust 15, 2020.
Repayment of Margin Borrowing Facility The Company repaid all of the 2047 Notes. As a result,outstanding debt on the aggregate principal amount of the 2047 Notes increased to $130.0 million. The sale of the 2047 Notes pursuant to the over-allotment option closed on March 30, 2017.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, 2017.2020. Please see Item 7 of Part II in the Company’s 20162019 Annual Report on Form10-K for information regarding the Company’s liquidity. Capital Resources During
In connection with the first quarterCompany’s redomestication to the United States, actions were taken to simplify the Company’s current corporate structure. As a result, a series of 2017,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 madeReinsurance into Penn Patriot Insurance Company (“Penn Patriot”) with Penn Patriot surviving as well as the amalgamation of Global Indemnity Limited with a capital contribution innewly formed company, New Cayco. The surviving company, New Cayco, merged into the amountnewly formed parent company, Global Indemnity Group, LLC. In addition, $541.4 million of $96.0intercompany 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 subsidiary,parent, Global Indemnity (Gibraltar) Limited. Through Intercompany Loan On June 16, 2020, GBLI Holdings, LLC entered into a seriesloan agreement with Global Indemnity Reinsurance. Under the terms of additional capital contributionsthe loan agreement, GBLI Holdings, LLC agreed to lend $40.0 million to Global Indemnity Reinsurance by transferring cash and repayment/ or securities to Global Indemnity Reinsurance. This loan bears interest at a rate of certain intercompany balances, U.A.I. (Luxembourg) IV S.à.r.l.0.18% and is due on June 16, 2023. This loan was the ultimate recipient of this capital contribution in the amount of $93.5 million.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, Inc. issued a promissory note inLLC for the principal amount of $120.0 million to U.A.I. (Luxembourg)$11.3 million. This note was issued in conjunction with Global Indemnity Investment S.à.r.l. during the first quarterInc.’s purchase of 2017. Thislimited liability partnership interests from Global Indemnity Group, LLC. The note bears interest at a rate of 8.15%1.47% and matures in 2047.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, 2017.2020. Please see Item 7 of Part II in the Company’s 20162019 Annual Report on Form10-K for information regarding the Company’s capital resources. Contractual Obligations
The Company has commitments in the form of operating leases, commitments to fund limited liability investments, subordinated notes, and unpaid losses and loss expense obligations. As of September 30, 2017, contractual obligations related to Global Indemnity’s commitments, including any principal and interest payments, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Payment Due by Period | | | (Dollars in thousands) | | Total | | | Less than 1
year | | | 1 – 3 years | | | 3 -5 years | | | More than 5
years | | Operating leases(1) | | $ | 6,502 | | | $ | 3,314 | | | $ | 3,188 | | | $ | — | | | $ | — | | Commitments to fund limited partnership investments(2) | | | 59,490 | | | | 59,490 | | | | — | | | | — | | | | — | | Subordinated notes due 2045 (3) | | | 317,000 | | | | 7,750 | | | | 15,500 | | | | 15,500 | | | | 278,250 | | Subordinated notes due 2047 (4) | | | 434,566 | | | | 10,238 | | | | 20,475 | | | | 20,475 | | | | 383,378 | | Unpaid losses and loss adjustment expenses obligations(5) | | | 649,726 | | | | 276,783 | | | | 226,754 | | | | 76,668 | | | | 69,521 | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 1,467,284 | | | $ | 357,575 | | | $ | 265,917 | | | $ | 112,643 | | | $ | 731,149 | | | | | | | | | | | | | | | | | | | | | | |
(1) | The Company leases office space and equipment as part of its normal operations. The amounts shown above represent future commitments under such operating leases. |
(2) | Represents future funding commitment of the Company’s participation in three separate limited partnership investments. See Note 10 of the notes to the consolidated financial statements in Item 1 of Part I of this report for additional information on these commitments. |
(3) | Represents the Subordinated Notes due in 2045 in the aggregate principal amount of $100.0 million through an underwritten public offering. The notes bear interest at an annual rate equal to 7.75% payable quarterly. Please see Note 12 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2016 Annual Report on Form10-K for more information on the Company’s 7.75% subordinated note due 2045. |
(4) | Represents the Subordinated Notes due in 2047 in the aggregate principal amount of $130.0 million through an underwritten public offering. The notes bear interest at an annual rate equal to 7.875% payable quarterly. See Note 7 of the notes to the consolidated financial statements in Item 1 of Part I of this report for additional information on the 2047 Subordinated Notes. |
(5) | These amounts represent the gross future amounts needed to pay losses and related loss adjustment expenses and do not reflect amounts that are expected to be recovered from the Company’s reinsurers. |
GLOBAL INDEMNITY LIMITED
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“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,”"believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or “anticipate”"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 20162019 Annual Report on Form10-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, 2017,2020, global equities rallied forrose 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 sixth consecutive quarter. A broad-based expansiontreasury 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 economic growth, supportivefiscal stimulus and monetary policy actions, but will need to monitor the recent upturn in new COVID-19 infections and benign inflation helped drive equity markets higher during the third quarter. Eurozone confidence reached a decade-high in September on the back of solid employment and manufacturing data and a reacceleration in the services sector. The US economy continued on an upward trajectory, and signs of firming inflation increased investors’ expectation of further monetary policy tightening at the end of the year. As the global economy continued to gain momentum, central banks began to normalize their long-standing loose monetary policies. Angela Merkel was reelected for a fourth term as German Chancellor. US equities rose for the eighth straight quarter. Despite continued White House turmoil and heightenedvolatility that may be introduced with upcoming U.S. tensions with Russia and North Korea, strong employment data and corporate earnings helped propel the S&P 500 Index to a series of new highs. Within the S&P 500 Index, 10 of the 11 sectors posted positive results for the quarter. Consumer staples was the only sector to post a negative return, with much of the weakness attributed to the poor performance of the tobacco and food products groups. Global fixed income markets generated positive returns in the third quarter. Escalating geopolitical tensions between the US and North Korea and serial disappointments in inflation data helped to contain the increase in sovereign yields prompted by central bank policy normalization. Generally strong economic data, a rally in commodity prices, and continued demand for yield-producing assets supported credit markets and spreads tightened further. Most developed market currencies strengthened versus the US dollar as political uncertainty and continued skepticism about the US Federal Reserve’s (Fed’s) projected rate-hiking path weighed on the greenback.elections.
The Company’s investment grade fixed income portfolio continues to maintain high quality with an A+AA- average rating and a duration of 3.14.2 years. The Insurance Obligations Portfolio has a credit quality ofAA- and duration of 3.0 years. The portionof the Surplus Portfolio comprised of cash and fixed income securities has a credit quality ofA- and duration of 3.4 years. Portfolio purchases were focused within agency mortgage backed securities, U.S. corporate bondsMBS and asset backedUS Treasury securities. These purchases were funded primarily through cash inflows, sales of U.S. credit, commercial mortgage backedCMBS, MBS, and US Treasury securities, andtax-exempt municipals, as well as maturities and paydowns. During the third quarter, the portfolio’s allocation to agency mortgaged backed securitiesABS, MBS, and investment grade credit increased, while the portfolio’s exposure to CMO and the allocation totax-exempt municipalsUS Treasuries decreased. There have been no other material changes to the Company’s market risk since December 31, 2016.2019. Please see Item 7A of Part II in the Company’s 20162019 Annual Report on Form10-K for information regarding the Company’s market risk. 78
GLOBAL INDEMNITY LIMITEDGROUP, LLC Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures (as that term is defined inRules 13a-15(e) and15d-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, 2017.2020. 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, 2017,2020, 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, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. 79
GLOBAL INDEMNITY LIMITED GROUP, LLCPART II-OTHER INFORMATION PARTII-OTHER INFORMATION
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. 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 20162019 Annual Report on Form10-K, filed with the SEC on March 10, 2017 and6, 2020, as supplemented by the Company’s Quarterly Report on Form10-Q, 10Q for the quarterly period ending March 31, 2020 filed with the SEC on May 10, 2017.8, 2020, and the Company’s definitive proxy statement on Schedule 14A filed July 23, 2020. The risk factors identified therein have not materially changed.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. 80
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 ordinarycommon shares as payment for the tax liability incurred upon the vesting of restricted stock. There were no396 shares surrendered by the Company’s employees during the quarter ended September 30, 2017.2020. All class A ordinarycommon shares surrendered by the Company’s employees by the Company 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. None On August 8, 2017, the Company’s subsidiary, Global Indemnity Group, Inc. and William J. Devlin, Jr. amended Mr. Devlin’s executive employment agreement to allow for the vesting of any unvested A ordinary shares held by Mr. Devlin upon a change in control of the Company, as defined in the amendment.
On August 8, 2017, the Company and Stephen Green amended Mr. Green’s executive employment term sheet to allow for the vesting of any unvested A ordinary shares held by Mr. Green upon a change in control of the Company, as defined in the amendment.81
GLOBAL INDEMNITY LIMITEDGROUP, LLC | | | 10.1+ | | | 3.1 | | ConfidentialityShare Designation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)).
| | | | 3.2 | | Second Amended and Restated LLC Agreement of Global Indemnity Group, LLC (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 4.1 | | Fourth Supplemental Indenture, dated as of August 28, 2020, among Global Indemnity Limited, GBLI Holdings, LLC, New CayCo, Wells Fargo Bank, National Association, as trustee and U.S. Bank, National Association, as trustee, to the Indenture dated as of August 12, 2015. (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 4.2 | | Fifth Supplemental Indenture, dated as of August 28, 2020, among New CayCo, GBLI Holdings, LLC, Global Indemnity Group, LLC, Wells Fargo Bank, National Association, as trustee and U.S. Bank, National Association, as trustee, to the Indenture dated as of August 12, 2015. (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.1 | | Preferred Interest Purchase Agreement, dated as of August 27, 2020, by and between Global Indemnity Group, LLC and Wyncote LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.2 | | Third Amended and Restated Management Agreement, dated as of August 28, 2020, by and between Global Indemnity Group, LLC and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.3 | | Amendment to Executive Employment Agreement with Cynthia Y. Valko, dated as of August 28, 2020 (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.4 | | Executive Employment Term Sheet with Stephen Green, dated effective as of January 1, 2020 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.5 | | Amendment to Executive Employment Term Sheet with Stephen Green, dated as of August 28, 2020 (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.6 | | Amendment to Executive Employment Agreement with Thomas M. McGeehan, dated as of August 28, 2020 (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.7 | | Amended and Restated Global Indemnity Limited,Group, LLC 2018 Share Incentive Plan, dated September 17, 2017.as of August 28, 2020 (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.8 | | Amended and Restated Global Indemnity Group, LLC Annual Incentive Awards Program, dated as of August 28, 2020 (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 31.1+ | | Certification of Chief Executive Officer pursuant to Rule13a-14 (a) /15d-14 (a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | 31.2+ | | Certification of Chief Financial Officer pursuant to Rule13a-14 (a) /15d-14 (a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | |
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GLOBAL INDEMNITY GROUP, LLC 32.1+ | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | 32.2+ | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | 101.1+ | | The following financial information from Global Indemnity Limited’s Quarterly Report on Form10-Q for the quarter ended September 30, 2017 formatted in XBRL: (i) Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016; (ii) Consolidated Statements of Operations for the quarters and nine months ended September 30, 2017 and 2016; (iii) Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2017 and 2016; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2017 and the year ended December 31, 2016; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements. | | | | | 101.INS | | 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. | | | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
+ | Filed or furnished herewith, as applicable. |
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GLOBAL INDEMNITY LIMITED GROUP, LLCSIGNATURE 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. | | | | | | | | | | | | | GLOBAL INDEMNITY LIMITEDGROUP, LLC | | | Registrant | | | | | | | | | | | November 9, 20172020 | | By: | | By: | | /s/ Thomas M. McGeehan | | | | | Date: | | November 9, 20172020 | | | | Thomas M. McGeehan | | | | | | | Chief Financial Officer | | | | | | | (Authorized Signatory and Principal Financial and Accounting Officer) |
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