Global Indemnity Group, LLC — Q1 2022 Form 10-Q
Reporting period: Quarter ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. The company provides specialty property and casualty insurance and reinsurance. It reports four segments: Commercial Specialty, Reinsurance Operations, Farm, Ranch & Stable, and Exited Lines. Comparative segment results were revised to reflect this structure.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior period |
|---|---|---|
| Gross written premiums | $191.0 million | $163.6 million; up 16.8% |
| Net written premiums | $159.5 million | $147.7 million; up 8.0% |
| Net earned premiums | $148.8 million | $143.7 million; up 3.6% |
| GAAP total revenues | $130.5 million | $157.7 million |
| Net investment income | $6.6 million | $9.8 million |
| Net realized investment losses | $25.4 million | $3.8 million gains |
| Net income (loss) | $(14.8) million; $(1.03) per common share | $5.5 million; $0.38 basic EPS |
| Operating cash flow | $(10.1) million | $11.4 million |
| Cash and cash equivalents | $157.9 million at March 31 | $78.3 million at December 31, 2021 |
| Total assets / shareholders’ equity | $1,959.5 million / $669.7 million | $2,012.8 million / $706.6 million at December 31, 2021 |
| Debt | $126.5 million carrying value at March 31 | $126.4 million at December 31, 2021 |
Insurance underwriting improved: the combined ratio was 95.0% versus 101.2%, reflecting a loss ratio of 56.9% versus 63.1%; the expense ratio was unchanged at 38.1%. A combined ratio below 100% indicates underwriting profit. Segment underwriting income was $6.3 million for Commercial Specialty, $1.3 million for Reinsurance Operations, and $0.4 million for Exited Lines; Farm, Ranch & Stable recorded a $0.1 million underwriting loss.
Q1 operating cash use was more than offset by $93.6 million of investing cash inflow, while financing activities used $3.9 million, mainly for shareholder distributions. The company declared common-share distributions of $0.25 per share. Net reserves for unpaid losses and loss adjustment expenses were $677.1 million, compared with gross reserves of $770.3 million.
Material changes and management commentary
- Premium growth was led by continuing lines: gross written premiums increased 27.3% in continuing lines, including 88.8% growth in Reinsurance Operations and 16.7% in Commercial Specialty. Exited Lines gross written premiums fell 27.7%; net earned premiums in those lines fell 85.2%, primarily following the 2021 sale of manufactured- and dwelling-home renewal rights and other exits.
- Investment performance drove the reported loss. The company recorded a $25.5 million impairment on fixed maturities it intended to sell, contributing to $25.4 million of net realized investment losses. Net investment income declined 33.0%, partly due to lower alternative-investment returns and liquidation of its common-stock portfolio. The company reported a total investment return of negative 2.8% for the quarter.
- Fixed-maturity fair value declined to $1,129.3 million from $1,201.9 million at year-end; equity securities declined to $22.8 million from $100.0 million. Accumulated other comprehensive loss was $12.8 million, compared with income of $6.4 million at December 31. Management attributed market pressure to rising yields, inflation concerns, and volatility, including effects associated with Russia’s invasion of Ukraine.
- Prior-year reserve development was favorable by $3.1 million in Q1 2022, versus $3.4 million of favorable development in Q1 2021. Management notes that actual claim frequency and severity may differ from estimates, with severity a key source of reserve variability.
- In response to higher interest rates, the company identified fixed maturities with weighted average lives of five years or more for sale, intending to reinvest most proceeds in securities maturing within two years. Those securities had March 31 fair value of $365.3 million and book value of $390.8 million before impairment.
- After quarter-end, on April 15, 2022, the company redeemed all $130 million principal amount of its 7.875% subordinated notes due 2047, plus accrued interest. The filing says funding came primarily from a $75.9 million equity-portfolio sale, $32.0 million of insurance-subsidiary dividends, $18.4 million of private-equity distributions, and the remainder from GBLI Holdings.
Outlook, risks, and contingencies
The filing provides no specific numerical earnings or premium guidance. Management describes continued uncertainty from COVID-19, which could affect premium volume and collections, claims, investment values, and liquidity. It also cites potential legislation or court rulings requiring coverage of business-interruption claims despite policy terms or virus exclusions.
Other material considerations include investment-market and interest-rate risk; uncertainty in loss-reserve estimates; possible disputes with reinsurers in runoff; and statutory limits on dividends from regulated insurance subsidiaries, which are important sources of holding-company liquidity. The company had $31.2 million of unfunded alternative-investment commitments and said future capital calls were unlikely. It reported ordinary-course legal proceedings and did not expect their resolution to materially adversely affect the company. No off-balance-sheet arrangements were reported.
Investor verification checklist
- Confirm the post-quarter redemption’s effect on debt, interest expense, liquidity, and remaining investable assets; the balance sheet reports debt as of March 31, before redemption.
- Review the timing, realized proceeds, and reinvestment results of the planned fixed-maturity sales, including the $25.5 million impairment and securities identified for sale.
- Track reserve development and claim severity, especially in casualty lines and runoff business, and compare estimates with subsequent loss experience.
- Assess whether premium growth and the 95.0% combined ratio persist as business mix changes and Exited Lines continue to run off.
- Monitor cash generation, subsidiary dividend capacity, reinsurance recoverables, and the effect of COVID-19 or business-interruption coverage developments.