Global Indemnity Group(GBLI) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis of the Company's financial performance and condition Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Global Indemnity Group, LLC, including balance sheets, statements of operations, comprehensive income (loss), changes in shareholders' equity, and cash flows for the periods ended September 30, 2021, and December 31, 2020 (for balance sheet) or September 30, 2020 (for income statements and cash flows) It also includes detailed notes explaining the principles of consolidation, significant accounting policies, investments, derivatives, fair value measurements, credit loss allowances, income taxes, loss and loss adjustment expenses, leases, shareholders' equity, related party transactions, commitments, share-based compensation, earnings per share, segment information, new accounting pronouncements, and subsequent events Consolidated Balance Sheets This chapter provides a summary of the Company's financial position, detailing assets, liabilities, and shareholders' equity as of September 30, 2021, and December 31, 2020 Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total assets | $1,950,621 | $1,904,908 | | Total liabilities | $1,255,435 | $1,186,584 | | Total shareholders' equity | $695,186 | $718,324 | Consolidated Statements of Operations This chapter presents the Company's financial performance over specific periods, including revenues, expenses, and net income (loss) Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Gross written premiums | $174,303 | $143,749 | $513,097 | $464,022 | | Net earned premiums | $157,565 | $140,302 | $450,673 | $426,617 | | Total revenues | $166,988 | $159,913 | $489,115 | $425,274 | | Net losses and loss adjustment expenses | $109,195 | $97,148 | $290,916 | $242,092 | | Net income (loss) | $(7,713) | $(15,170) | $4,179 | $(22,197) | | Net income (loss) available to common shareholders | $(7,823) | $(15,212) | $3,849 | $(22,239) | | Basic EPS | $(0.54) | $(1.06) | $0.27 | $(1.56) | | Diluted EPS | $(0.54) | $(1.06) | $0.26 | $(1.56) | | Cash dividends/distributions declared per common share | $0.25 | $0.25 | $0.75 | $0.75 | Consolidated Statements of Comprehensive Income (Loss) This chapter details the Company's comprehensive income (loss), including net income (loss) and other comprehensive income (loss) components Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Net income (loss) | $(7,713) | $(15,170) | $4,179 | $(22,197) | | Other comprehensive income (loss), net of tax | $(3,932) | $(1,973) | $(19,272) | $18,111 | | Comprehensive income (loss), net of tax | $(11,645) | $(17,143) | $(15,093) | $(4,086) | Consolidated Statements of Changes in Shareholders' Equity This chapter outlines the changes in the Company's shareholders' equity, including components like additional paid-in capital, accumulated other comprehensive income, and retained earnings Shareholders' Equity Components (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Additional paid-in capital | $448,776 | $445,051 | | Accumulated other comprehensive income, net of tax | $15,036 | $34,308 | | Retained earnings | $227,853 | $234,965 | | Total shareholders' equity | $695,186 | $718,324 | - Class A common shares outstanding increased to 10,534,245 as of September 30, 2021, from 10,263,722 as of December 31, 2020 Class B common shares outstanding decreased to 3,947,206 from 4,133,366 over the same period[4][19] Consolidated Statements of Cash Flows This chapter summarizes the Company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9M 2021 | 9M 2020 | Change (in thousands) | % Change | | :-------------------------------- | :------ | :------ | :-------------------- | :------- |\ | Net cash provided by operating activities | $66,054 | $33,936 | $32,118 | 94.6% | | Net cash provided by (used for) investing activities | $(81,184) | $139,469 | $(220,653) | (158.2%) | | Net cash used for financing activities | $(11,651) | $(180,465) | $168,814 | 93.5% | | Net change in cash and cash equivalents | $(26,781) | $(7,060) | $(19,701) | (279.0%) | | Cash and cash equivalents at end of period | $40,578 | $37,211 | $3,367 | 9.0% | Notes to Consolidated Financial Statements This chapter provides detailed explanations and disclosures supporting the consolidated financial statements 1. Principles of Consolidation and Basis of Presentation This note describes the Company's legal structure, classification as a publicly traded partnership, and its four insurance business segments - Global Indemnity Group, LLC (GBLI) redomesticated from a Cayman Islands entity to a Delaware LLC on August 28, 2020, and is classified as a publicly traded partnership for U.S. federal income tax purposes[25][26] - The Company's insurance operations are managed through four business segments: Commercial Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations, offering various property and casualty insurance products[28] 2. Summary of Significant Accounting Policies This note outlines the Company's key accounting policies, including a recent update regarding the timing of recording results for certain investments - The Company updated its accounting policy for investments in limited partnerships and limited liability companies; timely received results are included in current results, otherwise, they are recorded on a one-quarter lag[34] 3. Investments This note details the Company's investment portfolio, including fixed maturities, equity securities, fair values, and net investment income Fixed Maturities and Equity Securities (in thousands) | Investment Type | Sep 30, 2021 Fair Value | Dec 31, 2020 Fair Value | | :-------------------------- | :---------------------- | :---------------------- | | Fixed maturities | $1,199,969 | $1,191,186 | | Equity securities | $90,294 | $98,990 | | Total investments | $1,445,609 | $1,387,194 | Net Investment Income and Realized Gains (Losses) (in thousands) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Net investment income | $9,344 | $11,746 | $29,813 | $19,516 | | Net realized investment gains (losses) | $(310) | $7,323 | $7,342 | $(22,332) | - The Company determined that an allowance for expected credit losses on its investments is not required as of September 30, 2021[59] 4. Derivative Instruments This note describes the Company's use of derivative instruments, primarily interest rate swaps, for managing market risks - The Company uses interest rate swaps and previously used futures contracts as non-hedge derivative instruments to manage market risks[79] Derivative Instruments Fair Value (in thousands) | Derivative Type | Sep 30, 2021 Fair Value | Dec 31, 2020 Fair Value | | :---------------------- | :---------------------- | :---------------------- | | Interest rate swap agreements | $(11,445) | $(16,430) | | Futures contracts on bonds | — | — | | Total | $(11,445) | $(16,430) | - Net realized investment gains (losses) from derivatives were $(95) thousand for Q3 2021 (vs. $160 thousand in Q3 2020) and $500 thousand for 9M 2021 (vs. $(22,159) thousand in 9M 2020)[83] 5. Fair Value Measurements This note details the Company's fair value measurements for assets and liabilities, categorized by input observability levels Fair Value Measurements by Level (in thousands) - Assets as of Sep 30, 2021 | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :-------- | :------ | :---------- | | Fixed maturities | $114,677 | $1,083,754 | $1,538 | $1,199,969 | | Equity securities | $67,209 | $23,085 | — | $90,294 | | Total assets measured at fair value | $181,886 | $1,106,839 | $1,538 | $1,290,263 | Fair Value Measurements by Level (in thousands) - Liabilities as of Sep 30, 2021 | Liability Type | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :-------- | :------ | :---------- | | Derivative instruments | — | $11,445 | — | $11,445 | | Total liabilities measured at fair value | — | $11,445 | — | $11,445 | - The Company's 7.875% Subordinated Notes due 2047 are publicly traded and classified as Level 1 in the fair value hierarchy, with a fair value of $132.582 million as of September 30, 2021[96][97] 6. Allowance for Expected Credit Losses - Premium Receivables and Reinsurance Receivables This note details the allowances maintained for expected credit losses on premium and reinsurance receivables Allowance for Expected Credit Losses - Premium Receivables (in thousands) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Beginning balance | $2,822 | $2,931 | $2,900 | $2,754 | | Current period provision | $217 | $476 | $477 | $951 | | Write-offs | $51 | $(538) | $(287) | $(836) | | Ending balance | $3,090 | $2,869 | $3,090 | $2,869 | Allowance for Expected Credit Losses - Reinsurance Receivables (in thousands) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Beginning balance | $8,992 | $8,992 | $8,992 | $8,992 | | Current period provision | — | — | — | — | | Write-offs | — | — | — | — | | Ending balance | $8,992 | $8,992 | $8,992 | $8,992 | 7. Income Taxes This note explains the Company's income tax status, effective tax rates, and carryforwards - Global Indemnity Group, LLC is a publicly traded partnership for U.S. federal income tax purposes, generally not subject to federal income tax, while its subsidiaries are[114] Effective Income Tax Benefit Rate | Period | 2021 Rate | 2020 Rate | | :-------------------- | :-------- | :-------- | | Quarter Ended Sep 30 | 18.6% | 17.5% | | Nine Months Ended Sep 30 | 36.5% | 26.9% | - The Company has a net operating loss (NOL) carryforward of $30.7 million and a Section 163(j) carryforward of $3.5 million as of September 30, 2021[124][125] 8. Liability for Unpaid Losses and Loss Adjustment Expenses This note details the Company's reserves for unpaid losses and loss adjustment expenses, including changes by accident year and segment Liability for Unpaid Losses and Loss Adjustment Expenses (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Gross balance at end of period | $731,765 | $662,811 | | Net balance at end of period | $643,033 | $580,653 | - Prior accident year loss reserves decreased by $1.4 million in Q3 2021, with decreases across Commercial Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations For the nine months ended September 30, 2021, prior accident year loss reserves increased by $0.7 million, primarily due to an increase in Commercial Specialty, offset by decreases in other segments[128][134] 9. Leases This note outlines the Company's accounting for operating leases, including ROU assets, lease liabilities, and related expenses Lease Expenses (in thousands) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Operating lease expenses | $667 | $717 | $2,118 | $2,196 | | Short-term lease expenses | $2 | $2 | $7 | $6 | | Total lease expenses | $669 | $719 | $2,125 | $2,202 | Lease-Related Balance Sheet Information | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Operating lease assets | $19,963 | $21,077 | | Operating lease liabilities | $21,700 | $22,950 | | Weighted-average remaining lease term | 8.0 years | 8.8 years | | Weighted-average discount rate | 1.5% | 2.6% | 10. Shareholders' Equity This note details the composition and changes in the Company's common and preferred shares, including outstanding shares and dividends - As of October 28, 2021, the registrant had outstanding 10,534,245 Class A Common Shares and 3,947,206 Class B Common Shares[4] - On April 5, 2021, 186,160 Class B common shares were converted to Class A common shares[161] Common Share Dividends/Distributions Declared (in thousands) | Period | Total Distributions Declared | | :-------------------------------- | :--------------------------- | | Nine Months Ended Sep 30, 2021 | $10,961 | | Nine Months Ended Sep 30, 2020 | $10,973 | 11. Related Party Transactions This note describes transactions with related parties, including management fees and advisory fees paid to Fox Paine Entities - Fox Paine Entities beneficially own approximately 82.9% of the voting power of Global Indemnity Group, LLC and control the appointment of all Directors[170] Management Fee Expense (in thousands) | Period | Management Fee Expense | | :-------------------- | :--------------------- | | Q3 2021 | $700 | | Q3 2020 | $600 | | 9M 2021 | $2,000 | | 9M 2020 | $2,000 | - A $10.0 million advisory fee was paid to Fox Paine & Company, LLC in Q3 and 9M 2020 for financial advisory services related to the redomestication plan[174] 12. Commitments and Contingencies This note outlines the Company's legal proceedings, funding commitments, and potential risks from COVID-19 related claims - The Company has unfunded commitments of $14.2 million for a European non-performing loan fund and $17.0 million for a distressed debt fund as of September 30, 2021[179][180] - The Company faces ongoing risks from potential legislation or court rulings requiring coverage for COVID-19 related business interruption claims, despite policy exclusions[183] 13. Share-Based Compensation Plans This note details the Company's share-based compensation programs, including options, restricted shares, and book value appreciation rights - In 9M 2021, the Company granted 140,000 Performance-Based Options and 300,000 unvested stock options were forfeited[184] - Non-employee directors were granted 61,216 Class A common shares in 9M 2021 (vs. 81,502 in 9M 2020)[190] - The Company granted 2,500,000 and 400,000 Penn-Patriot BVARs in 9M 2021, entitling holders to payments based on Penn-Patriot's book value appreciation, subject to performance and employment[191][192] - 58,250 shares of Penn-Patriot Book Value Rights were granted in 9M 2021, with a three-year cliff vesting period[196] 14. Earnings Per Share This note provides the computation of basic and diluted earnings per share, including adjustments for net losses Earnings Per Share Data | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Net income (loss) available to common shareholders | $(7,823) | $(15,212) | $3,849 | $(22,239) | | Basic EPS | $(0.54) | $(1.06) | $0.27 | $(1.56) | | Diluted EPS | $(0.54) | $(1.06) | $0.26 | $(1.56) | - For periods with a net loss (Q3 2021, Q3 2020, 9M 2020), basic weighted average shares outstanding were used to calculate diluted EPS[197][198][199] 15. Segment Information This note provides detailed financial information for the Company's four distinct business segments - The Company's insurance operations are managed through four business segments: Commercial Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations[202] Gross Written Premiums by Segment (in thousands) | Segment | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Commercial Specialty | $95,734 | $74,971 | $279,746 | $243,099 | | Specialty Property | $30,504 | $34,730 | $96,875 | $107,951 | | Farm, Ranch & Stable | $18,500 | $19,443 | $60,353 | $64,798 | | Reinsurance Operations | $29,565 | $14,605 | $76,123 | $48,174 | | Total | $174,303 | $143,749 | $513,097 | $464,022 | Underwriting Income (Loss) by Segment (in thousands) | Segment | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Commercial Specialty | $(8,593) | $4,065 | $(15,160) | $22,686 | | Specialty Property | $(2,865) | $(15,956) | $3,108 | $(6,523) | | Farm, Ranch & Stable | $28 | $(2,079) | $(932) | $(2,587) | | Reinsurance Operations | $932 | $4,453 | $2,816 | $9,200 | 16. New Accounting Pronouncements This note discusses the adoption of new FASB guidance related to income taxes and its impact on the Company's financial statements - The Company adopted updated FASB guidance on income taxes on January 1, 2021, which did not have a material impact on its financial condition, results of operations, or cash flows[213] 17. Subsequent Events This note describes significant events occurring after the reporting period, including the sale of business lines and related financial impacts - On October 26, 2021, the Company sold its manufactured and dwelling homes business lines for $28 million, receiving $30.4 million in cash and retaining American Reliable's operating unit, $65 million of net capital, and a $42 million unearned premium reserve[214][220] - K2 Insurance Services will sublease approximately one-third of the Company's Scottsdale, Arizona office, with expected payments of $2.4 million between October 2021 and November 2029[214][220] - American Reliable plans to cease writing manufactured home and dwelling insurance in Florida and Louisiana[214][220] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results, including recent developments, an overview of business segments, critical accounting estimates, and a detailed analysis of revenues, expenses, and underwriting performance It also discusses liquidity, capital resources, and market risks, along with forward-looking statements Recent Developments This chapter highlights key events and changes impacting the Company, such as business line sales, executive appointments, and financial strength ratings - The Company sold its manufactured and dwelling homes business lines on October 26, 2021, for $28 million, receiving $30.4 million in cash and retaining American Reliable's operating unit, $65 million of net capital, and a $42 million unearned premium reserve[220] - David S. Charlton was named Chief Executive of the Company's insurance operations and appointed to the Board on April 19, 2021 Reiner R. Mauer was named Chief Operations Officer on May 17, 2021[221][222] - The Board approved quarterly distributions of $0.25 per common share in 2021, totaling $10.8 million for common shareholders and $0.3 million for preferred shareholders during the nine months ended September 30, 2021[225] - AM Best affirmed the financial strength rating of "A" (Excellent) for the Company's U.S. operating subsidiaries on April 21, 2021[226] Overview This chapter provides a general description of the Company's business model, including its operating segments and primary revenue and expense drivers - The Company's four business segments are Commercial Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations, each with distinct product offerings and distribution networks[228][229][230][231] - Revenues are primarily derived from insurance premiums and investment income, while expenses include losses and loss adjustment expenses, acquisition costs, underwriting expenses, corporate and other operating expenses, interest, and income taxes[232][235] Critical Accounting Estimates and Policies This chapter discusses the significant accounting estimates and policies that require management judgment and can materially impact financial reporting - Critical accounting policies involve significant estimates for unpaid losses and loss adjustment expenses, reinsurance receivables, investments, fair value measurements, goodwill, intangible assets, deferred acquisition costs, and taxation[238] - The only significant change in accounting policy is the timing of recording results for investments in limited partnerships and limited liability companies, now included in current results if timely, or on a one-quarter lag otherwise[238] Results of Operations This chapter analyzes the Company's financial performance, including net income (loss), premium growth, and combined ratio, with detailed segment breakdowns Consolidated Financial Highlights (in thousands) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Gross written premiums | $174,303 | $143,749 | $513,097 | $464,022 | | Net earned premiums | $157,565 | $140,302 | $450,673 | $426,617 | | Net income (loss) | $(7,713) | $(15,170) | $4,179 | $(22,197) | | Loss ratio | 69.3% | 69.2% | 64.5% | 56.7% | | Expense ratio | 37.6% | 38.0% | 38.0% | 38.3% | | Combined ratio | 106.9% | 107.2% | 102.5% | 95.0% | Premiums This chapter analyzes the trends in gross written premiums, highlighting growth drivers and offsetting factors across business segments Gross Written Premiums by Segment (in thousands) | Segment | Q3 2021 | Q3 2020 | % Change (YoY) | 9M 2021 | 9M 2020 | % Change (YoY) | | :-------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Commercial Specialty | $95,734 | $74,971 | 27.7% | $279,746 | $243,099 | 15.1% | | Specialty Property | $30,504 | $34,730 | (12.2%) | $96,875 | $107,951 | (10.3%) | | Farm, Ranch & Stable | $18,500 | $19,443 | (4.9%) | $60,353 | $64,798 | (6.9%) | | Reinsurance | $29,565 | $14,605 | 102.4% | $76,123 | $48,174 | 58.0% | | Total | $174,303 | $143,749 | 21.3% | $513,097 | $464,022 | 10.6% | - Growth in gross written premiums was mainly due to Commercial Specialty and Reinsurance Operations, partially offset by reductions in catastrophe-exposed business in Specialty Property and Farm, Ranch & Stable[247] Net Retention This chapter examines the Company's net premium retention rate, attributing changes to reinsurance restructuring and business mix shifts Net Premium Retention by Segment | Segment | Q3 2021 | Q3 2020 | Point Change | 9M 2021 | 9M 2020 | Point Change | | :-------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Commercial Specialty | 93.1% | 92.1% | 1.0 | 91.5% | 90.3% | 1.2 | | Specialty Property | 89.2% | 86.3% | 2.9 | 89.4% | 86.2% | 3.2 | | Farm, Ranch & Stable | 88.5% | 87.2% | 1.3 | 85.9% | 86.9% | (1.0) | | Reinsurance | 100.0% | 100.0% | — | 100.0% | 100.0% | — | | Total | 93.1% | 90.9% | 2.2 | 91.7% | 89.9% | 1.8 | - The increase in net premium retention is primarily due to the restructuring of catastrophe reinsurance treaties in June 2020 and a change in the mix of business[249] Net Earned Premiums This chapter analyzes net earned premiums across segments, highlighting factors like organic growth, pricing, and reduced catastrophe exposure Net Earned Premiums by Segment (in thousands) | Segment | Q3 2021 | Q3 2020 | % Change (YoY) | 9M 2021 | 9M 2020 | % Change (YoY) | | :-------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Commercial Specialty | $84,209 | $73,887 | 14.0% | $240,505 | $211,329 | 13.8% | | Specialty Property | $29,343 | $31,388 | (6.5%) | $89,826 | $99,147 | (9.4%) | | Farm, Ranch & Stable | $17,936 | $19,978 | (10.2%) | $54,037 | $57,691 | (6.3%) | | Reinsurance | $26,077 | $15,049 | 73.3% | $66,305 | $58,450 | 13.4% | | Total | $157,565 | $140,302 | 12.3% | $450,673 | $426,617 | 5.6% | - Commercial Specialty's net earned premiums increased due to organic growth and pricing, while Specialty Property and Farm, Ranch & Stable decreased due to reduced catastrophe exposure Reinsurance Operations saw significant growth from casualty treaties[250][251][252][253] Reserves This chapter provides an overview of the Company's gross and net loss reserves and a sensitivity analysis for current accident year net loss estimates Gross and Net Reserves for Unpaid Losses and Loss Adjustment Expenses (in thousands) as of Sep 30, 2021 | Segment | Gross Reserves | Net Reserves | | :-------------------- | :------------- | :----------- | | Commercial Specialty | $480,706 | $407,525 | | Specialty Property | $39,919 | $34,645 | | Farm, Ranch & Stable | $45,371 | $35,094 | | Reinsurance Operations | $165,769 | $165,769 | | Total | $731,765 | $643,033 | Sensitivity of Current Accident Year Net Loss Estimate (9M 2021) (in thousands) | Frequency Change | -10% Severity | -5% Severity | 0% Severity | 5% Severity | 10% Severity | | :--------------- | :------------ | :----------- | :---------- | :---------- | :----------- | | -5% | $(42,079) | $(28,295) | $(14,510) | $(726) | $13,059 | | 0% | $(29,020) | $(14,510) | — | $14,510 | $29,020 | | 5% | $(15,961) | $(726) | $14,510 | $29,746 | $44,981 | Underwriting Results This chapter analyzes the underwriting performance of each business segment, focusing on combined ratios and factors influencing loss and expense ratios Commercial Specialty This chapter details the underwriting performance of the Commercial Specialty segment, including changes in combined ratio and loss drivers Commercial Specialty Underwriting Ratios | Metric | Q3 2021 | Q3 2020 | Point Change | 9M 2021 | 9M 2020 | Point Change | | :-------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Calendar year loss ratio | 74.3% | 58.0% | 16.3 | 69.7% | 51.7% | 18.0 | | Expense ratio | 35.9% | 36.5% | (0.6) | 36.6% | 37.6% | (1.0) | | Combined ratio | 110.2% | 94.5% | 15.7 | 106.3% | 89.3% | 17.0 | - The current accident year non-catastrophe property loss ratio increased by 12.1 points in Q3 2021 and 11.3 points in 9M 2021 due to higher claims severity[267][268] - The current accident year casualty loss ratio increased by 7.6 points in Q3 2021 and 4.7 points in 9M 2021 due to higher claims frequency[271] Specialty Property This chapter details the underwriting performance of the Specialty Property segment, highlighting improvements in combined ratio due to lower catastrophe losses Specialty Property Underwriting Ratios | Metric | Q3 2021 | Q3 2020 | Point Change | 9M 2021 | 9M 2020 | Point Change | | :-------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Calendar year loss ratio | 69.9% | 109.7% | (39.8) | 56.0% | 66.2% | (10.2) | | Expense ratio | 41.3% | 42.6% | (1.3) | 42.0% | 41.7% | 0.3 | | Combined ratio | 111.2% | 152.3% | (41.1) | 98.0% | 107.9% | (9.9) | - The current accident year catastrophe loss ratio improved by 36.0 points in Q3 2021 and 13.0 points in 9M 2021 due to lower claims frequency and severity Hurricane Ida's impact on Q3 2021 loss ratio was 18.6 points, compared to Hurricane Laura's 36.2 points in Q3 2020[287][288] Farm, Ranch & Stable This chapter details the underwriting performance of the Farm, Ranch & Stable segment, showing improved combined ratio from reduced catastrophe losses Farm, Ranch & Stable Underwriting Ratios | Metric | Q3 2021 | Q3 2020 | Point Change | 9M 2021 | 9M 2020 | Point Change | | :-------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Calendar year loss ratio | 59.5% | 73.4% | (13.9) | 62.3% | 65.3% | (3.0) | | Expense ratio | 40.5% | 37.3% | 3.2 | 39.7% | 39.3% | 0.4 | | Combined ratio | 100.0% | 110.7% | (10.7) | 102.0% | 104.6% | (2.6) | - The current accident year catastrophe loss ratio improved by 35.7 points in Q3 2021 and 19.6 points in 9M 2021 due to lower claims frequency and severity The Midwest derecho impacted the 2020 Q3 loss ratio by 30.1 points[306][307] Reinsurance Operations This chapter details the underwriting performance of the Reinsurance Operations segment, noting changes in combined ratio due to business mix and profit commissions Reinsurance Operations Underwriting Ratios | Metric | Q3 2021 | Q3 2020 | Point Change | 9M 2021 | 9M 2020 | Point Change | | :-------------------- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Calendar year loss ratio | 59.2% | 34.5% | 24.7 | 59.4% | 50.6% | 8.8 | | Expense ratio | 36.9% | 36.7% | 0.2 | 36.2% | 33.8% | 2.4 | | Combined ratio | 96.1% | 71.2% | 24.9 | 95.6% | 84.4% | 11.2 | - The current accident year loss ratio improved by 5.6 points in Q3 2021 but increased by 2.2 points in 9M 2021, reflecting a business mix shift to more casualty premium[319][320] - The expense ratio increased in 9M 2021 due to a change in business mix and an increase in profit commissions[323] Unallocated Corporate Items This chapter covers financial results not attributed to specific business segments, including investment income, realized gains, corporate expenses, interest, and taxes Net Investment Income This chapter analyzes net investment income, highlighting changes due to alternative investments and the fixed income portfolio's characteristics Net Investment Income (in thousands) | Metric | Q3 2021 | Q3 2020 | % Change (YoY) | 9M 2021 | 9M 2020 | % Change (YoY) | | :-------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Gross investment income | $10,010 | $12,556 | (20.3%) | $31,827 | $21,662 | 46.9% | | Investment expenses | $(666) | $(810) | (17.8%) | $(2,014) | $(2,146) | (6.2%) | | Net investment income | $9,344 | $11,746 | (20.4%) | $29,813 | $19,516 | 52.8% | - The fixed income portfolio maintains an A average rating and a duration of 3.3 years as of September 30, 2021[325][330] Net Realized Investment Gains (Losses) This chapter analyzes net realized investment gains and losses, noting the shift from losses to gains primarily driven by equity securities and derivatives Net Realized Investment Gains (Losses) (in thousands) | Investment Type | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Equity securities | $(1,662) | $4,887 | $6,101 | $(17,201) | | Fixed maturities | $1,447 | $2,276 | $741 | $17,028 | | Derivatives | $(95) | $160 | $500 | $(22,159) | | Total | $(310) | $7,323 | $7,342 | $(22,332) | Corporate and Other Operating Expenses This chapter examines corporate and other operating expenses, highlighting a significant decrease due to lower redomestication-related professional fees Corporate and Other Operating Expenses (in thousands) | Period | 2021 | 2020 | % Change (YoY) | | :-------------------- | :----- | :----- | :------------- | | Q3 | $5,387 | $21,196 | (74.6%) | | 9M | $15,992 | $34,037 | (53.0%) | - The decrease in corporate expenses is primarily due to lower professional fees related to the redomestication in 2020[334] Interest Expense This chapter analyzes interest expense, noting reductions due to debt redemptions and repayment of a margin borrowing facility Interest Expense (in thousands) | Period | 2021 | 2020 | % Change (YoY) | | :-------------------- | :----- | :----- | :------------- | | Q3 | $2,596 | $3,620 | (28.3%) | | 9M | $7,887 | $13,197 | (40.2%) | - The decrease in interest expense is primarily due to the redemption of 7.75% Subordinated Notes due 2045 and repayment of the margin borrowing facility in August 2020[335] Income Tax Benefit This chapter examines the income tax benefit, explaining reductions due to prior year redomestication benefits and increased pre-tax income Income Tax Benefit (in thousands) | Period | 2021 | 2020 | % Change (YoY) | | :-------------------- | :----- | :----- | :------------- | | Q3 | $1,759 | $3,209 | (45.2%) | | 9M | $1,118 | $8,173 | (86.3%) | - The Q3 reduction in tax benefit is primarily due to a $1.7 million tax benefit recognized in 2020 from the redomestication of net insurance liabilities from Bermuda to the U.S.[336] - The 9M reduction in tax benefit is primarily due to an increase in pre-tax income of the Company's U.S. subsidiaries[337] Net Income (Loss) This chapter summarizes the Company's net income (loss) for the reported periods, highlighting improvements compared to the prior year Net Income (Loss) (in thousands) | Period | 2021 | 2020 | % Change (YoY) | | :-------------------- | :----- | :----- | :------------- | | Q3 | $(7,713) | $(15,170) | 49.2% | | 9M | $4,179 | $(22,197) | 118.8% | Liquidity and Capital Resources This chapter discusses the Company's ability to generate and manage cash, including sources and uses of funds, cash flows, and capital structure Sources and Uses of Funds This chapter outlines the primary sources and applications of cash for the holding company and its insurance subsidiaries, noting dividend restrictions - Global Indemnity Group, LLC's principal sources of cash are investment income, dividends from subsidiaries, and intercompany borrowings, used for corporate expenses, debt service, and shareholder distributions[341] - The Company's insurance subsidiaries are restricted by statute on the amount of dividends they may pay without regulatory approval[345] - As of September 30, 2021, the Company had future funding commitments of $31.2 million related to alternative investments, with minimal expected capital calls[344] Cash Flows This chapter analyzes the Company's cash flow from operating activities, highlighting the drivers of significant increases Net Cash Provided by Operating Activities (in thousands) | Metric | 9M 2021 | 9M 2020 | Change (in thousands) | % Change | | :-------------------------------- | :------ | :------ | :-------------------- | :------- | | Net cash provided by operating activities | $66,054 | $33,936 | $32,118 | 94.6% | - The increase in operating cash flows was primarily due to higher net premiums collected ($46.1 million increase) and lower net losses paid ($4.9 million decrease), partially offset by decreased net investment income and federal income tax recoveries[347] Liquidity This chapter discusses factors affecting the Company's liquidity, including COVID-19 risks and the positive impact of recent business line sales - COVID-19 poses risks to liquidity through potential premium non-payment, increased claims, and investment market disruption, with management actively monitoring impacts[350] - The sale of manufactured and dwelling homes business lines is expected to generate $30.4 million in cash and retain $65 million of net capital, enhancing liquidity[352] - Quarterly distributions of $0.25 per common share were approved in 2021, totaling $10.8 million for common shareholders and $0.3 million for preferred shareholders in 9M 2021[351] Capital Resources This chapter describes the Company's capital structure, noting the repayment of an intercompany promissory note and the absence of other material changes - Global Indemnity Investments Inc. repaid its promissory note with Global Indemnity Group, LLC on September 27, 2021, eliminating all intercompany notes outstanding[354] Co-obligor Financial Information This chapter provides summarized financial information for co-obligors of the 7.875% Subordinated Notes due 2047, detailing their ranking and subordination - Global Indemnity Group, LLC and GBLI Holdings, LLC are co-obligors for the 7.875% Subordinated Notes due 2047[356] - The 2047 Notes are subordinated unsecured obligations, ranking senior to capital stock but subordinate to senior debt and structurally subordinated to most subsidiary liabilities[358] Parent and Subsidiary Co-obligors Summarized Balance Sheet (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Intercompany note receivable | — | $11,283 | | Total assets excluding investment in subsidiaries | $305,180 | $324,229 | | Total liabilities | $156,649 | $158,423 | Off Balance Sheet Arrangements This chapter confirms that the Company has no off-balance sheet arrangements - The Company has no off-balance sheet arrangements[365] Cautionary Note Regarding Forward-Looking Statements This chapter advises readers that the report contains forward-looking statements subject to risks and uncertainties, and the Company does not commit to updating them - The report contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from projections[367][369] - The Company does not undertake any obligation to publicly update or review forward-looking statements[370] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, including equity and fixed income market movements, and its investment portfolio characteristics - Global equities fell approximately 1.0% in Q3 2021, with U.S. equities returning approximately 0.6% U.S. fixed income returned approximately 0.1%[371] - The Company's investment grade fixed income portfolio maintains an A average rating and a duration of 3.3 years as of September 30, 2021[372] - Portfolio purchases focused on US Treasury, asset-backed, and investment-grade credit securities, increasing allocation to asset-backed and investment-grade credit while decreasing exposure to MBS and US Treasuries[372] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of September 30, 2021[373] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021[376] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section addresses the Company's involvement in legal proceedings and its assessment of their potential financial impact - The Company does not believe that current legal proceedings will have a material adverse effect on its business, results of operations, cash flows, or financial condition[378] - The Company monitors relationships with reinsurers in runoff due to a greater potential for disputes[379] Item 1A. Risk Factors This section refers to the Company's comprehensive risk factors previously disclosed, confirming no material changes - The Company's risk factors, as described in its 2020 Annual Report on Form 10-K and Q2 2021 Form 10-Q, have not materially changed[380] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered sales of equity securities, specifically employee share surrenders for tax liabilities - No Class A common shares were surrendered by employees for tax liabilities during Q3 2021[381] - Surrendered shares are held as treasury stock at cost until formally retired[381] Item 3. Defaults Upon Senior Securities This section confirms the absence of any defaults on senior securities during the reporting period - No defaults upon senior securities were reported[382] Item 4. Mine Safety Disclosures This section states that no mine safety disclosures are applicable or reported for the Company - No mine safety disclosures were reported[382] Item 5. Other Information This section indicates that no other information is reported - No other information was reported[382] Item 6. Exhibits This section lists all exhibits accompanying the report, including certifications and XBRL taxonomy documents - The report includes certifications from the Principal Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[387] - XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are filed as exhibits[387] Signature This section contains the official signature and date of the financial report - The report was signed by Thomas M. McGeehan, Chief Financial Officer, on November 9, 2021[389]