UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
001-34809
Commission File Number
GLOBAL INDEMNITY GROUP, LLC
(Exact name of registrant as specified in its charter)
Delaware
85-2619578
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)
112 S. French Street, Suite 105
Wilmington, DE 19801
(Address of principal executive office including zip code)
Registrant's telephone number, including area code: (302) 691-6276
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files.). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
☐;
Accelerated filer
☒;
Non-accelerated filer
Smaller reporting company
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Class A Common Shares
GBLI
New York Stock Exchange
As of November 1, 2024, the registrant had outstanding 9,894,230 Class A Common Shares and 3,793,612 Class B Common Shares.
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements:
3
Consolidated Balance Sheets As of September 30, 2024 (Unaudited) and December 31, 2023
Consolidated Statements of Operations Quarters and Nine Months Ended September 30, 2024 (Unaudited) and September 30, 2023 (Unaudited)
4
Consolidated Statements of Comprehensive Income Quarters and Nine Months Ended September 30, 2024 (Unaudited) and September 30, 2023 (Unaudited)
5
Consolidated Statements of Changes in Shareholders’ Equity Quarters and Nine Months Ended September 30, 2024 (Unaudited) and September 30, 2023 (Unaudited)
6
Consolidated Statements of Cash Flows Nine Months Ended September 30, 2024 (Unaudited) and September 30, 2023 (Unaudited)
7
Notes to Consolidated Financial Statements (Unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
45
Item 4.
Controls and Procedures
46
PART II – OTHER INFORMATION
Legal Proceedings
47
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
48
Signature
49
Item 1. Financial Statements
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)September 30, 2024
December 31, 2023
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost: $1,404,854 and $1,322,092; net of allowance for expected credit losses of $0 at September 30, 2024 and December 31, 2023)
$
1,395,229
1,293,793
Equity securities, at fair value
12,347
16,508
Other invested assets
29,459
38,236
Total investments
1,437,035
1,348,537
Cash and cash equivalents
31,019
38,037
Premium receivables, net of allowance for expected credit losses of $3,486 at September 30, 2024 and $4,796 at December 31, 2023
73,425
102,158
Reinsurance receivables, net of allowance for expected credit losses of $8,992 at September 30, 2024 and December 31, 2023
76,393
80,439
Funds held by ceding insurers
27,194
16,989
Deferred federal income taxes
24,491
36,802
Deferred acquisition costs
40,855
42,445
Intangible assets
14,191
14,456
Goodwill
4,820
Prepaid reinsurance premiums
3,260
4,958
Receivable for securities
19
3,858
Federal income tax receivable
1,062
—
Lease right of use assets
8,519
9,715
Other assets
18,834
26,362
Total assets
1,761,117
1,729,576
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses
840,176
850,599
Unearned premiums
183,362
182,852
Ceded balances payable
963
2,642
Federal income tax payable
1,595
Contingent commissions
5,203
5,632
Lease liabilities
10,836
12,733
Other liabilities
33,851
24,770
Total liabilities
1,074,391
1,080,823
Commitments and contingencies (Note 10)
Shareholders’ equity:
Series A cumulative fixed rate preferred shares, $1,000 par value; 100,000,000 shares authorized, shares issued and outstanding: 4,000 and 4,000 shares, respectively, liquidation preference: $1,000 per share and $1,000 per share, respectively
4,000
Common shares: no par value; 900,000,000 common shares authorized; class A common shares issued: 11,181,998 and 11,042,670, respectively; class A common shares outstanding: 9,894,230 and 9,771,429, respectively; class B common shares issued and outstanding: 3,793,612 and 3,793,612, respectively
Additional paid-in capital
458,714
454,791
Accumulated other comprehensive income (loss), net of tax
(7,847
)
(22,863
Retained earnings
264,551
244,988
Class A common shares in treasury, at cost: 1,287,768 and 1,271,241 shares, respectively
(32,692
(32,163
Total shareholders’ equity
686,726
648,753
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
(In thousands, except shares and per share data)
(Unaudited)Quarters Ended September 30,
(Unaudited)Nine Months Ended September 30,
2024
2023
Revenues:
Gross written premiums
99,767
98,926
293,961
332,011
Ceded written premiums
(2,590
(3,303
(6,948
(14,531
Net written premiums
97,177
95,623
287,013
317,480
Change in net unearned premiums
(1,764
16,072
(2,207
63,443
Net earned premiums
95,413
111,695
284,806
380,923
Net investment income
16,488
14,200
46,319
39,424
Net realized investment gains (losses)
(512
(133
540
(2,414
Other income
372
299
1,074
935
Total revenues
111,761
126,061
332,739
418,868
Losses and Expenses:
Net losses and loss adjustment expenses
52,400
65,116
159,446
231,199
Acquisition costs and other underwriting expenses
37,553
46,202
111,790
146,781
Corporate and other operating expenses
5,923
5,280
18,662
16,638
Interest expense
17
12
Income before income taxes
15,885
9,463
42,824
24,238
Income tax expense
3,125
1,763
8,605
4,707
Net income
12,760
7,700
34,219
19,531
Less: preferred stock distributions
110
330
Net income available to common shareholders
12,650
7,590
33,889
19,201
Per share data:
Basic
0.93
0.56
2.49
1.42
Diluted
0.92
0.55
2.48
1.39
Weighted-average number of shares outstanding
13,664,542
13,522,874
13,617,960
13,556,665
13,800,877
13,814,445
13,684,018
13,798,876
Cash distributions declared per common share
0.35
0.25
1.05
0.75
Consolidated Statements of Comprehensive Income
(In thousands)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses)
9,513
(897
14,314
4,183
Reclassification adjustment for losses included in net income
633
94
665
1,060
Unrealized foreign currency translation gains (losses)
58
(143
37
(302
Other comprehensive income (loss), net of tax
10,204
(946
15,016
4,941
Comprehensive income, net of tax
22,964
6,754
49,235
24,472
Consolidated Statements of Changes in Shareholders’ Equity
Number of Series A Cumulative Fixed Rate Preferred Shares
Number at beginning and end of period
Number of class A common shares issued:
Number at beginning of period
11,158,442
11,000,287
11,042,670
10,876,041
Common shares issued under share incentive plans, net of forfeitures
65,182
75,541
Common shares issued to directors
23,556
19,887
74,146
68,592
Number at end of period
11,181,998
11,020,174
Number of class B common shares issued:
3,793,612
Par value of Series A Cumulative Fixed Rate Preferred Shares
Balance at beginning and end of period
Additional paid-in capital:
Balance at beginning of period
457,550
453,427
451,305
Share compensation plans
1,164
989
3,923
3,111
Balance at end of period
454,416
Accumulated other comprehensive income (loss), net of deferred income tax:
(18,051
(37,171
(43,058
Other comprehensive income (loss):
Change in unrealized holding gains (losses)
10,146
(803
14,979
5,243
Other comprehensive income (loss)
(38,117
Retained earnings:
256,683
238,315
233,468
Preferred share distributions
(110
(330
Distributions to shareholders ($0.35 and $0.25 per share per quarter in 2024 and 2023, respectively)
(4,782
(3,386
(14,326
(10,150
242,519
Number of treasury shares:
1,287,768
1,271,241
802,381
Class A common shares purchased
16,527
468,860
Treasury shares, at cost:
(19,486
Class A common shares purchased, at cost
(529
(12,677
630,655
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation
3,993
4,801
Restricted stock and stock option expense
4,711
Amortization of bond premium and discount, net
(16,989
(3,874
Net realized investment losses (gains)
(540
2,414
Income from equity method investments, net of distributions
136
112
Changes in:
Premium receivables, net
28,733
37,636
Reinsurance receivables, net
4,046
140
(10,158
(1,076
(10,423
29,399
510
(73,673
(1,679
(13,709
Other assets and liabilities
7,672
2,061
(429
(4,015
(2,657
1,590
18,952
1,698
10,231
Net cash provided by operating activities
52,250
36,752
Cash flows from investing activities:
Proceeds from sale of fixed maturities
80,236
114,058
Proceeds from sale of equity securities
24
Proceeds from maturity of fixed maturities
539,542
158,216
Proceeds from maturity of preferred stock
5,534
500
Proceeds from other invested assets
8,641
1,196
Purchases of fixed maturities
(682,546
(282,564
Purchases of equity securities
(74
Net cash used for investing activities
(48,593
(8,644
Cash flows from financing activities:
Distributions paid to common shareholders
(9,816
(7,477
Distributions paid to preferred shareholders
Purchases of class A common shares
Net cash used for financing activities
(10,675
(20,484
Net change in cash and cash equivalents
(7,018
7,624
Cash and cash equivalents at beginning of period
38,846
Cash and cash equivalents at end of period
46,470
Global Indemnity Group, LLC (“Global Indemnity”, "GBLI", or “the Company”), a Delaware limited liability company formed on June 23, 2020, replaced Global Indemnity Limited, incorporated in the Cayman Islands as an exempted company with limited liability, as the ultimate parent company of the Global Indemnity group of companies as a result of a redomestication transaction completed on August 28, 2020. Global Indemnity Group, LLC’s class A common shares are publicly traded on the New York Stock Exchange under the ticker symbol GBLI. Global Indemnity Group, LLC’s predecessors have been publicly traded since 2003.
The interim consolidated financial statements are unaudited, but have been prepared in conformity with United States of America generally accepted accounting principles (“GAAP”), which differs in certain respects from those principles followed in reports to insurance regulatory authorities. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The unaudited consolidated financial statements include all adjustments that are, in the opinion of management, of a normal recurring nature and are necessary for a fair statement of results for the interim periods. Results of operations for the quarters and nine months ended September 30, 2024 and 2023 are not necessarily indicative of the results of a full year. The accompanying notes to the unaudited consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s 2023 Annual Report on Form 10-K.
The consolidated financial statements include the accounts of Global Indemnity Group, LLC and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Company restructured its insurance operations to strengthen its market presence and enhance its focus on GBLI’s core products. As a result, the Company exited its four brokerage divisions: Professional Liability, Excess Casualty, Environmental, and Middle Market Property. The Company ceased writing new business and non-renewed existing policies for these four divisions. The restructuring plan, which was initiated in the fourth quarter of 2022, was completed in the first quarter of 2023.
In connection with the restructuring plan, the Company incurred restructuring costs of $3.4 million in 2022 and $2.0 million in 2023 for total restructuring costs of $5.4 million. No additional restructuring costs were incurred during the quarter and nine months ended September 30, 2024. The liability related to the restructuring plan was less than $0.1 million at December 31, 2023. This liability was paid during the first quarter of 2024.
The amortized cost and estimated fair value of the Company’s fixed maturities securities were as follows as of September 30, 2024 and December 31, 2023:
(Dollars in thousands)
Amortized Cost
Allowance for Expected Credit Losses
GrossUnrealizedGains
GrossUnrealizedLosses
Estimated Fair Value
As of September 30, 2024
U.S. treasuries
889,891
1,380
(683
890,588
Obligations of states and political subdivisions
17,807
(634
17,173
Mortgage-backed securities
49,317
598
(2,438
47,477
Asset-backed securities
159,166
1,312
(2,810
157,668
Commercial mortgage-backed securities
76,675
77
(2,526
74,226
Corporate bonds
149,857
317
(2,777
147,397
Foreign corporate bonds
62,141
163
(1,604
60,700
Total fixed maturities
1,404,854
3,847
(13,472
As of December 31, 2023
497,099
515
(3,391
494,223
27,326
(1,176
26,150
63,173
229
(4,475
58,927
207,375
668
(5,091
202,952
84,062
(4,994
79,080
298,526
116
(6,929
291,713
144,531
40
(3,823
140,748
1,322,092
1,580
(29,879
As of September 30, 2024 and December 31, 2023, the Company’s investments in equity securities consist of preferred stock in the amounts of $12.3 million and $16.5 million, respectively.
Excluding U.S. treasuries and limited partnerships, the Company did not hold any debt or equity investments in a single issuer in excess of 1.7% and 2.1% of shareholders' equity at September 30, 2024 and December 31, 2023, respectively.
The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at September 30, 2024, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due in one year or less
945,787
946,078
Due in one year through five years
153,185
150,427
Due in five years through ten years
10,807
10,090
Due after ten years
9,917
9,263
Total
9
The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses that are not deemed to have credit losses, categorized by the period that the securities were in a continuous loss position as of September 30, 2024. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 4.
Less than 12 months
12 months or longer
Fair Value
18,829
(4
67,499
(679
86,328
6,235
(127
24,167
(2,311
30,402
4,130
(49
56,171
(2,761
60,301
65,051
65,060
6,043
(11
106,762
(2,766
112,805
520
(7
50,111
(1,597
50,631
35,766
(198
386,934
(13,274
422,700
The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses that are not deemed to have credit losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2023. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 4.
55,447
(342
239,254
(3,049
294,701
12,432
(406
39,734
(4,069
52,166
38,828
(469
108,947
(4,622
147,775
13
(2
76,467
(4,992
76,480
34,658
(264
231,816
(6,665
266,474
7,096
(13
111,750
(3,810
118,846
148,474
(1,496
834,118
(28,383
982,592
The Company regularly performs various analytical valuation procedures with respect to its investments, including reviewing each available for sale debt security in an unrealized loss position to assess whether the decline in fair value below amortized cost basis has resulted from a credit loss or other factors. In assessing whether a credit loss exists, the Company compares the present value of the cash flows expected to be collected from the security to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for expected credit losses is recorded. Subsequent changes in the allowances are recorded in the period of change as either credit loss expense or reversal of credit loss expense. Any declines in value related to factors other than credit losses and the intent to sell are recorded through other comprehensive income, net of taxes.
10
For fixed maturities, the factors considered in reaching the conclusion that a credit loss exists include, among others, whether:
According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met, any allowance for expected credit losses is written off and the amortized cost basis is written down to the fair value of the fixed maturity security with any incremental impairment reported in earnings. The new amortized cost basis shall not be adjusted for subsequent recoveries in fair value. Subject to the risks and uncertainties in evaluating the potential impairment of a security's value, the impairment evaluation conducted by the Company as of September 30, 2024 and December 31, 2023 concluded the unrealized losses in the tables above are non-credit losses on securities where management does not intend to sell, and it is more likely than not that the Company will not be required to sell the security before recovery.
The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of the available for sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. The Company made an accounting policy election to present the accrued interest receivable balance with other assets on the Company’s consolidated statements of financial position. Accrued interest receivable related to fixed maturities was $3.5 million and $7.5 million as of September 30, 2024 and December 31, 2023, respectively.
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. treasuries – As of September 30, 2024, gross unrealized losses related to U.S. treasuries were $0.683 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other 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. treasuries during the period.
Obligations of states and political subdivisions – As of September 30, 2024, gross unrealized losses related to obligations of states and political subdivisions were $0.634 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, elements that may influence the performance of the municipal bond market are considered in evaluating these securities 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 extensive in-house fundamental analysis on each issuer, regardless of their rating by the major agencies. Based on the analysis performed, the Company did not recognize a credit loss on obligations of states and political subdivisions during the period.
11
Mortgage-backed securities (“MBS”) – As of September 30, 2024, gross unrealized losses related to mortgage-backed securities were $2.438 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other 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 utilizes HPI-adjusted current loan to value, 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 securities (“ABS”) - As of September 30, 2024, gross unrealized losses related to asset backed securities were $2.810 million. The weighted average credit enhancement for the Company’s asset backed portfolio is 38.0. This represents the percentage of pool losses that can occur before an asset backed security will incur its first dollar of principal losses. To 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 an in-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, 2024, gross unrealized losses related to the CMBS portfolio were $2.526 million. The weighted average credit enhancement for the Company’s CMBS portfolio is 44.0. This represents the percentage of pool losses that can occur before a commercial mortgage-backed security will incur its first dollar of principal loss. To assess whether the 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 is re-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 the 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, 2024, gross unrealized losses related to corporate bonds were $2.777 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, analysis for this 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, 2024, gross unrealized losses related to foreign bonds were $1.604 million. To assess whether the decline in fair value below amortized cost has resulted from a credit loss or 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. Based on the analysis performed, the Company did not recognize a credit loss on foreign bonds during the period.
The Company has evaluated its investment portfolio and has determined that an allowance for expected credit losses on its investments is not required.
Accumulated Other Comprehensive Income (Loss), Net of Tax
Accumulated other comprehensive income (loss), net of tax, as of September 30, 2024 and December 31, 2023 was as follows:
September 30, 2024
Net unrealized gains (losses) from:
Fixed maturities
(9,625
(28,299
Foreign currency fluctuations
(140
(187
Deferred taxes
1,918
5,623
The following tables present the changes in accumulated other comprehensive income (loss), by components, for the quarters and nine months ended September 30, 2024 and 2023:
Quarter Ended September 30, 2024(Dollars in thousands)
Unrealized Gains and Losses on Available for Sale Securities
Foreign Currency Items
Accumulated Other Comprehensive Income (Loss)
Beginning balance, net of tax
(17,882
(169
Other comprehensive income before reclassification, before tax
11,912
74
11,986
Amounts reclassified from accumulated other comprehensive income, before tax
801
Other comprehensive income, before tax
12,713
12,787
(2,568
(15
(2,583
Ending balance, net of tax
(7,737
Quarter Ended September 30, 2023(Dollars in thousands)
(36,912
(259
Other comprehensive loss before reclassification, before tax
(1,191
(181
(1,372
118
Other comprehensive loss, before tax
(1,073
(1,254
Income tax benefit
270
38
308
(37,715
(402
Nine Months Ended September 30, 2024(Dollars in thousands)
(22,715
(148
17,841
17,888
833
18,674
18,721
(3,696
(9
(3,705
Nine Months Ended September 30, 2023(Dollars in thousands)
(42,958
(100
Other comprehensive income (loss) before reclassification, before tax
5,179
(382
4,797
1,311
Other comprehensive income (loss), before tax
6,490
6,108
Income tax benefit (expense)
(1,247
80
(1,167
The reclassifications out of accumulated other comprehensive income (loss) for the quarters and nine months ended September 30, 2024 and 2023 were as follows:
Amounts Reclassified fromAccumulated OtherComprehensive Income (Loss)
Quarters Ended September 30,
Details about Accumulated OtherComprehensive Income Components
Affected Line Item in the ConsolidatedStatements of Operations
Unrealized gains and losses on available for sale securities
Other net realized investment losses
(168
(24
Total reclassifications, net of tax
Nine Months Ended September 30,
(251
Net Realized Investment Gains (Losses)
The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 2024 and 2023 were as follows:
Gross realized gains
15
54
29
Gross realized losses
(806
(887
(1,340
Net realized gains (losses)
(801
(118
(833
(1,311
Equity securities:
295
1,384
726
(6
(178
(1,829
289
1,373
(1,103
Total net realized investment gains (losses)
14
The following table shows the calculation of the portion of realized gains and losses related to equity securities held as of September 30, 2024 and 2023:
Net gains (losses) recognized during the period on equity securities
Less: net gains (losses) recognized during the period on equity securities sold during the period
(157
(423
32
Unrealized gains (losses) recognized during the reporting period on equity securities still held
446
(30
1,796
(1,135
The proceeds from sales and redemptions of available for sale and equity securities resulting in net realized investment gains (losses) for the nine months ended September 30, 2024 and 2023 were as follows:
Equity securities
-
Net Investment Income
The sources of net investment income for the quarters and nine months ended September 30, 2024 and 2023 were as follows:
15,457
12,961
43,617
36,734
181
188
615
635
800
501
2,121
1,064
555
916
1,486
2,080
Total investment income
16,993
14,566
47,839
40,513
Investment expense
(505
(366
(1,520
(1,089
The Company’s total investment return on a pre-tax basis for the quarters and nine months ended September 30, 2024 and 2023 were as follows:
Change in unrealized holding gains
Net realized and unrealized investment returns
12,275
(1,387
19,261
3,694
Total investment return
28,763
12,813
65,580
43,118
Total investment return % (1)
2.0
%
0.9
4.6
3.2
Average investment portfolio (2)
1,451,641
1,355,077
1,429,253
1,354,727
As of September 30, 2024 and December 31, 2023, the Company did not 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, 2024, the Company held insurance enhanced municipal bonds with a market value of approximately $1.7 million which represented 0.1% of the Company’s total cash and invested assets, net of receivable for securities. The financial guarantors of the Company’s $1.7 million municipal bonds include Assured Guaranty Corporation ($0.8 million) and Ambac Financial Group ($0.9 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, 2024.
Bonds Held on Deposit
Certain cash and cash equivalents and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral, or were held in trust. The fair values were as follows as of September 30, 2024 and December 31, 2023:
On deposit with governmental authorities
19,627
19,262
Held in trust pursuant to third party requirements
157,879
150,796
Total (1)
177,506
170,058
Variable Interest Entities
A Variable Interest Entity (“VIE”) refers to an investment in which an investor holds a controlling interest that is not based on the majority of voting rights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest in the entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participate in a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significant management influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do not consolidate the VIE in their financial results.
The Company has interests in three limited partnership investments with a carrying value approximating fair value of $29.5 million and $38.2 million as of September 30, 2024 and December 31, 2023. The Company has a variable interest in two of these limited partnership investments, for which it is not the primary beneficiary. These investments are accounted for under the equity method since its ownership interest exceeds 3%.
The carrying value of one of the Company’s VIE’s, which invests in distressed securities and assets, was $3.4 million and $4.0 million as of September 30, 2024 and December 31, 2023, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments of $14.2 million, was $17.6 million and $18.3 million at September 30, 2024 and December 31, 2023, respectively. Since the investment period has concluded, the Company does not expect any capital calls will be made prospectively. The carrying value and maximum exposure to loss of a second VIE that invests in Real Estate Investment Trust (“REIT”) qualifying assets was $8.6 million and $8.2 million as of September 30, 2024 and December 31, 2023, respectively. The Company’s investment in VIEs is included in other invested assets on the consolidated balance sheets with changes in carrying value recorded in the consolidated statements of operations.
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.
16
The Company’s invested assets are carried at their fair value and are categorized based upon a fair value hierarchy:
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 measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 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, 2024 (Dollars in thousands)
Level 1
Level 2
Level 3
Assets:
504,641
Total assets measured at fair value
516,988
1,407,576
As of December 31, 2023 (Dollars in thousands)
799,570
816,078
1,310,301
The securities classified as Level 1 in the above tables consist of U.S. treasuries actively traded on an exchange.
The securities classified as Level 2 in the above tables consist primarily of fixed maturities and preferred stocks. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities and preferred stocks, 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 following table presents changes in Level 3 investments measured at fair value on a recurring basis for the quarters and nine months ended September 30, 2024 and 2023:
Quarters EndedSeptember 30,
Nine Months EndedSeptember 30,
Beginning balance
3,787
4,571
Total gains / (losses) (realized / unrealized):
Included in accumulated other comprehensive income (loss)
Included in earnings attributable to realized gains / losses
1
Purchases
182
Sales
(428
(1,164
Ending balance
3,569
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) related to assets still held at end of reporting period
(131
There were no transfers into or out of Level 3 during the quarters and nine months ended September 30, 2024 or 2023.
Fair Value of Alternative Investments
Other invested assets consist of limited partnerships whose carrying value approximates fair value. The following table provides the fair value and future funding commitments related to these investments at September 30, 2024 and December 31, 2023.
Future FundingCommitment
European Non-Performing Loan Fund, LP (1)
3,406
14,214
4,048
Mortgage Debt Fund, LP (2)
8,588
8,172
Global Debt Fund, LP (3)
17,465
26,016
Limited Partnerships with ownership interest exceeding 3%
The Company uses the equity method to account for investments in limited partnerships where its ownership interest exceeds 3%. The equity method of accounting for an investment in limited partnerships requires that its cost basis be updated to
18
account for the income or loss earned on the investment. In the Fair Value of Alternative Investments table above, all of the investments are booked on a one quarter lag due to non-availability of data at the time the financial statements are prepared. The investment income (loss) associated with the limited partnerships whose ownership interest exceeds 3% is reflected in the consolidated statements of operations in the amounts of ($0.2) million and $0.1 million for the quarters ended September 30, 2024 and 2023, respectively, and $0.4 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively.
Pricing
The Company’s pricing vendors provide prices for all investment categories except for investments in limited partnerships. Two primary vendors are utilized to provide prices for equity and fixed maturity securities.
The following is a description of the valuation methodologies used by the Company’s pricing vendors for investment securities carried at fair value:
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:
During the quarters and nine months ended September 30, 2024 and 2023, the Company has not adjusted quotes or prices obtained from the pricing vendors.
For premium 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, agents, or reinsurers on assumed reinsurance, terminated agents, and other relevant factors.
The following table is an analysis of the allowance for expected credit losses related to the Company's premium receivables for the quarters and nine months ended September 30, 2024 and 2023:
4,043
4,056
4,796
3,322
Current period provision for expected credit losses
(522
428
(695
2,145
Write-offs
(35
(364
(615
(1,347
3,486
4,120
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 AM Best Ratings and other relevant factors.
The allowance for expected credit losses related to the Company's reinsurance receivables was $9.0 million at September 30, 2024 and December 31, 2023.
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.
As of September 30, 2024, the Company conducts business in the United States where the statutory income tax rate is 21% and in Ireland where the statutory income tax rate is 25% on non-trading income, 33% on capital gains, and 12.5% on trading income. 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.
The Company’s income before income taxes is derived from its U.S. subsidiaries for the quarters and nine months ended September 30, 2024 and 2023.
The following table summarizes the components of income tax expense:
Current income tax benefit:
U.S. Federal
Total current income tax benefit
Deferred income tax expense:
1,767
Total deferred income tax expense
Total income tax expense
20
The weighted average expected tax provision has been calculated using income before income taxes in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. The following tables summarize the differences between the tax provision for financial statement purposes and the expected tax provision at the weighted average tax rate:
Amount
% of Pre-Tax Income
Expected tax provision at weighted average tax rate
3,336
21.0
1,987
Adjustments:
Non-deductible executive compensation
105
0.7
53
0.6
Dividend exclusion
(16
(0.1
(0.2
Parent income treated as partnership for tax
(324
(2.0
(326
(3.4
Meals & Entertainment
68
Other
0.1
(3
Effective income tax expense
19.7
18.6
8,993
5,090
315
158
(54
(690
(1.6
(668
(2.8
44
197
0.8
20.1
19.4
The Company has a net operating loss (“NOL”) carryforward of $51.5 million as of September 30, 2024, which begins to expire in 2038 based on when the original NOL was generated. The Company’s NOL carryforward as of December 31, 2023 was $78.8 million.
Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
844,206
866,951
832,404
Less: ceded reinsurance receivables
70,392
73,933
72,829
73,021
Net balance at beginning of period
773,814
793,018
777,770
759,383
Incurred losses and loss adjustment expenses related to:
Current year
52,434
65,167
159,561
Prior years
(34
(51
(115
Total incurred losses and loss adjustment expenses
Paid losses and loss adjustment expenses related to:
8,415
20,990
32,501
55,174
48,520
50,361
135,436
148,625
Total paid losses and loss adjustment expenses
56,935
71,351
167,937
203,799
Net balance at end of period
769,279
786,783
Plus: ceded reinsurance receivables
70,897
75,020
861,803
21
When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserve estimates.
During the third quarter of 2024, the Company's adjustments to prior accident year loss reserves netted to a decrease of less than $0.1 million.
During the third quarter of 2023, the Company's adjustments to prior accident year loss reserves netted to a decrease of $0.1 million.
During the first nine months of 2024, the Company's adjustments to prior accident year loss reserves netted to a decrease of $0.1 million.
During the first nine months of 2023, the Company's adjustments to prior accident year loss reserves netted to zero.
22
Repurchases of the Company's class A common shares
On October 21, 2022, Global Indemnity Group, LLC announced it commenced a share repurchase program beginning in the fourth quarter of 2022. Global Indemnity Group, LLC's Board of Directors has authorized share repurchases of up to $135 million in aggregate under this program that expires on December 31, 2027. The timing and actual number of shares repurchased, if any, will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. As of September 30, 2024, the Company’s remaining authorization to repurchase shares is $101.0 million.
In addition, Global Indemnity Group, LLC allows employees to surrender class A common shares as payment for the tax liability incurred upon the vesting of restricted stock that was issued under the Company’s share incentive plan in effect at the time of issuance.
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, 2024:
(Dollars in thousands, except share and per share data)Period (1)
Total Numberof SharesPurchased
AveragePrice PaidPer 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 (2)
June 1-30, 2024
(3)
32.00
101,004
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, 2023:
January 1-31, 2023
3,302
23.31
250,000
(4)
25.90
106,604
April 1-30, 2023
200,000
28.00
June 1-30, 2023
15,558
33.74
27.04
There were no class B common shares that were surrendered or repurchased during the quarters and nine months ended September 30, 2024 or 2023.
Each class A common share has one vote and each class B common share has ten votes.
23
As of September 30, 2024, Global Indemnity Group, LLC’s class A common shares were held by approximately 135 shareholders of record. There were two holders of record of Global Indemnity Group, LLC’s class B common shares, all of whom are affiliated investment funds of Fox Paine & Company, LLC, as of September 30, 2024. Global Indemnity Group, LLC’s preferred shares were held by 1 holder of record, an affiliate of Fox Paine & Company, LLC, as of September 30, 2024.
Please see Note 15 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2023 Annual Report on Form 10-K for more information on the Company’s repurchase program.
Distributions
Quarterly distribution payments of $0.35 per common share were declared during the nine months ended September 30, 2024 as follows:
Approval Date
Record Date
Payment Date
Total Distributions Declared (Dollars in thousands)
March 6, 2024
March 21, 2024
March 28, 2024
4,752
June 6, 2024
June 21, 2024
June 28, 2024
4,774
September 19, 2024
October 7, 2024
4,782
Various (1)
Various
14,326
Quarterly distribution payments of $0.25 per common share were declared during the nine months ended September 30, 2023 as follows:
March 2, 2023
March 24, 2023
March 31, 2023
3,410
June 1, 2023
June 23, 2023
June 30, 2023
3,375
September 28, 2023
October 9, 2023
October 16, 2023
3,385
(20
10,150
In addition, distributions paid to Global Indemnity Group, LLC's preferred shareholder were $0.1 million in each of the quarters ended September 30, 2024 and 2023 and $0.3 million in each of the nine months ended September 30, 2024 and 2023.
Distributions of $4.8 million, which were declared on September 19, 2024 but not paid until October 7, 2024, were included in other liabilities on the consolidated balance sheets as of September 30, 2024. There were no accrued distributions on unvested shares as of September 30, 2024. Accrued distributions on unvested shares, which were included in other liabilities on the consolidated balance sheets, was $0.3 million as of December 31, 2023. Accrued preferred distributions were less than $0.1 million as of both September 30, 2024 and December 31, 2023 and were also included in other liabilities on the consolidated balance sheets.
Please see Note 15 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2023 Annual Report on Form 10-K for more information on the Company’s distribution program.
Fox Paine Entities
Pursuant to Global Indemnity Group, LLC’s Limited Liability Company Agreement (“LLCA”), Fox Paine Capital Fund II International, L.P. (the “Fox Paine Fund”), together with Fox Mercury Investments, L.P. and certain of its affiliates (the “FM Entities”), and Fox Paine & Company LLC (collectively, the “Fox Paine Entities”) currently constitute a Class B Majority
Shareholder (as defined in the LLCA) and, as such, have the right to appoint a number of Global Indemnity Group, LLC’s directors equal in aggregate to the pro rata percentage of the voting power in Global Indemnity Group, LLC beneficially held by the Fox Paine Entities, rounded up to the nearest whole number of directors. The Fox Paine Entities beneficially own shares representing approximately 83.6% of the voting power of Global Indemnity Group, LLC as of September 30, 2024. The Fox Paine Entities control the appointment or election of all of Global Indemnity Group, LLC’s Directors due to the LLCA and their controlling share ownership. Global Indemnity Group, LLC’s Chairman is the Chief Executive and founder of Fox Paine & Company, LLC.
Management fee expense of $0.8 million was incurred during each of the quarters ended September 30, 2024 and 2023 and management fee expense of $2.4 million and $2.3 million was incurred during the nine months ended September 30, 2024 and 2023, respectively. Prepaid management fees, which were included in other assets on the consolidated balance sheets, were $3.0 million and $2.1 million as of September 30, 2024 and December 31, 2023, 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 and conflict matter policies, including approval of Global Indemnity Group, LLC’s Conflicts Committee of the Board of Directors, for those services from time to time. Each of the Company’s transactions with Fox Paine & Company, LLC are reviewed and approved by Global Indemnity Group, LLC’s Conflicts Committee, which is composed of independent directors, and the Board of Directors (other than Saul A. Fox, Chairman of the Board of Directors of Global Indemnity Group, LLC and Chief Executive of Fox Paine & Company, LLC, who is not a member of the Conflicts Committee and recused himself from the Board of Directors’ deliberations related to fees paid to Fox Paine & Company, LLC or its affiliates).
Greenberg Traurig, LLP’s
The Company incurred less than $0.1 million and $0.2 million for legal services rendered by Greenberg Traurig, LLP during the quarter and nine months ended September 30, 2024, respectively. Fred Karlinsky, Shareholder and Co-Chair of Greenberg Traurig, LLP, has been a member of Global Indemnity Group, LLC's Board of Directors since December 5, 2023.
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 European non-performing loans. As of September 30, 2024, the Company has funded $35.8 million of this commitment leaving $14.2 million as unfunded. Since the investment period has concluded, the Company does not expect any capital calls will be made prospectively.
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
25
management fee to Fox Paine & Company, LLC. See Note 9 above for additional information pertaining to this management agreement.
Options
During the nine months ended September 30, 2024, the Company granted 550,000 Time-Based Stock Options at an average strike price of $30.73. Of this amount, 200,000 Time-Based Stock Options will vest in four equal tranches of 25% on the first business day of each quarter in 2024. The remaining 350,000 Time-Based Stock Options will vest one-third on each of March 6, 2025, March 6, 2026, and March 6, 2027. No stock options were granted during the quarter ended September 30, 2024 or the quarter and nine months ended September 30, 2023. No unvested stock options were forfeited during the quarters and nine months ended September 30, 2024 or 2023.
Restricted Shares / Restricted Stock Units
There were no restricted class A common shares or restricted stock units granted to key employees during the quarters and nine months ended September 30, 2024 and 2023. There were no restricted class A common shares or restricted stock units forfeited during the quarter and nine months ended September 30, 2024. There were 4,282 restricted stock units forfeited during the quarter and nine months ended September 30, 2023. There were no restricted class A common shares forfeited during the quarter and nine months ended September 30, 2023.
There were no restricted stock units that vested during the quarters ended September 30, 2024 and 2023. There were 65,182 and 61,652 restricted stock units that vested during the nine months ended September 30, 2024 and 2023, respectively. Upon vesting, the restricted stock units converted to restricted class A common shares.
During the quarters ended September 30, 2024 and 2023, the Company granted 23,556 and 19,887 class A common shares, respectively, at a weighted average grant date value of $31.16 and $33.83 per share, respectively, to non-employee directors of the Company under the Plan. During the nine months ended September 30, 2024 and 2023, the Company granted 74,146 and 68,592 class A common shares, respectively, at a weighted average grant date value of $30.74 and $29.43 per share, respectively, to non-employee directors of the Company under the Plan. All shares granted to non-employee directors of the Company are fully vested but are subject to certain restrictions.
Rule 10b5-1 Trading Plans
The Company did not have any Rule 10b5-1 Trading Plans in place during the nine months ended September 30, 2024 and 2023.
26
Earnings per share have been computed using the weighted average number of common shares and common share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in thousands, except share and per share data)
Numerator:
Denominator:
Weighted average shares for basic earnings per share
Non-vested restricted stock units
65,609
57,721
136,335
225,962
66,058
184,490
Weighted average shares for diluted earnings per share
Earnings per share - Basic
Earnings per share - Diluted
The weighted average shares outstanding used to determine dilutive earnings per share does not include 550,000 options for both the quarter and nine months ended September 30, 2024 and 300,000 and 346,667 options for the quarter and nine months ended September 30, 2023, respectively, which were deemed to be anti-dilutive.
During the fourth quarter of 2023, the Company restructured its insurance operations to strengthen its market presence and enhance GBLI's focus on core products and made the decision to manage the business through two segments, Penn-America and Non-Core Operations. Management believes these segments allow users of the Company’s financial statements to better understand the Company's performance, better assess prospects for future net cash flows, and make more informed judgments about the Company as a whole. Segment results for prior years have been revised to reflect these changes.
The Company manages the distribution of its core product offerings through Penn-America. Penn-America offers specialty property and casualty products designed for GBLI's Wholesale Commercial, Specialty Products, InsurTech, and Assumed Reinsurance product offerings. The Company also has a Non-Core Operations segment that contains lines of business that have been de-emphasized or are no longer being written.
27
The following are tabulations of business segment information for the quarters and nine months ended September 30, 2024 and 2023. Corporate information is included to reconcile segment data to the consolidated financial statements.
Penn-America
Non-Core Operations
103,244
(3,477
100,712
(3,535
93,982
1,431
337
35
94,319
1,466
95,785
51,382
1,018
35,629
1,924
Income (loss) from segments
7,308
(1,476
5,832
Unallocated Items:
Net realized investment losses
(5,923
(3,125
Segment assets
1,044,750
562,403
1,607,153
Corporate assets
153,964
87,004
11,922
84,096
11,527
83,462
28,233
275
83,737
28,257
111,994
56,020
9,096
32,210
13,992
(4,493
5,169
676
(5,280
(1,763
967,573
684,187
1,651,760
116,086
1,767,846
28
297,844
(3,883
290,910
(3,897
272,467
12,339
1,020
273,487
12,393
285,880
151,417
8,029
104,454
7,336
17,616
(2,972
14,644
Net realized investment gains
(18,662
(17
(8,605
277,443
54,568
266,837
50,643
266,759
114,164
808
127
267,567
114,291
381,858
167,725
63,474
101,311
45,470
(1,469
5,347
3,878
(16,638
(12
(4,707
The Company did not adopt any new accounting pronouncements during the nine months ended September 30, 2024.
Please see Note 25 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2023 Annual Report on Form 10-K for more information on accounting pronouncements issued but not yet adopted.
30
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes of the Company included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to the Company’s plans and strategy, constitutes forward-looking statements that involve risks and uncertainties. Please see "Cautionary Note Regarding Forward-Looking Statements" at the end of this Item 2 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein. For more information regarding the Company’s business and operations, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Financial Highlights
Results of Operations for Nine Months
2024 Third Quarter Consolidated Financial Condition
Results of Operations
The Company's net income was $12.8 million and $7.7 million during the quarters ended September 30, 2024 and 2023, respectively, and $34.2 million and $19.5 million during the nine months ended September 30, 2024 and 2023, respectively.
Net investment income increased by $2.3 million and $6.9 million during the quarter and nine months ended September 30, 2024 as compared to the same periods in 2023. This increase in net investment income was primarily due to strategies employed by the Company to take advantage of rising interest rates which resulted in a 15% increase in book yield on the fixed maturities portfolio to 4.6% at September 30, 2024 from 4.0% at September 30, 2023. The weighted average duration of the fixed maturities portfolio was 0.8 years as of September 30, 2024.
The Company generated underwriting income of $5.8 million for the quarter ended September 30, 2024 compared to $0.7 million for the same period in 2023 and generated underwriting income of $14.6 million for the nine months ended September 30, 2024 compared to $3.9 million for the same period in 2023. This increase in underwriting income is driven by strong underwriting results within the Company's Penn-America segment due to growth in gross written premiums and improved current accident year combined ratios compared to the same period in 2023. Penn-America’s gross written premiums increased 18.7% for the quarter and 7.4% for the nine months ended September 30, 2024. Penn-America’s accident year combined ratio improved to 92.1% for the quarter compared to 96.3% in the same period in 2023 and improved to 93.9% for the nine months ended September 30, 2024 compared to 96.7% in same period in 2023.
The following table summarizes the Company’s results for the quarters and nine months ended September 30, 2024 and 2023:
Change
(11.5
%)
1.6
(9.6
(14.6
(25.2
24.4
14.9
(14.5
(25.1
Losses and expenses:
(19.5
(31.0
(18.7
(23.8
Underwriting income
NM
277.6
16.1
17.5
285.0
(122.4
12.2
41.7
67.9
76.7
77.3
82.8
65.7
75.2
Underwriting Ratios:
Loss ratio (1):
54.9
58.3
56.0
60.7
Expense ratio (2)
39.4
41.4
39.2
38.5
Combined ratio (3)
94.3
99.7
95.2
99.2
NM - not meaningful
Premiums
The following table summarizes the change in premium volume by business segment:
% Change
Gross written premiums (1)
18.7
7.4
(129.2
(107.1
Total gross written premiums
2,532
2,908
(12.9
6,934
10,606
(34.6
395
(85.3
3,925
(99.6
Total ceded written premiums
2,590
3,303
(21.6
6,948
14,531
(52.2
Net written premiums (2)
19.8
9.0
(130.7
(107.7
Total net written premiums
12.6
2.1
(94.9
(89.2
Total net earned premiums
Gross written premiums increased by 0.9% for the quarter ended September 30, 2024 as compared to the same period in 2023. Penn-America’s growth of 18.7% driven by its Wholesale Commercial, InsurTech, and Assumed Reinsurance divisions more than offset the decline in premiums resulting from its Non-Core segment.
Gross written premiums decreased by 11.5% for the nine months ended September 30, 2024 as compared to the same period in 2023. Penn-America’s growth of 7.4% driven by its Wholesale Commerical, InsurTech and Assumed Reinsurance divisions partially offset the decline in premiums resulting from its Non-Core segment.
In aggregate, Penn-America's Wholesale Commercial, InsurTech, and Assumed Reinsurance divisions grew by 23.3% for the quarter and 13.5% for the nine months ended September 30, 2024 as compared to the same periods in 2023. The growth in Wholesale Commercial and InsurTech is driven by premium rate increases, new agency appointments, organic growth of existing agents, and new products. The growth in Assumed Reinsurance is primarily due to new treaties entered into during 2023 and 2024 and increased participation or organic growth from existing treaties.
The decline in premiums in Non-Core Operations is due to lines of business that have been de-emphasized or no longer written.
Net Retention
The ratio of net written premiums to gross written premiums is referred to as the Company’s net premium retention.
The Company's net premium retention increased 0.7 points to 97.4% for the quarter ended September 30, 2024 from 96.7% for the quarter ended September 30, 2023 and increased 2.0 points to 97.6% for the nine months ended September 30, 2024
33
from 95.6% for the nine months ended September 30, 2023 primarily due to the termination of two quota share agreements and lower cost on the Company's catastrophe reinsurance treaty.
Net Earned Premiums
Net earned premiums within the Penn-America segment increased by 12.6% for the quarter ended September 30, 2024 as compared to the same period in 2023 primarily due to continued premium growth in Penn-America's Wholesale Commercial, InsurTech, and Assumed Reinsurance divisions. Property net earned premiums were $43.0 million and $33.7 million for the quarters ended September 30, 2024 and 2023, respectively. Casualty net earned premiums were $50.9 million and $49.7 million for the quarters ended September 30, 2024 and 2023, respectively.
Net earned premiums within the Penn-America segment increased by 2.1% for the nine months ended September 30, 2024 as compared to the same period in 2023. The premium growth in Penn-America's Wholesale Commercial, InsurTech, and Assumed Reinsurance divisions was partially offset by a reduction in premiums written for Specialty Products as a result of underwriting actions taken in 2023 to improve underwriting profitability. Property net earned premiums were $122.1 million and $106.8 million for the nine months ended September 30, 2024 and 2023, respectively. Casualty net earned premiums were $150.4 million and $160.0 million for the nine months ended September 30, 2024 and 2023, respectively.
Net earned premiums within the Non-Core Operations segment decreased by 94.9% and 89.2% for the quarter and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 primarily due to the non-renewal of a casualty treaty and a reduction in earned premiums due to the sale of Farm, Ranch & Stable renewal rights on August 8, 2022. There were no property earned premiums for the quarter and nine months ended September 30, 2024. Property earned premiums were $0.9 million and $14.1 million for the quarter and nine months ended September 30, 2023, respectively. Casualty net earned premiums were $1.5 million and $27.3 million for the quarters ended September 30, 2024 and 2023, respectively, and $12.4 million and $100.1 million for the nine months ended September 30, 2024 and 2023, respectively.
Reserves
Amounts recorded for unpaid losses and loss adjustment expenses represent management’s best estimate at September 30, 2024. 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 $840.2 million and $769.3 million, respectively, as of September 30, 2024. A breakout of the Company’s gross and net reserves, as of September 30, 2024, is as follows:
Gross Reserves
Case
IBNR (1)
143,370
300,985
444,355
117,947
277,874
395,821
261,317
578,859
Net Reserves (2)
143,185
288,219
431,404
82,243
255,632
337,875
225,428
543,851
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
34
impact of changes (which could be favorable or unfavorable) in frequency and severity on the Company’s current accident year net loss estimate of $159.6 million for claims occurring during the nine months ended September 30, 2024:
Severity Change
-10%
-5%
0%
5%
10%
Frequency Change
(23,136
(15,557
(7,978
(399
7,180
-3%
(20,264
(12,526
(4,787
2,952
10,691
-2%
(18,828
(11,010
(3,191
4,627
12,446
-1%
(17,392
(9,494
(1,596
6,303
14,201
(15,956
7,978
15,956
1%
(14,520
(6,462
1,596
9,653
17,711
2%
(13,084
(4,946
3,191
11,329
19,466
3%
(11,648
(3,431
4,787
13,004
21,222
(8,776
16,355
24,732
The Company’s net reserves for losses and loss adjustment expenses of $769.3 million as of September 30, 2024 relate to multiple accident years. Therefore, the impact of changes in frequency and severity for more than one accident year could be higher or lower than the amounts reflected above.
Underwriting Results
The components of income (loss) from the Company’s Penn-America segment and corresponding underwriting ratios are as follows:
22.5
26.2
2.2
(8.3
(9.7
10.6
3.1
Underwriting income (loss)
262.7
Loss ratio:
Current accident year
54.7
57.8
(3.1
55.7
58.8
Prior accident year
9.3
(9.3
4.1
(4.2
Calendar year loss ratio
67.1
(12.4
55.6
62.9
(7.3
Expense ratio
37.9
38.6
(0.7
38.3
38.0
0.3
Combined ratio
92.6
105.7
(13.1
93.9
100.9
(7.0
Accident year combined ratio (1)
92.1
96.3
96.7
See “Results of Operations” above for a discussion on consolidated premiums.
Other Income
Other income was $0.3 million for each of the quarters ended September 30, 2024 and 2023 and $1.0 million and $0.8 million for nine months ended September 30, 2024 and 2023, respectively. Other income is primarily comprised of fee income.
Loss Ratio
The calendar year loss ratio for the quarter ended September 30, 2024 was 54.7% (includes an increase of $9 thousand related to prior accident years) compared to 67.1% (includes an increase of $7.8 million, or 9.3 percentage points related to prior accident years) for the quarter ended September 30, 2023. Please see Note 7 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.
The current accident year loss ratio improved by 3.1 points to 54.7% for the quarter ended September 30, 2024 compared to 57.8% for the quarter ended September 30, 2023. The current accident year losses and loss ratio is summarized as follows:
Point Change
Property losses
Non-catastrophe
17,959
11,708
53.4
34.7
7.0
Catastrophe
3,467
(32.9
8.1
15.3
(7.2
21,426
16,877
27.0
49.8
50.0
Casualty losses
29,947
31,371
(4.5
63.1
(4.3
Total accident year losses
51,373
48,248
6.5
The calendar year loss ratio for the nine months ended September 30, 2024 was 55.6% (includes a decrease of $0.4 million, or 0.1 percentage points related to prior accident years) compared to 62.9% (includes an increase of $10.9 million, or 4.1 percentage points related to prior accident years). Please see Note 7 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.
36
The current accident year loss ratio improved by 3.1 points to 55.7% for the nine months ended September 30, 2024 from 58.8% for the nine months ended September 30, 2023. The current accident year losses and loss ratio is summarized as follows:
53,150
50,347
5.6
43.5
47.1
(3.6
10,254
12,561
(18.4
8.4
11.8
63,404
62,908
51.9
58.9
88,428
93,958
(5.9
58.7
151,832
156,866
(3.2
Expense Ratios
The expense ratio for the Company’s Penn-America segment improved by 0.7 points from 38.6% for the quarter ended September 30, 2023 to 37.9% for the quarter ended September 30, 2024 and increased by 0.3 points from 38.0% for the nine months ended September 30, 2023 to 38.3% for the nine months ended September 30, 2024.
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 Penn-America 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.
Losses
LossRatio
Property
Non catastrophe property losses and ratio excluding the effect of prior accident year (1)
Effect of prior accident year
(4,063
(9.4
610
1.8
(4,535
(1,612
(1.5
Non catastrophe property losses and ratio (2)
13,896
32.3
12,318
36.5
48,615
39.9
48,735
45.6
Catastrophe losses and ratio excluding the effect of prior accident year (1)
401
1,068
548
0.4
2,377
Catastrophe losses and ratio (2)
3,868
6,237
18.5
10,802
8.8
14,938
14.0
Total property losses and ratio excluding the effect of prior accident year (1)
(3,662
(8.5
1,678
5.0
(3,987
765
Total property losses and ratio (2)
17,764
41.3
18,555
55.0
59,417
48.7
63,673
59.6
Casualty
Total casualty losses and ratio excluding the effect of prior accident year (1)
3,671
7.2
6,094
12.3
3,572
2.4
10,094
6.3
Total casualty losses and ratio (2)
33,618
66.0
37,465
75.4
92,000
61.2
104,052
65.0
Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1)
7,772
(415
10,859
Total net losses and loss adjustment expense and total loss ratio (2)
The components of income (loss) from the Company’s Non-Core Operations segment and corresponding underwriting ratios are as follows:
45.8
(57.5
(94.8
(88.8
(87.4
(86.2
(83.9
(128.6
(155.6
74.1
59.9
14.2
62.6
65.1
(2.5
(3.0
(27.7
24.7
2.5
(9.5
12.0
71.1
32.2
38.9
9.5
134.5
49.6
84.9
59.4
39.8
19.6
205.6
81.8
123.8
124.5
95.4
29.1
181.3
105.6
118.9
104.2
The Company recognized income of less than $0.1 million for each of the quarters ended September 30, 2024 and 2023 and income of $0.1 million for each of the nine months ended September 30, 2024 and 2023. Other income is primarily comprised of fee income net of bank fees.
The calendar year loss ratio for the quarter and nine months ended September 30, 2024 was 71.1% (includes a decrease of less than $0.1 million, or 3.0 percentage points related to prior accident years), and was 65.1% (includes an increase of $0.3 million, or 2.5 percentage points related to prior accident years), respectively. The calendar year loss ratio for the quarter and nine months ended September 30, 2023 was 32.2% (includes a decrease of $7.8 million, or 27.7 percentage points related to prior accident years), and was 55.6% (includes a decrease of $10.9 million, or 9.5 percentage points related to prior accident years), respectively. Please see Note 7 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.
39
The current accident year loss ratio increased by 14.2 points from 59.9% for the quarter ended September 30, 2023 to 74.1% for the quarter ended September 30, 2024 and improved by 2.5 points from 65.1% for the nine months ended September 30, 2023 to 62.6% for the nine months ended September 30, 2024. The current accident year losses and loss ratio is summarized as follows:
240
(262
(191.6
(28.6
63
(82.5
(45.8
6.9
(52.7
251
(199
(226.1
(21.7
810
17,118
(95.3
62.7
1,061
16,919
(93.7
296
6,853
(95.7
48.6
3,241
(99.4
(36.4
23.0
(59.4
316
(96.9
71.6
7,413
64,239
(88.5
59.8
64.2
(4.4
7,729
74,333
(89.6
Expense Ratio
The expense ratio for the Company’s Non-Core Operations increased by 84.9 points from 49.6% for the quarter ended September 30, 2023 to 134.5% for the quarter ended September 30, 2024 and increased by 19.6 points from 39.8% for the nine months ended September 30, 2023 to 59.4% for the nine months ended September 30, 2024 primarily due to lower earned premiums as a result of exiting various lines of business.
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 Non-Core Operations 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.
1,201
(7,076
686
(9,021
(64.0
1,441
(7,338
982
(2,168
(15.4
(258
(2,433
(37
67.3
(6,220
(44.1
(247
(2,370
30.9
(2,979
(21.1
943
(9,509
649
(15,241
(108.1
1,194
(9,708
965
(5,147
(36.5
(986
(67.8
1,686
6.2
(349
4,382
4.4
(176
(12.1
18,804
68.9
7,064
57.0
68,621
68.6
(43
(7,823
300
(10,859
41
Unallocated Corporate Items
The Company’s fixed income portfolio, excluding cash, continues to maintain high quality with an AA- average rating and a duration of 0.8 years.
Gross investment income (1)
16.7
18.1
Investment expenses
39.6
Net investment income increased by 16.1% and 17.5% for the quarter and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. This increase in net investment income was primarily due to strategies employed by the Company to take advantage of rising interest rates which resulted in a 15% increase in book yield on the fixed maturities portfolio to 4.6% at September 30, 2024 from 4.0% at September 30, 2023.
At September 30, 2024, the Company held asset-backed, mortgage-backed, commercial mortgage-backed and collateralized mortgage obligations with a market value of $279.4 million. Excluding the asset-backed, mortgage-backed, commercial mortgage-backed and collateralized mortgage obligations, the average duration of the Company’s fixed maturities portfolio was 0.6 years as of September 30, 2024, compared with 1.0 years as of September 30, 2023. Changes in interest rates can cause principal payments on certain investments to extend or shorten which can impact duration. The Company’s embedded book yield on its fixed maturities, not including cash, was 4.6% as of September 30, 2024, compared to 4.0% as of September 30, 2023. The embedded book yield on the $17.2 million of taxable municipal bonds in the Company’s portfolio was 2.8% at September 30, 2024, compared to an embedded book yield of 3.0% on the Company’s taxable municipal bonds of $26.2 million at September 30, 2023.
See Note 3 of the notes to the consolidated financial statements in Item 1 of Part I of this report for an analysis of total investment return on a pre-tax basis for the quarters and nine months ended September 30, 2024 and 2023.
Corporate and Other Operating Expenses
Corporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees, management fees and advisory fees, and salaries and benefits for holding company personnel. Corporate and other operating expenses were $5.9 million and $5.3 million during the quarters ended September 30, 2024 and 2023, respectively, and $18.7 million and $16.6 million during the nine months ended September 30, 2024 and 2023, respectively. The increase in corporate and other operating expenses was primarily due to an increase in professional fees.
42
Income Tax Expense
Income tax expense was $3.1 million and $1.8 million for the quarters ended September 30, 2024 and 2023, respectively, and $8.6 million and $4.7 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in income tax expense is primarily due to higher taxable income during the quarter and nine months ended September 30, 2024 as compared to the same periods in 2023.
See Note 6 of the notes to the consolidated financial statements in Item 1 of Part I of this report for a comparison of income tax between periods.
Net Income
The factors described above resulted in net income of $12.8 million and $7.7 million for the quarters ended September 30, 2024 and 2023, respectively, and net income of $34.2 million and $19.5 million for the nine months ended September 30, 2024 and 2023, respectively.
Critical Accounting Estimates and Policies
The Company’s consolidated financial statements are prepared in conformity with GAAP, which require it to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
The most critical accounting policies involve significant estimates and include those used in determining the liability for unpaid losses and loss adjustment expenses, recoverability of reinsurance receivables, investments, fair value measurements, goodwill and intangible assets, deferred acquisition costs, and taxation. For a detailed discussion on each of these policies, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes to any of these policies or underlying methodologies during the current year.
Liquidity and Capital Resources
Sources and Uses of Funds
Global Indemnity Group, LLC is a holding company. Its principal asset is its ownership of the shares of its direct and indirect subsidiaries, including those of its insurance companies: United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company, and Penn-Patriot Insurance Company.
Global Indemnity Group, LLC’s current short term and long term liquidity needs include but are not limited to the payment of corporate expenses, distributions to shareholders, and share repurchases. The Company also has commitments in the form of operating leases, commitments to fund limited liability investments, and unpaid losses and loss expense obligations. In order to meet its current short term and long term needs, Global Indemnity Group, LLC’s principal sources of cash includes investment income, dividends from subsidiaries, other permitted disbursements from its direct and indirect subsidiaries, reimbursement for equity awards granted to employees and intercompany borrowings. The principal sources of funds at these direct and indirect subsidiaries include underwriting operations, investment income, proceeds from sales and redemptions of investments, capital contributions, intercompany borrowings, and dividends from subsidiaries. Funds are used principally by these operating subsidiaries to pay claims and operating expenses, to make intercompany debt payments, to purchase investments, and to make distribution payments. In addition, the Company periodically reviews opportunities related to business acquisitions, and as a result, liquidity may be needed in the future.
GBLI Holdings, LLC is a holding company which is a wholly-owned subsidiary of Penn-Patriot Insurance Company. GBLI Holdings, LLC’s principal asset is its ownership of the shares of its direct and indirect subsidiaries which include United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, and Penn-Star Insurance Company. GBLI Holdings, LLC is dependent on dividends from its subsidiaries as well as reimbursements from its subsidiaries for utilization of net operating losses and other tax attributes in order to meet its corporate expense obligations and intercompany financing obligations.
43
As of September 30, 2024, the Company also had future funding commitments of $14.2 million related to one of the Company's investments in a limited partnership. Since the investment period has concluded, the Company does not expect any capital calls will be made prospectively.
The future liquidity of Global Indemnity Group, LLC is dependent on the ability of its subsidiaries to generate income to pay dividends and to pay intercompany debt due to Global Indemnity Group, LLC. The future liquidity of GBLI Holdings, LLC is dependent on the ability of its subsidiaries to generate income to pay dividends as well as receiving reimbursements from its subsidiaries for utilization of net operating losses. Global Indemnity Group, LLC and GBLI Holdings, LLC’s insurance companies are restricted by statute as to the amount of dividends that they may pay without the prior approval of regulatory authorities. The dividend limitations imposed by state laws are based on the statutory financial results of each insurance company that are determined by using statutory accounting practices that differ in various respects from accounting principles used in financial statements prepared in conformity with GAAP. See “Regulation - Statutory Accounting Principles” in Item 1 of Part I of the Company’s 2023 Annual Report on Form 10-K. Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes, reserve calculation assumptions and surplus notes. See Note 21 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2023 Annual Report on Form 10-K for further information on dividend limitations related to the Insurance Companies. There were no dividends declared or paid by the Company's insurance subsidiaries during the quarter and nine months ended September 30, 2024.
Cash Flows
Sources of operating funds consist primarily of net written premiums and investment income. Funds are used primarily to pay claims and operating expenses and to purchase investments. As a result of the distribution policy, funds may also be used to pay distributions to shareholders of the Company.
The Company’s reconciliation of net income to net cash provided by operations is generally influenced by the following:
Net cash provided by operating activities was $52.3 million and $36.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in operating cash flows of approximately $15.5 million from the prior year was primarily a net result of the following items:
Net premiums collected
304,001
340,810
(36,809
Net losses paid
(165,823
(201,660
35,837
Underwriting and corporate expenses
(116,682
(139,374
22,692
33,428
37,597
(4,169
Net federal income taxes paid
(609
(2,048
Interest paid
(5
15,498
See the consolidated statements of cash flows in the consolidated financial statements in Item 1 of Part I of this report for details concerning the Company’s investing and financing activities.
Liquidity
The Board of Directors approved a distribution payment of $0.35 per common share to all shareholders of record on the close of business on March 21, 2024, June 21, 2024 and September 30, 2024. Distributions paid to common shareholders were $9.8 million during the nine months ended September 30, 2024. In addition, distributions of $0.3 million were paid to Global Indemnity Group, LLC’s preferred shareholder during the nine months ended September 30, 2024.
Investment Portfolio
On July 31, 2023, the Company provided the Global Debt Fund, LP with a formal withdrawal request to fully redeem the partnership interest. Partial redemption proceeds of $8.7 million were received during the nine months ended September 30, 2024. The Global Debt Fund, LP had a fair market value of $17.5 million at September 30, 2024.
Other than the item discussed in the preceding paragraph, there have been no material changes to the Company’s liquidity during the quarter and nine months ended September 30, 2024. Please see Item 7 of Part II in the Company’s 2023 Annual Report on Form 10-K for information regarding the Company’s liquidity.
Capital Resources
There have been no material changes to the Company’s capital resources during the quarter and nine months ended September 30, 2024. Please see Item 7 of Part II in the Company’s 2023 Annual Report on Form 10-K for information regarding the Company’s capital resources.
Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report may include forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934, as amended, that reflect the Company’s current views with respect to future events and financial performance. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives, expectations or consequences of identified transactions or natural disasters, and statements about the future performance, operations, products and services of the companies.
The Company’s business and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. See “Risk Factors” in Item 1A of Part I in the Company’s 2023 Annual Report on Form 10-K for risks, uncertainties and other factors that could cause actual results and experience to differ from those projected. The Company’s forward-looking statements speak only as of the date of this report or as of the date they were made. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, credit risk, illiquidity, foreign exchange rates and commodity prices. The Company’s consolidated balance sheets includes the estimated fair values of assets that are subject to market risk. The Company’s primary market risks are interest rate risk and credit risks associated with investments in fixed maturities, equity price risk associated with investments in equity securities, and foreign exchange risk associated with premium received that is denominated in foreign currencies. The Company has no commodity risk.
There have been no material changes to the Company’s market risk since December 31, 2023. The Company’s investment grade fixed income portfolio continues to maintain high quality with an AA- average rating and a duration of 0.8 years.
Please see Item 7A of Part II in the Company’s 2023 Annual Report on Form 10-K for information regarding the Company’s market risk.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2024. 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, 2024, 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, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company maintains insurance and reinsurance coverage for risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on its business, results of operations, cash flows, or financial condition.
There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’ have operations that are in runoff, and therefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business.
Item 1A. Risk Factors
The Company’s results of operations and financial condition are subject to numerous risks and uncertainties described in Item 1A of Part I in the Company’s 2023 Annual Report on Form 10-K, filed with the SEC on March 15, 2024. The risk factors identified therein have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’s Share Incentive Plan allows employees to surrender the Company’s class A common shares as payment for the tax liability incurred upon the vesting of restricted stock. There were no shares surrendered by the Company's employees during the quarter ended September 30, 2024. There were 16,527 shares surrendered by the Company’s employees during the nine months ended September 30, 2024.
Global Indemnity Group, LLC did not repurchase any shares from third parties under its repurchase program during the quarter and nine months ended September 30, 2024.
All class A common shares surrendered by the Company's employees or repurchased from third parties under its repurchase program are held as treasury stock and recorded at cost until formally retired.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6.Exhibits
31.1+
Certification of Chief Executive Officer pursuant to Rule 13a-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 Rule 13a-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.
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.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 With Embedded Linkbases Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
+ Filed or furnished herewith, as applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant
Dated: November 7, 2024
By:
/s/ Brian J. Riley
Brian J. Riley
Chief Financial Officer
(Authorized Signatory and Principal Financial and Accounting Officer)