Global Indemnity Group, LLC — Q3 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2021; financial statements are unaudited. The company is an insurance holding company with Commercial Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations segments. Amounts below are in millions of dollars unless otherwise noted.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Gross written premiums | $174.3 | $143.7 | $513.1 | $464.0 |
| Net written premiums | $162.3 | $130.6 | $470.6 | $417.0 |
| Net earned premiums | $157.6 | $140.3 | $450.7 | $426.6 |
| Total revenues | $167.0 | $159.9 | $489.1 | $425.3 |
| Net investment income | $9.3 | $11.7 | $29.8 | $19.5 |
| Net realized investment gains (losses) | $(0.3) | $7.3 | $7.3 | $(22.3) |
| Net income (loss) | $(7.7) | $(15.2) | $4.2 | $(22.2) |
| Operating cash flow | Not reported by quarter | $66.1 | $33.9 |
- Underwriting: The consolidated combined ratio was 106.9% in Q3 versus 107.2% in Q3 2020, and 102.5% for the first nine months versus 95.0%. Ratios above 100% indicate underwriting losses before investment income. The nine-month underwriting result shifted to a $10.2 million loss from $22.8 million of income.
- Balance sheet and liquidity: At September 30, 2021, total assets were $1.951 billion, including $1.446 billion of investments and $40.6 million of cash. Total liabilities were $1.255 billion and shareholders’ equity was $695.2 million. Unpaid losses and loss adjustment expenses were $731.8 million gross and $643.0 million net.
- Debt and distributions: Debt was $126.4 million carrying value, comprising 7.875% subordinated notes due 2047. The company declared common distributions of $0.25 per share each quarter; $10.8 million was paid to common shareholders in the first nine months, plus $0.3 million to the preferred shareholder.
Material changes versus prior comparable periods
- Premium growth was driven mainly by growth in existing Commercial Specialty programs, pricing increases, new programs, and expansion in casualty reinsurance. Gross written premiums increased 21.3% in Q3 and 10.6% year to date.
- Growth was partly offset by reductions in catastrophe-exposed and lower-return business. Specialty Property and Farm, Ranch & Stable net earned premiums fell 6.5% and 10.2%, respectively, in Q3; Reinsurance Operations net earned premiums rose 73.3%.
- Q3 net loss narrowed year over year, while nine-month results turned profitable. Lower corporate expenses and interest expense helped: the prior-year period included a $10.0 million redomestication advisory fee and $3.1 million debt extinguishment loss; interest expense also declined after debt and margin-facility repayments in 2020.
- Investment income rose 52.8% year to date, primarily reflecting stronger alternative-investment results, but fell 20.4% in Q3 as fixed-income yields declined. Unrealized investment losses reduced nine-month other comprehensive income by $19.3 million, and accumulated other comprehensive income declined to $15.0 million from $34.3 million at year-end 2020.
- Prior-year reserve development was $0.7 million adverse for the first nine months of 2021, compared with $31.6 million favorable in the prior-year period. Q3 2021 had $1.4 million favorable development. Commercial Specialty saw $5.5 million adverse development year to date, including higher estimated Property losses, partly offset by favorable development in other segments.
Outlook, risks, contingencies, and unusual items
- Catastrophe and claims risk: Management attributed 27.4 percentage points of the Q3 Commercial Specialty loss ratio to Hurricane Ida; Ida and the February Texas winter storms contributed 16.3 points to the nine-month ratio. Claims severity and frequency rose in several lines. Loss reserves are estimates, and the filing provides sensitivity analyses showing potential variation from changes in claim frequency and severity.
- COVID-19: The company cited possible premium reductions, delayed or unpaid premiums, higher claims, investment-market volatility, and liquidity effects. It also warned that legislation or court decisions could require coverage of business interruption claims notwithstanding policy terms or virus exclusions.
- Investment and liquidity risks: The investment portfolio remains exposed to interest-rate and market movements. The fixed-income portfolio had an A average rating and 3.3-year duration. Insurer dividends are subject to statutory restrictions; operating subsidiaries declared no dividends in the first nine months. The company had $31.2 million in alternative-investment funding commitments, which management said were unlikely to be called given the investments’ harvest status.
- Post-quarter transaction: On October 26, 2021, the company announced the sale of its manufactured and dwelling homes business lines. The filing states it will receive $30.4 million in cash, including a stated $28 million sales price, and retain the American Reliable licensed operating unit, $65 million of net capital supporting the business, and a related $42 million unearned premium reserve. American Family assumes covered renewal risks after the transaction date except for Florida properties; the company plans to cease writing manufactured-home and dwelling coverage in Florida and Louisiana. These lines produced $79.6 million of gross written premiums in the first nine months of 2021.
- Other matters: Management said pending legal proceedings were not expected to have a material adverse effect, while noting ordinary-course litigation and potential disputes with reinsurers in runoff. Fox Paine entities held approximately 82.9% of voting power and control board appointments. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the manufactured and dwelling homes transaction closes on the stated terms, and how the retained capital, unearned premium reserve, and Florida exposures affect future results.
- Whether Commercial Specialty’s higher claims severity and catastrophe losses persist, and whether loss-reserve estimates develop favorably or adversely.
- Whether premium growth and pricing gains can offset the contraction in Specialty Property and Farm, Ranch & Stable and the weaker underwriting performance reflected in the nine-month combined ratio.
- The quality, liquidity, and valuation of alternative investments, including the $106.2 million Credit Fund investment and commitments to less-liquid funds.
- The sustainability of distributions given insurer dividend restrictions, cash needs, and the company’s subordinated debt obligations.