Global Indemnity Group(GBLI) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section details the company's financial performance, condition, market risks, and internal controls for the reporting period Financial Statements The unaudited consolidated financial statements show a turnaround to net income in Q2 2023 and improved financial position Consolidated Balance Sheets | Metric | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Investments | $1,320,041 thousand | $1,303,894 thousand | | Total Assets | $1,774,002 thousand | $1,800,775 thousand | | Total Liabilities | $1,147,594 thousand | $1,174,546 thousand | | Total Shareholders' Equity | $626,408 thousand | $626,229 thousand | Consolidated Statements of Operations | Metric | Q2 2023 (Unaudited) | Q2 2022 (Unaudited) | | :--- | :--- | :--- | | Net Earned Premiums | $129,156 thousand | $155,749 thousand | | Total Revenues | $141,893 thousand | $147,860 thousand | | Net Income (Loss) | $9,337 thousand | $(12,162) thousand | | Diluted EPS | $0.67 | $(0.84) | | Metric | Six Months 2023 (Unaudited) | Six Months 2022 (Unaudited) | | :--- | :--- | :--- | | Net Earned Premiums | $269,228 thousand | $304,572 thousand | | Total Revenues | $292,807 thousand | $278,316 thousand | | Net Income (Loss) | $11,831 thousand | $(26,935) thousand | | Diluted EPS | $0.84 | $(1.87) | Consolidated Statements of Comprehensive Income (Loss) - Comprehensive income for Q2 2023 was $6.8 million, a significant improvement from a comprehensive loss of $26.0 million in Q2 2022. For the six-month period, comprehensive income was $17.7 million in 2023, compared to a loss of $60.0 million in 2022, mainly due to smaller unrealized losses on investments[14] Consolidated Statements of Changes in Shareholders' Equity - Total shareholders' equity remained stable at $626.4 million as of June 30, 2023, compared to $626.2 million at year-end 2022. The company repurchased 468,860 Class A common shares for $12.7 million during the first six months of 2023 and paid distributions of $6.8 million to common shareholders[16] Consolidated Statements of Cash Flows | Cash Flow Activity (Six Months Ended June 30) | 2023 (Unaudited) | 2022 (Unaudited) | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,171 thousand | $18,459 thousand | | Net cash provided by (used for) investing activities | $12,804 thousand | $(137,889) thousand | | Net cash used for financing activities | $(20,374) thousand | $(7,679) thousand | | Net change in cash and cash equivalents | $6,601 thousand | $(18,436) thousand | Notes to Consolidated Financial Statements (Unaudited) - The company restructured its insurance operations, exiting four brokerage divisions (Professional Liability, Excess Casualty, Environmental, and Middle Market Property) to focus on core Package Specialty and Targeted Specialty products. The restructuring was completed in Q1 2023[24] | Restructuring Costs (in thousands) | 2022 | 2023 (6 months) | Total | | :--- | :--- | :--- | :--- | | Charges Incurred | $3,447 | $2,121 | $5,568 | - On June 8, 2023, the Board of Directors increased the share buyback authorization from $60 million to $135 million, with the program set to expire on December 31, 2027[94] - The company manages its business through three segments: Commercial Specialty, Reinsurance Operations, and Exited Lines. Segment results for 2022 have been revised to reflect the restructuring and reclassification of certain treaties[125][126] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses improved Q2 2023 net income, driven by strategic actions, better underwriting, and increased investment income, while maintaining strong liquidity Financial Highlights - Key financial highlights for Q2 2023 include: - Net income of $9.3 million, or $0.67 per diluted share - Continuing Lines accident year combined ratio of 94.9%, an improvement from 96.8% in Q2 2022 - Net investment income of $13.2 million, with a book yield on the fixed maturities portfolio of 3.8% - Total capital returned to shareholders of $9.1 million in Q2 2023 ($5.6 million in repurchases, $3.5 million in distributions) - Book value per common share of $46.03[137][138] Results of Operations | Metric (Q2) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Gross written premiums | $110.1M | $196.8M | (44.1%) | | Net earned premiums | $129.2M | $155.7M | (17.1%) | | Underwriting income | $4.3M | $2.1M | 101.9% | | Net investment income | $13.2M | $1.9M | NM | | Net income (loss) | $9.3M | $(12.2)M | (176.8%) | - The decrease in gross written premiums for Q2 and the first six months of 2023 is driven by reductions in both Continuing Lines (due to non-renewal of a casualty treaty and underperforming business) and Exited Lines[146] - The company's net premium retention increased to 96.3% in Q2 2023 from 84.9% in Q2 2022, primarily because the Exited Lines, which had lower retention, now constitute a much smaller portion of the business[148] Underwriting Results by Segment - Commercial Specialty: The accident year combined ratio improved to 93.7% in Q2 2023 from 96.4% in Q2 2022, reflecting actions taken to improve profitability. However, the calendar year combined ratio increased to 99.2% due to adverse prior year reserve development[155][156] - Reinsurance Operations: The combined ratio deteriorated to 102.3% in Q2 2023 from 95.4% in Q2 2022, driven by a higher loss ratio which included adverse prior year development. The company is strategically reducing writings in this segment[147][169] - Exited Lines: This segment produced an underwriting income of $3.9 million in Q2 2023, compared to a loss of $5.6 million in Q2 2022, largely due to significant favorable prior year reserve development of $5.9 million[178] Liquidity and Capital Resources - The company's primary sources of funds are underwriting operations and investment income, used to pay claims, operating expenses, and shareholder distributions. As a holding company, Global Indemnity Group, LLC relies on dividends from its subsidiaries[207][208] - Net cash from operations was $14.2 million for the first six months of 2023, a decrease from $18.5 million in the prior year period[213] - Under its expanded $135 million share repurchase authorization, the company repurchased 450,000 shares for $12.1 million in the first six months of 2023. Since the program's inception in October 2022, total repurchases amount to $34.0 million[214][215][216] - The restructuring completed in Q1 2023 incurred total costs of $5.5 million and is anticipated to generate recurring annual expense savings of $16.0 million[217] Quantitative and Qualitative Disclosures about Market Risk The company's investment portfolio maintains an 'A' average rating and short duration amidst market volatility and yield curve inversion - The company's investment grade fixed income portfolio has an 'A' average rating and a duration of 1.3 years as of June 30, 2023[227] - During Q2 2023, the portfolio's allocation shifted towards U.S. Treasury securities, funded by cash inflows and sales of other securities, reducing exposure to investment grade credit and Commercial Mortgage-Backed Securities (CMBS)[227] Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[229] - No material changes were made to the company's internal controls over financial reporting during the quarter ended June 30, 2023[230] PART II – OTHER INFORMATION This section addresses legal matters, risk factors, equity transactions, and required regulatory exhibits Legal Proceedings The company is involved in routine legal proceedings, not expecting 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, cash flows, or financial condition[233] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K, filed on March 15, 2023 - The risk factors identified in the Company's 2022 Annual Report on Form 10-K have not materially changed[235] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased Class A common shares from third parties and received shares from employees for tax liabilities in Q2 2023 - In Q2 2023, the company repurchased 200,000 Class A common shares under its repurchase program[237] - For the six months ended June 30, 2023, a total of 450,000 shares were repurchased from third parties, and 18,860 shares were surrendered by employees for tax payments[236][237] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications as required by the Sarbanes-Oxley Act of 2002 and Inline XBRL data files