Form 8-K Global Indemnity Group, For: Aug 09

Farm, Ranch and Stable renewal rights sold for $30.0 million to Everett Cash Mutual to reinsure 100% of the business effective August 8, 2022. Everett Cash Mutual will also purchase American Reliable for book value which is expected to be $10 million at the time of close, which, subject to regulatory approvals and customary closing conditions, is expected to close in or before the first quarter of 2023. Farm, Ranch and Stable is now included in Exited Lines.

Growth in Gross Written Premium - An increase of 26.1% and 28.4% in gross written premiums for Continuing Lines for the three and six months ended June 30, 2022, respectively, compared to the corresponding periods in 2021.

The combined ratio for Continuing Lines was 95.4% for the six months ended June 30, 2022 (Loss Ratio 58.4% and Expense Ratio 37.0%).

Lower Catastrophes – Catastrophe losses for Continuing Lines were $5.4 million in 2022 compared to $11.6 million in 2021.

Investment income for the three and six months ended June 30, 2022, was $1.9 million and $8.5 million, respectively, compared to $10.6 million and $20.5 million for the three and six months ended June 30, 2021. One alternative investment negatively impacted investment income $6.0 million and $7.2 million for the three months and six months ended 2022, respectively, compared to the corresponding periods in 2021. This investment was exited early in the third quarter of 2022.

On April 15, 2022, the Company prepaid its remaining $130 million of outstanding debt, resulting in a $3.5 million write off of deferred debt costs.

Global Indemnity continued to reduce the duration of its fixed income portfolio in response to rising interest rates. The Company has sold approximately $360 million of fixed income securities with maturities of 5 years and greater that had an average yield of 2.3%. These securities were redeployed into corporate and securitized investments. Duration at June 30, 2022 was to 1.7 years compared to duration of 3.0 at December 31, 2021 and book yield on the portfolio increased from 2.2% at December 31, 2021 to 2.7% at June 30, 2022. In reducing duration and increasing yield, GBLI realized losses of $9.9 million for the second quarter of 2022 and realized losses of $35.3 million for the six months ended June 30, 2022.

Primarily as a result of substantially shortening the duration of the Company’s fixed income securities in its investment portfolio, the impact of an alternative investment, and the write off related to debt redemption, the Company generated a net loss to shareholders of $12.3 million, or $0.84 per share, for the three months ended June 30, 2022, compared to net income available to shareholders of $6.3 million, or $0.43 per share, for the corresponding period in 2021. Net loss for the six months ended June 30, 2022, was $27.2 million, or $1.87 per share, compared to net income available to shareholders of $11.7 million, or $0.80 per share, for the corresponding period in 2021.

Book value decreased $65.3 million from $706.6 million at December 31, 2021 to $641.3 million at June 30, 2022. Book value per share decreased $4.76 from $48.44 at December 31, 2021 to $43.68 at June 30, 2022.

Gross Written Premiums

Net Written Premiums

Net Earned Premiums

Net income (loss) available to shareholders

Net income (loss) from Continuing Lines

Net loss from Exited Lines (1)

Net income (loss) available to shareholders per share

Adjusted operating income

Adjusted operating income per share

Combined ratio analysis:

Loss ratio

Expense ratio

Combined ratio

Underwriting income (loss) from Exited Lines, net of tax.

Book value per share (1)

Shareholders’ equity (2)

Cash and invested assets (3)

Net of cumulative Company distributions/dividends to common shareholders totaling $4.50 per share, $4.25 per share and $4.00 per share as of June 30, 2022, March 31, 2022 and December 31, 2021, respectively.

Shareholders’ equity includes $4 million of series A cumulative fixed rate preferred shares.

Including receivable/(payable) for securities sold/(purchased).

Revenues:

Gross written premiums

Net written premiums

Net earned premiums

Other income (loss)

Total revenues

Losses and Expenses:

Net losses and loss adjustment expenses

Acquisition costs and other underwriting expenses

Income (loss) from segments

Combined ratio analysis:

Loss ratio

Expense ratio

Combined ratio

Revenues:

Gross written premiums

Net written premiums

Net earned premiums

Other income

Total revenues

Losses and Expenses:

Net losses and loss adjustment expenses

Acquisition costs and other underwriting expenses

Income (loss) from segments

Combined ratio analysis:

Loss ratio

Expense ratio

Combined ratio

Revenues:

Gross written premiums

Net written premiums

Net earned premiums

Other income

Total revenues

Losses and Expenses:

Net losses and loss adjustment expenses

Acquisition costs and other underwriting expenses

Income (loss) from segments

Combined ratio analysis:

Loss ratio

Expense ratio

Combined ratio

Revenues:

Gross written premiums

Net written premiums

Net earned premiums

Other income

Total revenues

Losses and Expenses:

Net losses and loss adjustment expenses

Acquisition costs and other underwriting expenses

Income (loss) from segments

Combined ratio analysis:

Loss ratio

Expense ratio

Combined ratio

Disseminated pursuant to the “safe harbor” provisions of Section 21E of the Security Exchange Act of 1934.

Gross written premiums, net written premiums, and net earned premiums excluding the Exited Lines (“Continuing Lines”), increased 26.1%, 27.1% and 33.7%, respectively. Consolidated gross written premiums, net written premiums, and net earned premiums increased 12.3%, 4.0%, and 4.2%, respectively.

Underwriting income/(loss) – For the Continuing Lines business, underwriting income was $4.9 million in 2022 compared to $9.2 million in 2021.

Excluding prior year development, underwriting income (loss) from Continuing Lines was $3.9 million compared to $8.7 million in 2021.

Consolidated underwriting income / (loss) was $2.2 million in 2022 compared to $1.8 million in 2021.

Investment income – $1.9 million in 2022 compared to $10.6 million in 2021. The decrease was primarily due to decreased returns from alternative investments and a decrease in dividend income as a result of the liquidation of the Company’s common stock portfolio during the first quarter of 2022.

Realized gains/(losses) – ($9.9) million in 2022 compared to $3.8 million in 2021. Realized losses in 2022 were primarily due to the Company selling certain securities to offset anticipated rising interest rates by shortening duration and accelerating future maturities.

Book value per share – Decrease of $2.10 per share mainly due to rising interest rates. In addition to realized losses, shareholders’ equity includes $13.9 million of net after-tax unrealized losses.

Tax expense/(benefit) – ($0.6) million tax benefit in 2022 compared to $0.8 million tax expense in 2021.

Gross written premiums, net written premiums, and net earned premiums excluding the Exited Lines (“Continuing Lines”), increased 28.4%, 30.4% and 33.2%, respectively. Consolidated gross written premiums, net written premiums, and net earned premiums increased 14.5%, 5.9%, and 3.9%, respectively.

Underwriting income/(loss) – For the Continuing Lines business, underwriting income (loss) was $12.4 million in 2022 compared to $9.4 million in 2021.

Excluding prior year development, underwriting income (loss) from Continuing Lines was $11.8 million compared to $6.2 million in 2021.

Consolidated underwriting income was $10.1 million in 2022 compared to $0.3 million in 2021.

Investment income – $8.5 million in 2022 compared to $20.5 million in 2021. The decrease was primarily due to decreased returns from alternative investments and a decrease in dividend income as a result of the liquidation of the Company’s common stock portfolio during the first quarter of 2022.

Realized gains/(losses) – ($35.3) million in 2022 compared to $7.7 million in 2021. Realized losses in 2022 were primarily due to the Company selling certain securities to offset anticipated rising interest rates by shortening duration and accelerating future maturities.

Book value per share – Decrease of $4.76 per share mainly due to rising interest rates. In addition to realized losses, shareholders’ equity includes $33.0 million of net after-tax unrealized losses.

Tax expense/(benefit)– ($4.0) million tax benefit in 2022 compared to $0.6 million tax expense in 2021.

Commercial Specialty

Reinsurance Operations

Continuing Lines

Exited Lines

Total

Commercial Specialty

Reinsurance Operations

Continuing Lines

Exited Lines

Total

For the continuing lines business, the accident year casualty loss ratio increased by 0.6 points to 60.0% in 2022 from 59.4% in 2021. The consolidated accident year casualty loss ratio increased by 0.2 points to 59.1% in 2022 from 58.9% in 2021. This increase in the continuing lines and the consolidated accident year casualty loss ratio is primarily due to a change in the mix of business.

For the continuing lines business, the accident year property loss ratio increased by 11.6 points to 57.9% in 2022 from 46.3% in 2021. The consolidated accident year property loss ratio increased by 11.2 points to 66.8% in 2022 from 55.6% in 2021. The increase in the continuing lines and the consolidated accident year property loss ratio is primarily due to higher non-catastrophe claims severity.

For the continuing lines business, the accident year casualty loss ratio increased by 0.5 points to 59.3% in 2022 from 58.8% in 2021. The consolidated accident year casualty loss ratio increased by 0.5 points to 58.8% in 2022 from 58.3% in 2021. This increase in the continuing lines and the consolidated accident year casualty loss ratio is primarily due to a change in the mix of business.

For the continuing lines business, the accident year property loss ratio improved by 6.2 points to 56.9% in 2022 from 63.1% in 2021. The consolidated accident year property loss ratio improved by 0.6 points to 63.3% in 2022 from 63.9% in 2021. The improvement in the continuing lines and the consolidated accident year property loss ratio is primarily due to lower catastrophe claims frequency.

Gross written premiums

Ceded written premiums

Net written premiums

Net earned premiums

Net investment income

Net realized investment gains (losses)

Other income

Total revenues

Net losses and loss adjustment expenses

Acquisition costs and other underwriting expenses

Corporate and other operating expenses

Interest expense

Loss on extinguishment of debt

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Less: Preferred stock distributions

Net income (loss) available to common shareholders

Per share data:

Net income (loss) available to common shareholders

Basic

Diluted (1)

Weighted-average number of shares outstanding

Basic

Diluted (1)

Cash distributions declared per common share

Combined ratio analysis: (2)

Loss ratio

Expense ratio

Combined ratio

For the three and six months ended June 30, 2022, “weighted-average shares outstanding – basic” was used to calculate “diluted earnings per share” due to a net loss for each period.

The loss ratio, expense ratio and combined ratio are GAAP financial measures that are generally viewed in the insurance industry as indicators of underwriting profitability. The loss ratio is the ratio of net losses and loss adjustment expenses to net earned premiums. The expense ratio is the ratio of acquisition costs and other underwriting expenses to net earned premiums. The combined ratio is the sum of the loss and expense ratios.

ASSETS

Fixed Maturities:

Available for sale, at fair value

(amortized cost: 2022 - $1,151,195 and 2021 - $1,193,746; net of allowance for expected credit losses of: $0 in 2022 and 2021)

Equity securities, at fair value

Other invested assets

Total investments

Cash and cash equivalents

Premium receivables, net of allowance for expected credit losses of $2,919 at June 30, 2022 and $2,996 at December 31, 2021

Reinsurance receivables, net of allowance for expected credit losses of $8,992 at June 30, 2022 and December 31, 2021

Funds held by ceding insurers

Deferred federal income taxes

Deferred acquisition costs

Intangible assets

Goodwill

Prepaid reinsurance premiums

Lease right of use assets

Other assets

Total assets

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Unpaid losses and loss adjustment expenses

Unearned premiums

Ceded balances payable

Payable for securities purchased

Contingent commissions

Debt

Lease liabilities

Other liabilities

Total liabilities

Shareholders’ equity:

Series A cumulative fixed rate preferred shares, $1,000 par value; 100,000,000 shares authorized, shares issued and outstanding: 4,000 and 4,000 shares, respectively, liquidation preference: $1,000 and $1,000 per share, respectively

Common shares: no par value; 900,000,000 common shares authorized; class A common shares issued: 10,675,757 and 10,574,589, respectively; class A common shares outstanding:10,642,307 and 10,557,093, respectively; class B common shares issued and outstanding: 3,947,206 and 3,947,206, respectively

Additional paid-in capital (1)

Accumulated other comprehensive income, net of taxes

Retained earnings (1)

Class A common shares in treasury, at cost: 33,450 and 17,496 shares, respectively

Total shareholders’ equity

Total liabilities and shareholders’ equity

Since the Company’s initial public offering in 2003, the Company has returned $554 million to shareholders, including $488 million in share repurchases and $66 million in dividends/distributions.

Fixed maturities

Cash and cash equivalents

Total bonds and cash and cash equivalents

Equities and other invested assets

Total cash and invested assets, gross

Payable for securities purchased

Total cash and invested assets, net

Net investment income

Net realized investment gains (losses)

Net unrealized investment gains (losses)

Net realized and unrealized investment return

Total investment return

Average total cash and invested assets

Total investment return %

Amounts in this table are shown on a pre-tax basis.

Adjusted operating income, net of tax

Adjustments:

Underwriting loss from Exited Lines, net of tax

Adjusted operating income (loss) including Exited Lines, net of tax (1)

Net realized investment gains (losses)

Loss on extinguishment of debt

Net income (loss)

Weighted average shares outstanding – basic

Weighted average shares outstanding – diluted

Adjusted operating income per share – basic (2)

Adjusted operating income per share – diluted (2)

Adjusted operating income (loss) including Exited Lines, net of tax, excludes preferred shareholder distributions of $0.11 million for both the three months ended June 30, 2022 and 2021 and $0.22 million for both the six months ended June 30, 2022 and 2021.

The adjusted operating income (loss) per share calculation is net of preferred shareholder distributions of $0.11 million for both the three months ended June 30, 2022 and 2021 and $0.22 million for both the six months ended June 30, 2022 and 2021.