Global Indemnity Group(GBLI) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Global Indemnity Group, LLC for the quarter ended March 31, 2023, including balance sheets, statements of operations, comprehensive income (loss), changes in shareholders' equity, and cash flows Consolidated Balance Sheets Consolidated Balance Sheet Highlights (March 31, 2023 vs. December 31, 2022) | Metric (in thousands) | March 31, 2023 | December 31, 2022 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Total investments | $1,312,368 | $1,303,894 | $8,474 | 0.65% | | Cash and cash equivalents | $35,737 | $38,846 | $(3,109) | -7.99% | | Total assets | $1,777,278 | $1,800,775 | $(23,497) | -1.30% | | Total liabilities | $1,149,040 | $1,174,546 | $(25,506) | -2.17% | | Total shareholders' equity | $628,238 | $626,229 | $2,009 | 0.32% | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Q1 2023 vs. Q1 2022) | Metric (in thousands) | Q1 2023 | Q1 2022 | Change | % Change | | :-------------------- | :----------- | :------------ | :--------- | :------- | | Gross written premiums | $122,985 | $190,983 | $(67,998) | -35.6% | | Net earned premiums | $140,072 | $148,823 | $(8,751) | -5.9% | | Net investment income | $12,008 | $6,592 | $5,416 | 82.2% | | Net realized investment losses | $(1,520) | $(25,385) | $23,865 | -94.0% | | Total revenues | $150,914 | $130,456 | $20,458 | 15.7% | | Net losses and loss adjustment expenses | $88,001 | $84,695 | $3,306 | 3.9% | | Income (loss) before income taxes | $3,067 | $(18,186) | $21,253 | -116.9% | | Net income (loss) | $2,494 | $(14,773) | $17,267 | -116.9% | | Basic EPS | $0.17 | $(1.03) | $1.20 | -116.5% | | Diluted EPS | $0.17 | $(1.03) | $1.20 | -116.5% | Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) Highlights (Q1 2023 vs. Q1 2022) | Metric (in thousands) | Q1 2023 | Q1 2022 | Change | % Change | | :-------------------- | :-------- | :--------- | :-------- | :------- | | Net income (loss) | $2,494 | $(14,773) | $17,267 | -116.9% | | Other comprehensive income (loss), net of tax | $8,443 | $(19,176) | $27,619 | -144.0% | | Comprehensive income (loss), net of tax | $10,937 | $(33,949) | $44,886 | -132.2% | Consolidated Statements of Changes in Shareholders' Equity Shareholders' Equity Changes (Q1 2023 vs. Q1 2022) | Metric (in thousands) | March 31, 2023 | March 31, 2022 | | :-------------------- | :------------- | :------------- | | Total shareholders' equity | $628,238 | $669,655 | | Net income (loss) | $2,494 | $(14,773) | | Preferred share distributions | $(110) | $(110) | | Distributions to shareholders | $(3,346) | $(3,647) | | Class A common shares purchased | $(6,552) | $(120) | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Q1 2023 vs. Q1 2022) | Metric (in thousands) | Q1 2023 | Q1 2022 | Change | % Change | | :-------------------- | :--------- | :---------- | :--------- | :------- | | Net cash provided by (used for) operating activities | $5,326 | $(10,062) | $15,388 | -152.9% | | Net cash provided by investing activities | $2,146 | $93,564 | $(91,418) | -97.7% | | Net cash used for financing activities | $(10,581) | $(3,884) | $(6,697) | 172.4% | | Net change in cash and cash equivalents | $(3,109) | $79,618 | $(82,727) | -103.9% | | Cash and cash equivalents at end of period | $35,737 | $157,896 | $(122,159) | -77.4% | Notes to Consolidated Financial Statements (Unaudited) 1. Principles of Consolidation and Basis of Presentation Global Indemnity Group, LLC's financial statements are prepared in conformity with GAAP, consolidating all wholly-owned subsidiaries with intercompany balances eliminated - Global Indemnity Group, LLC (GBLI) is a Delaware limited liability company, publicly traded on the NYSE under GBLI, and its consolidated financial statements are prepared in conformity with GAAP[20][21][23] - Certain amounts for the quarter ended March 31, 2022, were re-reported to conform to the presentation adopted in Q2 2022, specifically regarding ceded written premiums and change in net unearned premiums, with no effect on total revenues, expenses, or net loss[24] 2. Restructuring The Company completed a restructuring plan in Q1 2023 to strengthen its market presence and focus on core Wholesale Commercial and InsurTech products - The Company completed a restructuring plan in Q1 2023, initiated in Q4 2022, to strengthen its market presence and focus on core Wholesale Commercial and InsurTech products, involving exiting four brokerage divisions and placing existing renewals in run-off[25] Restructuring Costs and Liabilities (in thousands) | Expense Type | Charges incurred in 2022 | Charges incurred in 2023 | Cash payments in 2023 | Liability at March 31, 2023 | | :--------------------- | :----------------------- | :----------------------- | :-------------------- | :-------------------------- | | Employee Termination | $2,635 | $2,171 | $(2,678) | $2,128 | | Lease Right of Use Asset Impairment | $812 | $0 | $0 | $0 | | Total | $3,447 | $2,171 | $(2,678) | $2,128 | 3. Investments This section details the Company's investment portfolio, including fixed maturities and net investment income, highlighting improved investment returns Fixed Maturities Portfolio (March 31, 2023 vs. December 31, 2022, in thousands) | Category | Amortized Cost (Mar 31, 2023) | Fair Value (Mar 31, 2023) | Amortized Cost (Dec 31, 2022) | Fair Value (Dec 31, 2022) | | :--------------------------- | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | U.S. treasuries | $337,865 | $332,306 | $352,533 | $344,103 | | Obligations of states and political subdivisions | $33,386 | $31,873 | $33,471 | $31,595 | | Mortgage-backed securities | $66,799 | $62,482 | $67,560 | $62,116 | | Asset-backed securities | $214,005 | $207,705 | $198,161 | $189,400 | | Commercial mortgage-backed securities | $104,788 | $99,087 | $104,777 | $98,664 | | Corporate bonds | $353,329 | $341,160 | $353,622 | $338,780 | | Foreign corporate bonds | $189,976 | $182,744 | $191,599 | $183,540 | | Total fixed maturities | $1,300,148 | $1,257,357 | $1,301,723 | $1,248,198 | - The Company's total investment return on a pre-tax basis was $20.968 million (1.6%) for Q1 2023, a significant improvement from a loss of $(42.637) million (-2.8%) in Q1 2022, driven by increased net investment income and reduced net realized investment losses[51] Net Investment Income (in thousands) | Source (in thousands) | Q1 2023 | Q1 2022 | | :-------------------- | :------ | :------ | | Fixed maturities | $11,460 | $6,404 | | Equity securities | $190 | $334 | | Cash and cash equivalents | $263 | $32 | | Other invested assets | $467 | $426 | | Total investment income | $12,380 | $7,196 | | Investment expense | $(372) | $(604) | | Net investment income | $12,008 | $6,592 | 4. Derivative Instruments The Company utilized derivative instruments to manage market risks, with all interest rate swap agreements terminated in Q4 2022 - The Company used interest rate swaps and exchange-traded futures contracts to manage interest rate and equity market risks, with no outstanding interest rate swap agreements as of March 31, 2023, as they were terminated in Q4 2022[59][61] Net Gains from Derivative Instruments (in thousands) | Instrument | Q1 2023 | Q1 2022 | | :------------------ | :------ | :------ | | Interest rate swap agreements | $0 | $4,724 | | Total | $0 | $4,724 | 5. Fair Value Measurements This section outlines the fair value hierarchy for the Company's invested assets, categorizing them into Level 1, Level 2, and Level 3 based on input observability Invested Assets Measured at Fair Value (March 31, 2023, in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :--------------------------- | :--------- | :--------- | :------- | :--------- | | Fixed maturities: | | | | | | U.S. treasuries | $332,306 | $0 | $0 | $332,306 | | Obligations of states and political subdivisions | $0 | $31,873 | $0 | $31,873 | | Mortgage-backed securities | $0 | $61,518 | $964 | $62,482 | | Commercial mortgage-backed securities | $0 | $99,087 | $0 | $99,087 | | Asset-backed securities | $0 | $207,386 | $319 | $207,705 | | Corporate bonds | $0 | $339,338 | $1,822 | $341,160 | | Foreign corporate bonds | $0 | $182,744 | $0 | $182,744 | | Total fixed maturities | $332,306 | $921,946 | $3,105 | $1,257,357 | | Equity securities | $0 | $16,112 | $1,230 | $17,342 | | Total assets measured at fair value | $332,306 | $938,058 | $4,335 | $1,274,699 | - The Company classifies its invested assets into a fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs), with U.S. treasuries primarily Level 1 and most other fixed maturities and equity securities Level 2[64][67][68] 6. Allowance for Expected Credit Losses - Premium Receivables and Reinsurance Receivables This section details the allowances for expected credit losses on premium and reinsurance receivables for Q1 2023 and Q1 2022 Allowance for Expected Credit Losses - Premium Receivables (in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | | :-------------------- | :------ | :------ | | Beginning balance | $3,322 | $2,996 | | Current period provision | $348 | $83 | | Write-offs | $(291) | $(142) | | Ending balance | $3,379 | $2,937 | Allowance for Expected Credit Losses - Reinsurance Receivables (in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | | :-------------------- | :------ | :------ | | Beginning balance | $8,992 | $8,992 | | Current period provision | $0 | $0 | | Write-offs | $0 | $0 | | Recoveries | $0 | $0 | | Ending balance | $8,992 | $8,992 | 7. Income Taxes This section outlines the Company's income tax structure, including its status as a publicly traded partnership and the tax liabilities of its subsidiaries - Global Indemnity Group, LLC is generally not subject to federal income tax as a publicly traded partnership, but its subsidiaries are subject to corporate tax in the U.S. and certain foreign jurisdictions (Bermuda 0%, Ireland 12.5%-33%)[82][83] Income Tax Expense (Benefit) (in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | | :-------------------- | :------ | :------ | | U.S. Federal | $573 | $(3,413) | | Total income tax expense (benefit) | $573 | $(3,413) | | Effective income tax expense (benefit) rate | 18.7% | 18.8% | - The Company had a net operating loss (NOL) carryforward of $109.7 million as of March 31, 2023, down from $116.4 million at December 31, 2022[87] 8. Liability for Unpaid Losses and Loss Adjustment Expenses This section details the activity in the Company's liability for unpaid losses and loss adjustment expenses, including prior accident year adjustments Activity in Liability for Unpaid Losses and Loss Adjustment Expenses (in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | | :-------------------- | :--------- | :--------- | | Balance at beginning of period | $832,404 | $759,904 | | Net balance at beginning of period | $759,383 | $665,461 | | Total incurred losses and loss adjustment expenses | $88,001 | $84,695 | | Total paid losses and loss adjustment expenses | $63,529 | $73,018 | | Net balance at end of period | $783,855 | $677,138 | | Balance at end of period | $857,520 | $770,332 | - During Q1 2023, adjustments to prior accident year loss reserves netted to zero, consisting of a $1.5 million increase in Commercial Specialty and a $1.5 million decrease in Exited Lines; in Q1 2022, prior accident year loss reserves decreased by $3.1 million[89][90] 9. Shareholders' Equity This section covers changes in shareholders' equity, including stock repurchase program updates and common and preferred share distributions - The Company's stock repurchase program was increased from $32 million to $60 million on January 3, 2023, expiring December 31, 2027; as of March 31, 2023, 253,302 Class A common shares were purchased during the quarter, including 250,000 shares under the repurchase program[91][94] Class A Common Shares Purchased (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------------- | :------------------------------- | :--------------------------- | | January 1-31, 2023 (surrendered) | 3,302 | $23.31 | | January 1-31, 2023 (repurchase program) | 250,000 | $25.90 | | Total | 253,302 | $25.82 | - Common share distributions of $0.25 per share were declared for Q1 2023, totaling $3.346 million; preferred share distributions were $0.1 million for both Q1 2023 and Q1 2022[101][103] 10. Related Party Transactions This section details transactions with related parties, specifically management fees incurred with Fox Paine & Company, LLC - Fox Paine Entities, as Class B Majority Shareholder, beneficially own approximately 83.6% of the voting power and control the appointment of all directors; management fee expense incurred with Fox Paine & Company, LLC was $0.8 million in Q1 2023, up from $0.7 million in Q1 2022[106][107] 11. Commitments and Contingencies This section addresses the Company's involvement in legal proceedings and its unfunded commitments for alternative investments - 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; it also monitors relationships with reinsurers in runoff due to higher dispute potential[109][110][111] - A $50 million commitment to purchase an alternative investment vehicle (European non-performing loans) has $14.2 million unfunded as of March 31, 2023, with minimal prospective capital calls expected[112] 12. Share-Based Compensation Plans This section provides an overview of share-based compensation activities, including vested restricted stock units and granted Class A common shares - No stock options or restricted shares/units were granted in Q1 2023 or Q1 2022; 25,913 restricted stock units vested in Q1 2023 (26,080 in Q1 2022); the Company granted 26,426 Class A common shares to non-employee directors in Q1 2023 (24,810 in Q1 2022)[114][115][116][117] 13. Earnings Per Share This section presents the basic and diluted earnings per share calculations for Q1 2023 and Q1 2022, including details on weighted average shares Earnings Per Share (Q1 2023 vs. Q1 2022) | Metric (in thousands, except per share data) | Q1 2023 | Q1 2022 | | :----------------------------------------- | :----------- | :------------ | | Net income (loss) available to common shareholders | $2,384 | $(14,883) | | Weighted average shares for basic EPS | 13,670,732 | 14,514,950 | | Weighted average shares for diluted EPS | 13,929,146 | 14,514,950 | | Basic EPS | $0.17 | $(1.03) | | Diluted EPS | $0.17 | $(1.03) | - For Q1 2022, basic shares were used for diluted EPS due to a net loss; anti-dilutive shares excluded from diluted EPS were 346,667 in Q1 2023 and 393,333 in Q1 2022[118][119][120] 14. Segment Information This section details the Company's business segments, including the recent restructuring and reclassification of exited lines - The Company restructured its insurance operations in Q4 2022 to focus on Wholesale Commercial and InsurTech, exiting four brokerage divisions and the Farm, Ranch & Stable business, leading to segment reclassifications with exited lines now managed under the 'Exited Lines' segment[121] - The Company manages its business through two ongoing segments: Commercial Specialty (specialty P&C products for wholesale/InsurTech) and Reinsurance Operations (reinsurance and insurance solutions); a third segment, Exited Lines, contains businesses no longer being written or in runoff[122][123] Segment Revenues and Income (Q1 2023, in thousands) | Segment | Gross Written Premiums | Net Earned Premiums | Income (Loss) from Segments | | :---------------------- | :--------------------- | :------------------ | :-------------------------- | | Commercial Specialty | $95,508 | $93,182 | $(2,196) | | Reinsurance Operations | $23,416 | $34,847 | $759 | | Exited Lines | $4,061 | $12,043 | $365 | | Total | $122,985 | $140,072 | $(1,072) | 15. New Accounting Pronouncements This section confirms that no new accounting pronouncements were adopted by the Company during the quarter ended March 31, 2023 - The Company did not adopt any new accounting pronouncements during the quarter ended March 31, 2023[127] 16. Subsequent Events This section reports on share repurchases that occurred subsequent to the quarter end, from April 1, 2023, through May 1, 2023 - From April 1, 2023, through May 1, 2023, an additional 200,000 shares were repurchased at an average cost of $28.00 per share, bringing the total repurchased under the program to 1,357,082 shares at an average price of $25.05 per share[128] 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 for the quarter ended March 31, 2023, covering recent developments, business segments, critical accounting estimates, and a detailed analysis of financial performance Recent Developments This section highlights recent share repurchases and distribution payments made by the Company after the reporting period - From April 1, 2023, to May 1, 2023, an additional 200,000 shares were repurchased at an average cost of $28.00 per share, totaling 1,357,082 shares repurchased under the program since October 21, 2022, at an average price of $25.05 per share[132] - A distribution payment of $0.25 per common share was approved for shareholders of record on March 24, 2023; total common shareholder distributions were $3.9 million, and preferred shareholder distributions were $0.1 million during Q1 2023[133] Overview This section provides a high-level overview of the Company's business segments and primary sources of revenues and expenses - The Company operates through three business segments: Commercial Specialty (wholesale general agent/broker distributed P&C products), Reinsurance Operations (reinsurance and insurance solutions), and Exited Lines (businesses in runoff)[135][136][137][138] - Revenues are primarily from insurance premiums and investment income; expenses include losses and loss adjustment expenses, acquisition costs, underwriting expenses, corporate operating expenses, interest, and income taxes[139][140] Critical Accounting Estimates and Policies This section identifies the Company's critical accounting policies that involve significant estimates, confirming no material changes in the current year - The Company's critical accounting policies, involving significant estimates, include those for unpaid losses and loss adjustment expenses, recoverability of reinsurance receivables, investments, fair value measurements, goodwill and intangible assets, deferred acquisition costs, and taxation, with no significant changes in the current year[143] Results of Operations This section provides a detailed analysis of the Company's consolidated financial performance, including premiums, underwriting ratios, and net income (loss) Consolidated Results of Operations (Q1 2023 vs. Q1 2022, in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | Change | % Change | | :-------------------- | :----------- | :------------ | :--------- | :------- | | Gross written premiums | $122,985 | $190,983 | $(67,998) | -35.6% | | Net earned premiums | $140,072 | $148,823 | $(8,751) | -5.9% | | Total revenues | $140,407 | $149,262 | $(8,855) | -5.9% | | Underwriting income (loss) | $(1,072) | $7,875 | $(8,947) | -113.6% | | Net investment income | $12,008 | $6,592 | $5,416 | 82.2% | | Net realized investment losses | $(1,520) | $(25,385) | $23,865 | -94.0% | | Net income (loss) | $2,494 | $(14,773) | $17,267 | -116.9% | | Loss ratio | 62.8% | 56.9% | 5.9 pts | | | Expense ratio | 38.2% | 38.1% | 0.1 pts | | | Combined ratio | 101.0% | 95.0% | 6.0 pts | | Premiums This section analyzes the Company's premium volume by business segment, highlighting the significant decrease in gross written premiums Premium Volume by Business Segment (Q1 2023 vs. Q1 2022, in thousands) | Segment | Gross Written Premiums (Q1 2023) | Gross Written Premiums (Q1 2022) | % Change | Net Earned Premiums (Q1 2023) | Net Earned Premiums (Q1 2022) | % Change | | :---------------------- | :------------------------------- | :------------------------------- | :------- | :---------------------------- | :---------------------------- | :------- | | Commercial Specialty | $95,508 | $102,848 | -7.1% | $93,182 | $91,197 | 2.2% | | Reinsurance Operations | $23,416 | $40,996 | -42.9% | $34,847 | $34,298 | 1.6% | | Exited Lines | $4,061 | $47,139 | -91.4% | $12,043 | $23,328 | -48.4% | | Total | $122,985 | $190,983 | -35.6% | $140,072 | $148,823 | -5.9% | - The 35.6% decrease in gross written premiums was driven by reductions in both Continuing Lines (non-renewal of a casualty treaty and a restaurant business, and non-renewal of underperforming business in Commercial Specialty) and Exited Lines; the Company plans to reduce Reinsurance Operations writings to support Commercial Specialty growth and share repurchases[150][151] Underwriting Ratios This section presents the Company's underwriting ratios by segment, including loss, expense, and combined ratios, for Q1 2023 and Q1 2022 Underwriting Ratios by Segment (Q1 2023 vs. Q1 2022) | Ratio | Segment | Q1 2023 | Q1 2022 | Point Change | | :-------------- | :---------------------- | :------ | :------ | :----------- | | Loss Ratio | Commercial Specialty | 64.5% | 58.9% | 5.6 | | | Reinsurance Operations | 61.0% | 61.4% | (0.4) | | | Exited Lines | 55.0% | 42.8% | 12.2 | | | Total | 62.8% | 56.9% | 5.9 | | Expense Ratio | Commercial Specialty | 38.1% | 36.8% | 1.3 | | | Reinsurance Operations | 36.8% | 34.9% | 1.9 | | | Exited Lines | 42.6% | 48.0% | (5.4) | | | Total | 38.2% | 38.1% | 0.1 | | Combined Ratio | Commercial Specialty | 102.6% | 95.7% | 6.9 | | | Reinsurance Operations | 97.8% | 96.3% | 1.5 | | | Exited Lines | 97.6% | 90.8% | 6.8 | | | Total | 101.0%| 95.0% | 6.0 | Net Retention This section analyzes the Company's net premium retention by segment, noting an overall increase due to changes in the composition of gross written premiums Net Premium Retention by Segment (Q1 2023 vs. Q1 2022) | Segment | Q1 2023 | Q1 2022 | Point Change | | :---------------------- | :------ | :------ | :----------- | | Commercial Specialty | 95.5% | 95.4% | 0.1 | | Reinsurance Operations | 100.0% | 100.0% | — | | Continuing Lines | 96.4% | 96.7% | (0.3) | | Exited Lines | 29.8% | 43.1% | (13.3) | | Total | 94.2% | 83.5% | 10.7 | - The overall net premium retention increased by 10.7 points due to Exited Lines' gross written premiums comprising a much smaller percentage of consolidated gross written premiums, despite ongoing ceding arrangements[153] Reserves This section provides management's best estimate for loss reserves and analyzes the sensitivity of these estimates to changes in severity and frequency - As of March 31, 2023, management's best estimate for loss reserves resulted in carried gross reserves of $857.5 million and net reserves of $783.9 million[157] Net Reserves by Segment (March 31, 2023, in thousands) | Segment | Case | IBNR | Total | | :---------------------- | :-------- | :-------- | :-------- | | Commercial Specialty | $150,240 | $305,591 | $455,831 | | Reinsurance Operations | $9,419 | $192,036 | $201,455 | | Exited Lines | $53,237 | $73,332 | $126,569 | | Total | $212,896| $570,959| $783,855| - The Company believes its loss reserve estimates are more influenced by changes in severity than frequency; a 5% increase in severity and 5% increase in frequency could increase current accident year net loss estimates by $13.64 million[159] Underwriting Results This section provides a detailed breakdown of underwriting results for each business segment, including premiums, income, and key ratios Commercial Specialty This section details the underwriting performance of the Commercial Specialty segment, including premium trends, loss ratios, and expense drivers Commercial Specialty Underwriting Results (Q1 2023 vs. Q1 2022, in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | % Change | | :-------------------- | :--------- | :--------- | :------- | | Gross written premiums | $95,508 | $102,848 | -7.1% | | Net earned premiums | $93,182 | $91,197 | 2.2% | | Underwriting income (loss) | $(2,196) | $4,271 | -151.4% | | Calendar year loss ratio | 64.5% | 58.9% | 5.6 pts | | Expense ratio | 38.1% | 36.8% | 1.3 pts | | Combined ratio | 102.6% | 95.7% | 6.9 pts | - The current accident year non-catastrophe property loss ratio increased by 9.4 points due to higher claims severity from fire losses; the catastrophe loss ratio increased by 2.5 points due to higher claims frequency; the casualty loss ratio increased by 2.2 points due to higher claims severity[167][168] - The expense ratio increased by 1.3 points, primarily due to higher compensation and advertising expenses[170] Reinsurance Operations This section analyzes the underwriting performance of the Reinsurance Operations segment, including premium trends, loss ratios, and expense drivers Reinsurance Operations Underwriting Results (Q1 2023 vs. Q1 2022, in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | % Change | | :-------------------- | :--------- | :--------- | :------- | | Gross written premiums | $23,416 | $40,996 | -42.9% | | Net earned premiums | $34,847 | $34,298 | 1.6% | | Underwriting income | $759 | $1,258 | -39.7% | | Calendar year loss ratio | 61.0% | 61.4% | (0.4) pts| | Expense ratio | 36.8% | 34.9% | 1.9 pts | | Combined ratio | 97.8% | 96.3% | 1.5 pts | - The current accident year loss ratio improved by 0.5 points due to a business mix change towards treaties with lower expected loss ratios; the expense ratio increased by 1.9 points, primarily due to higher commission expense[177][179] Exited Lines This section details the underwriting performance of the Exited Lines segment, including premium trends, loss ratios, and expense drivers Exited Lines Underwriting Results (Q1 2023 vs. Q1 2022, in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | % Change | | :-------------------- | :--------- | :--------- | :------- | | Gross written premiums | $4,061 | $47,139 | -91.4% | | Net earned premiums | $12,043 | $23,328 | -48.4% | | Underwriting income | $365 | $2,346 | -84.4% | | Calendar year loss ratio | 55.0% | 42.8% | 12.2 pts | | Expense ratio | 42.6% | 48.0% | (5.4) pts| | Combined ratio | 97.6% | 90.8% | 6.8 pts | - The current accident year non-catastrophe property loss ratio improved by 12.6 points due to lower claims severity; the catastrophe loss ratio increased by 13.3 points due to higher claims frequency; the casualty loss ratio increased by 13.6 points due to higher claims frequency in farm, ranch & stable lines and growth in brokerage divisions with higher expected loss ratios[185][186][187] - The expense ratio decreased by 5.4 points due to restructuring actions that reduced expenses[189] Unallocated Corporate Items This section analyzes financial performance metrics not allocated to specific business segments, including investment income, realized gains/losses, and corporate expenses Net Investment Income This section details the Company's net investment income, highlighting the impact of rising interest rates and reduced investment management expenses Net Investment Income (Q1 2023 vs. Q1 2022, in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | % Change | | :-------------------- | :------ | :------ | :------- | | Gross investment income | $12,380 | $7,196 | 72.0% | | Investment expenses | $(372) | $(604) | -38.4% | | Net investment income | $12,008 | $6,592 | 82.2% | - Gross investment income increased by 72.0% due to higher yields in the fixed maturities portfolio from rising interest rates; investment expenses decreased by 38.4% due to reduced investment management expenses[192] - The embedded book yield on fixed maturities (excluding cash) increased to 3.6% at March 31, 2023, from 2.6% at March 31, 2022; the average duration of the fixed maturities portfolio (excluding agency MBS) was 1.5 years at March 31, 2023, down from 3.2 years at March 31, 2022[193] Net Realized Investment Gains (Losses) This section analyzes the Company's net realized investment gains and losses, noting a significant decrease in losses primarily due to the absence of impairment charges Net Realized Investment Gains (Losses) (Q1 2023 vs. Q1 2022, in thousands) | Category (in thousands) | Q1 2023 | Q1 2022 | | :---------------------- | :--------- | :---------- | | Equity securities | $(914) | $(1,345) | | Fixed maturities | $(606) | $(3,239) | | Derivatives | $0 | $4,724 | | Other-than-temporary impairment losses | $0 | $(25,525) | | Net realized investment gains (losses) | $(1,520) | $(25,385) | - Net realized investment losses significantly decreased by 94.0% from Q1 2022 to Q1 2023, primarily due to the absence of other-than-temporary impairment losses related to fixed maturities in 2023, which were $25.5 million in Q1 2022[194] Corporate and Other Operating Expenses This section discusses the increase in corporate and other operating expenses, primarily attributed to restructuring costs incurred in Q1 2023 - Corporate and other operating expenses increased to $6.4 million in Q1 2023 from $4.7 million in Q1 2022, primarily due to restructuring costs incurred in the first quarter of 2023[196] Interest Expense This section explains the reduction in interest expense to zero in Q1 2023 due to the redemption of subordinated notes in the prior year - Interest expense was $0 in Q1 2023, down from $2.6 million in Q1 2022, due to the redemption of the 7.875% Subordinated Notes due 2047 on April 15, 2022[197] Income Tax Expense / Benefit This section details the Company's income tax expense or benefit, noting a shift from a benefit to an expense due to higher taxable income - Income tax expense was $0.6 million in Q1 2023, compared to an income tax benefit of $3.4 million in Q1 2022, primarily due to higher taxable income in the Company's U.S. Subsidiaries in 2023[198] Net Income (Loss) This section reports the Company's net income or loss, highlighting a significant improvement from a net loss in the prior year to a net income in Q1 2023 - The Company reported a net income of $2.5 million in Q1 2023, a significant improvement from a net loss of $14.8 million in Q1 2022[199] Liquidity and Capital Resources This section discusses the Company's sources and uses of funds, cash flow activities, and overall liquidity and capital position Sources and Uses of Funds This section outlines how the Company and its subsidiaries generate and utilize funds, including liquidity needs and dividend restrictions - Global Indemnity Group, LLC, as a holding company, relies on investment income, subsidiary dividends, and intercompany borrowings for liquidity; its subsidiaries' funds come from underwriting, investment income, asset sales, and capital contributions[201][202] - Short-term and long-term liquidity needs include corporate expenses, debt service, shareholder distributions, and share repurchases; the Company also has $14.2 million in unfunded commitments for limited liability investments, though capital calls are unlikely[202][204] - The ability of subsidiaries to pay dividends is restricted by state statutory regulations, which differ from GAAP; no dividends were declared or paid by insurance subsidiaries in Q1 2023[205][206] Cash Flows This section analyzes the Company's cash flow activities, highlighting the increase in net cash provided by operating activities Net Cash Provided by (Used for) Operating Activities (Q1 2023 vs. Q1 2022, in thousands) | Metric (in thousands) | Q1 2023 | Q1 2022 | Change | | :-------------------- | :--------- | :---------- | :--------- | | Net premiums collected | $120,397 | $132,367 | $(11,970) | | Net losses paid | $(63,936) | $(74,081) | $10,145 | | Underwriting and corporate expenses | $(64,116) | $(74,087) | $9,971 | | Net investment income | $12,981 | $8,299 | $4,682 | | Interest paid | $0 | $(2,560) | $2,560 | | Net cash provided by (used for) operating activities | $5,326 | $(10,062) | $15,388 | - Net cash provided by operating activities increased by approximately $15.4 million, from $(10.1) million in Q1 2022 to $5.3 million in Q1 2023, primarily due to higher net investment income and lower underwriting/corporate expenses[207] Liquidity This section discusses the Company's liquidity position, including the impact of its share repurchase program, restructuring, and shareholder distributions - The share repurchase program, increased to $60 million, has resulted in 1,357,082 shares repurchased for $34.0 million at an average price of $25.05 per share since October 2022, increasing book value per share by $1.69[208] - The Company completed its restructuring plan in Q1 2023, incurring $2.2 million in charges during the quarter (total $5.6 million since Q4 2022); this is expected to result in recurring annual expense savings of $16.0 million[209] - Common shareholder distributions totaled $3.9 million and preferred shareholder distributions were $0.1 million in Q1 2023[210] Capital Resources This section confirms that there have been no material changes to the Company's capital resources during the quarter ended March 31, 2023 - There have been no material changes to the Company's capital resources during the quarter ended March 31, 2023[212] Off Balance Sheet Arrangements This section states that the Company has no off-balance sheet arrangements - The Company has no off-balance sheet arrangements[214] Cautionary Note Regarding Forward-Looking Statements This section advises that the report contains forward-looking statements subject to risks and uncertainties, and the Company does not undertake to update them - The report contains forward-looking statements, which are subject to various risks, uncertainties, and factors that could cause actual results to differ materially from projections; the Company does not undertake to update these statements[216][217] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, particularly related to its investment portfolio, highlighting global market performance, Federal Reserve actions, and the Company's investment strategy - Global equities rose approximately 8.0% in Q1 2023, with U.S. equities gaining about 7.5%; U.S. fixed income gained approximately 3.0%; the Federal Reserve increased rates despite recent bank failures, leading to continued interest rate volatility[218] - The Company's investment grade fixed income portfolio maintains an 'A' average rating and a duration of 1.5 years; portfolio purchases focused on US Treasury, asset-backed, and investment grade credit securities, funded by cash inflows, sales of US Treasury securities, and maturities[219] Item 4. Controls and Procedures This section details the Company's evaluation of its disclosure controls and procedures and internal control over financial reporting, concluding they were effective as of March 31, 2023 - As of March 31, 2023, the Company's Chief Executive Officer and Chief Financial Officer concluded that the design and operation of its disclosure controls and procedures were effective at the reasonable assurance level[221] - There have been no material changes in the Company's internal controls over financial reporting during the quarter ended March 31, 2023[222] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section states that the Company is routinely involved in legal proceedings but does not anticipate any material adverse effects, noting increased potential for disputes with reinsurers in runoff - 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 business, results of operations, cash flows, or financial condition[224] - There is a greater potential for disputes with reinsurers whose operations are in runoff, which the Company closely monitors[225] Item 1A. Risk Factors This section refers to the Company's 2022 Annual Report on Form 10-K for a comprehensive discussion of risk factors, stating that no material changes have occurred since that filing - The risk factors identified in the Company's 2022 Annual Report on Form 10-K have not materially changed[226] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the Company's unregistered sales of equity securities, specifically Class A common shares surrendered by employees for tax payments and shares repurchased under the stock repurchase program - During Q1 2023, 3,302 Class A common shares were surrendered by employees for tax payments on restricted stock vesting, and 250,000 Class A common shares were repurchased from third parties under the repurchase program; all these shares are held as treasury stock[227][228] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[229] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - There are no mine safety disclosures[229] Item 5. Other Information This section states that there is no other information to report - There is no other information to report[230] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350), and various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File)[231] Signature Signature This section contains the signature of the registrant, Global Indemnity Group, LLC, by its Chief Financial Officer, Thomas M. McGeehan, confirming the due authorization and filing of the report - The report was signed on May 10, 2023, by Thomas M. McGeehan, Chief Financial Officer and Authorized Signatory for Global Indemnity Group, LLC[233]