Global Indemnity Group(US:GBLI)2019-11-08 13:04PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Global Indemnity Limited as of and for the periods ended September 30, 2019 Consolidated Balance Sheets As of September 30, 2019, total assets increased to $2.08 billion from $1.96 billion at year-end 2018, driven by a rise in total investments Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $2,084,156 | $1,960,266 | | Total Investments | $1,536,854 | $1,410,655 | | Cash and cash equivalents | $78,181 | $99,497 | | Total Liabilities | $1,376,772 | $1,331,207 | | Unpaid losses and loss adjustment expenses | $633,287 | $680,031 | | Debt | $297,324 | $288,565 | | Total Shareholders' Equity | $707,384 | $629,059 | | Accumulated other comprehensive income (loss) | $25,314 | $(21,231) | Consolidated Statements of Operations For the nine months ended September 30, 2019, net income surged to $41.0 million from $16.6 million in the prior-year period, driven by higher net premiums earned and a significant increase in net realized investment gains Key Operating Results (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Gross Premiums Written | $157,177 | $135,606 | $478,699 | $418,670 | | Net Premiums Earned | $133,312 | $120,528 | $383,602 | $342,447 | | Total Revenues | $142,234 | $138,008 | $428,559 | $385,677 | | Net Losses and LAE | $73,583 | $80,493 | $201,979 | $195,426 | | Net Income | $6,721 | $3,728 | $40,984 | $16,621 | | Diluted EPS | $0.47 | $0.26 | $2.86 | $1.16 | Consolidated Statements of Comprehensive Income Comprehensive income for the nine months ended September 30, 2019 was $87.5 million, a significant turnaround from a comprehensive loss of $6.2 million in the same period of 2018 Comprehensive Income (Loss) (in thousands) | Component | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $6,721 | $3,728 | $40,984 | $16,621 | | Other Comprehensive Income (Loss) | $8,772 | $(1,354) | $46,545 | $(22,784) | | Comprehensive Income (Loss) | $15,493 | $2,374 | $87,529 | $(6,163) | Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, net cash provided by operating activities was stable at $45.9 million Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,930 | $45,871 | | Net cash used for investing activities | $(67,730) | $(54,491) | | Net cash provided by (used for) financing activities | $484 | $(25,148) | | Net change in cash and cash equivalents | $(21,316) | $(33,768) | Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial data - In Q1 2019, the company bifurcated its Personal Lines segment into two new reportable segments: Specialty Property and Farm, Ranch, & Stable, and renamed Commercial Lines to Commercial Specialty25 - The company adopted new lease accounting guidance on January 1, 2019, recognizing right-of-use lease assets of $25.3 million and lease liabilities of $25.4 million upon adoption218 - For the nine months ended September 30, 2019, the company experienced favorable prior year loss reserve development of $23.0 million, primarily from the Commercial Specialty and Specialty Property segments115121 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance for the third quarter and first nine months of 2019, covering underwriting results by segment, investment performance, and liquidity Consolidated Results Summary (in thousands) | Metric | 9 Months 2019 | 9 Months 2018 | % Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $478,699 | $418,670 | 14.3% | | Underwriting Income | $29,254 | $7,114 | 311.2% | | Net Income | $40,984 | $16,621 | 146.6% | | Combined Ratio | 92.8% | 98.3% | (5.5) pts | - The increase in net income for the first nine months of 2019 was driven by improved underwriting results and a $12.5 million advisory fee incurred in 2018 but not in 2019339343 - The Reinsurance Operations segment saw gross premiums written increase by 74.1% in the first nine months of 2019, largely due to a new casualty treaty which contributed $20.1 million252257 Underwriting Results: Commercial Specialty The Commercial Specialty segment reported strong underwriting income of $21.0 million for the first nine months of 2019, up 87.9% from the prior year Commercial Specialty Underwriting Ratios | Ratio | 9 Months 2019 | 9 Months 2018 | Point Change | | :--- | :--- | :--- | :--- | | Calendar Year Loss Ratio | 47.2% | 52.6% | (5.4) | | Expense Ratio | 40.7% | 40.3% | 0.4 | | Combined Ratio | 87.9% | 92.9% | (5.0) | - The segment's calendar year loss ratio for the nine months of 2019 included $12.1 million (7.0 points) of favorable prior year reserve development282284 Underwriting Results: Specialty Property The Specialty Property segment swung from an underwriting loss of $11.8 million in the first nine months of 2018 to an underwriting income of $4.4 million in 2019 Specialty Property Underwriting Ratios | Ratio | 9 Months 2019 | 9 Months 2018 | Point Change | | :--- | :--- | :--- | :--- | | Calendar Year Loss Ratio | 55.1% | 70.2% | (15.1) | | Expense Ratio | 42.2% | 43.0% | (0.8) | | Combined Ratio | 97.3% | 113.2% | (15.9) | - The current accident year catastrophe loss ratio improved by 10.8 points for the nine-month period, reflecting lower claims frequency and severity298 - The segment recognized $10.5 million (10.0 points) of favorable prior year reserve development in the first nine months of 2019300 Underwriting Results: Farm, Ranch, & Stable The Farm, Ranch, & Stable segment reported an underwriting loss of $1.7 million for the first nine months of 2019, compared to income of $0.2 million in the prior year Farm, Ranch, & Stable Underwriting Ratios | Ratio | 9 Months 2019 | 9 Months 2018 | Point Change | | :--- | :--- | :--- | :--- | | Calendar Year Loss Ratio | 60.9% | 56.1% | 4.8 | | Expense Ratio | 42.4% | 43.7% | (1.3) | | Combined Ratio | 103.3% | 99.8% | 3.5 | - The current accident year non-catastrophe property loss ratio increased by 13.4 points in the first nine months of 2019 due to higher claims frequency and severity315 Underwriting Results: Reinsurance Operations The Reinsurance Operations segment's underwriting income decreased to $5.6 million for the first nine months of 2019 from $7.6 million in 2018 Reinsurance Operations Underwriting Ratios | Ratio | 9 Months 2019 | 9 Months 2018 | Point Change | | :--- | :--- | :--- | :--- | | Calendar Year Loss Ratio | 57.7% | 41.1% | 16.6 | | Expense Ratio | 31.4% | 36.9% | (5.5) | | Combined Ratio | 89.1% | 78.0% | 11.1 | - The current accident year loss ratio improved by 12.4 points for the nine-month period, reflecting better performance in both property and casualty treaties329 Liquidity and Capital Resources The company maintains liquidity through its holding company structure, with principal sources of cash being dividends from subsidiaries, underwriting operations, and investment income - Global Indemnity is a holding company whose liquidity depends on dividends from its subsidiaries, which are subject to regulatory restrictions345350 - As of September 30, 2019, the company had future funding commitments of $43.2 million related to alternative investments349 - Net cash provided by operating activities was $45.9 million for the nine months ended September 30, 2019, consistent with the prior year period354 Quantitative and Qualitative Disclosures about Market Risk In Q3 2019, global equity and fixed income markets generated positive returns amidst sluggish global growth, geopolitical tensions, and monetary easing by central banks - The company's investment grade fixed income portfolio has an average rating of A+ and a duration of 3.7 years as of September 30, 2019368 - During Q3 2019, the portfolio's allocation to Mortgage-Backed Securities (MBS) and investment grade credit increased, while exposure to government securities decreased368 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of September 30, 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2019369 - No material changes to internal controls over financial reporting occurred during the quarter ended September 30, 2019370 PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business but does not believe their resolution will have a material adverse effect on its financial condition - The company does not expect any currently pending legal proceedings to have a material adverse effect on its business, results of operations, or financial condition373 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - Risk factors identified in the 2018 Annual Report on Form 10-K have not materially changed375 Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended September 30, 2019, no A ordinary shares were surrendered by employees as payment for tax liabilities on vested restricted stock - No shares were surrendered by employees for tax payments during the quarter ended September 30, 2019376 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and the XBRL interactive data files - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL financial data380