Global Indemnity Group, LLC — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and six months ended June 30, 2023. The insurer is focusing on Package Specialty and Targeted Specialty products and completed a restructuring in Q1 2023, exiting four brokerage divisions and placing their business in run-off. Its continuing operations are Commercial Specialty and Reinsurance Operations.
Financial performance and condition
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net earned premiums | $129.2m | $155.7m | $269.2m | $304.6m |
| Total revenues | $141.9m | $147.9m | $292.8m | $278.3m |
| Net investment income | $13.2m | $1.9m | $25.2m | $8.5m |
| Net realized investment losses | $(0.8)m | $(9.9)m | $(2.3)m | $(35.3)m |
| Net income (loss) | $9.3m | $(12.2)m | $11.8m | $(26.9)m |
| Diluted earnings (loss) per share | $0.67 | $(0.84) | $0.84 | $(1.87) |
| Operating cash flow | — | $14.2m | $18.5m |
Gross written premiums fell 44.1% in Q2 and 39.9% in the first half; net written premiums declined 36.6% and 32.1%, respectively. The consolidated combined ratio was 97.0% in Q2 (98.7% prior year) and 99.1% for the first half (96.9% prior year). Management reported a 94.9% continuing-lines accident-year combined ratio for Q2, a non-GAAP measure; the comparable continuing-lines GAAP ratio was 100.0%. Q2 underwriting income across segments was $4.3m, versus $2.1m a year earlier.
At June 30, total assets were $1.774bn, total liabilities $1.148bn, and shareholders’ equity $626.4m. Cash and cash equivalents were $45.4m; investments totaled $1.320bn, including $1.266bn of available-for-sale fixed maturities. Book value per common share was $46.03. The company reported no third-party debt. Gross unpaid losses and loss adjustment expenses were $867.0m, with net reserves of $793.0m. Operating cash flow was positive, but below the prior-year first-half amount.
Material changes versus prior periods
- Q2 and first-half net income turned positive from losses in 2022. The main investment-related improvement was much higher investment income and substantially smaller realized losses; Q2 2023 had no debt-extinguishment loss, unlike Q2 2022.
- Fixed-income book yield reached 3.8%, compared with 2.7% at June 30, 2022 and 2.2% at December 31, 2021. Management attributed higher investment income primarily to higher yields and improved alternative-investment returns.
- Premium contraction reflects the exit of businesses, a non-renewed casualty treaty and restaurant book, and non-renewals of underperforming Commercial Specialty business. Management said Reinsurance Operations is expected to represent a smaller share of the business.
- Commercial Specialty’s Q2 accident-year combined ratio improved to 93.7% from 96.4%; Reinsurance Operations’ ratio was 98.9% versus 97.9%. Prior-year reserve development was unfavorable by $0.1m overall in the first half, including increases in continuing lines partly offset by releases in Exited Lines.
- Fixed maturities had $46.7m of gross unrealized losses at June 30, versus $54.1m at year-end 2022; the company recorded no investment credit-loss allowance. Accumulated other comprehensive loss improved to $37.2m from $43.1m.
Outlook, commentary, and risks
- Management expects the completed restructuring to produce recurring annual expense savings of approximately $16m. It reported actions to reduce exposure to commercial vacant properties and to improve underwriting by not renewing underperforming accounts.
- The company authorized up to $135m of share repurchases through December 31, 2027. In the first half it repurchased 450,000 shares for approximately $12.1m; the remaining authorization was approximately $101.0m at June 30. Common distributions remained $0.25 per share per quarter.
- Liquidity depends in part on dividends and other permitted transfers from insurance subsidiaries, which are subject to regulatory limits. The company also had $14.2m of unfunded alternative-investment commitments, though management said future capital calls were unlikely.
- Loss-reserve estimates are sensitive to claim frequency and severity. Management cited higher-than-expected severity in portions of Commercial Specialty general liability and accident years, while reporting releases in Exited Lines. Reinsurance counterparties in run-off may present heightened dispute risk.
- The investment portfolio remains exposed to interest-rate, credit-spread, market and recession risks. Management described the portfolio as investment grade with an average A rating and short duration. It noted that most fixed-maturity unrealized losses were not assessed as credit-related.
- The company reported ordinary-course legal proceedings and did not expect currently pending matters to have a material adverse effect. It cautioned that insurance or reinsurance coverage may be insufficient or unavailable at reasonable cost. No formal earnings guidance was provided.
Important facts for investors to verify
- Whether lower premium volume and the smaller planned Reinsurance Operations footprint improve underwriting returns without impairing continuing-business growth.
- Reserve adequacy, particularly Commercial Specialty liability severity and the assumptions underlying the $793.0m net reserve estimate.
- Progress toward the projected $16m annual restructuring savings and the effect of reduced staffing and exited operations.
- Whether investment income and portfolio yields remain supportive, and how interest-rate or credit-market changes affect unrealized losses and capital.
- Capacity to fund repurchases and distributions given cash generation, regulatory dividend limits, insurance obligations and unfunded investment commitments.
- Related-party governance: Fox Paine-affiliated entities held approximately 83.9% of voting power; management fees were $1.5m in the first half of 2023.