Global Indemnity Group, LLC — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparisons are primarily with FY 2020. The company writes specialty property and casualty insurance and reinsurance through Commercial Specialty, Farm, Ranch & Stable, Reinsurance Operations, and Exited Lines.
Financial results and position
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Gross written premiums | $682.1 million | $606.6 million |
| Net written premiums | $580.1 million | $548.2 million |
| Net earned premiums | $595.6 million | $567.7 million |
| Total consolidated revenues | $678.3 million | $583.5 million |
| Underwriting income (loss) | $(10.4) million | $17.9 million |
| Net investment income | $37.0 million | $28.4 million |
| Net realized investment gains (losses) | $15.9 million | $(14.7) million |
| Net income (loss) | $29.4 million | $(21.0) million |
| Basic earnings (loss) per share | $2.00 | $(1.48) |
| Operating cash flow | $90.8 million | $32.7 million |
- Underwriting margins: Loss ratio was 64.7%, expense ratio 37.4%, and combined ratio 102.1%, versus 59.2%, 38.0%, and 97.2% in 2020. A combined ratio above 100% indicates an underwriting loss.
- Balance sheet at year-end: Total assets were $2.013 billion, total liabilities $1.306 billion, and shareholders’ equity $706.6 million. Cash and cash equivalents were $78.3 million; investments and cash together totaled $1.533 billion.
- Investments: Fixed maturities were $1.202 billion, with a 2.20% book yield versus 2.69% in 2020. The portfolio recorded an $8.1 million pretax unrealized gain on available-for-sale fixed maturities at year-end, down from $42.2 million in 2020; accumulated other comprehensive income fell to $6.4 million from $34.3 million.
- Debt and liquidity: The company had $130 million principal amount of 7.875% subordinated notes due 2047, carried at $126.4 million, and no margin-facility borrowings. Insurance subsidiaries reported $359.5 million of statutory capital and surplus and were above prescribed company-action-level risk-based capital requirements. They paid no dividends in 2021.
Material changes versus FY 2020
- Gross written premiums rose 12.4%, driven by growth in existing programs, pricing increases and new Commercial Specialty programs, plus growth in Reinsurance Operations. Net written premiums increased 5.8%; net retention declined to 85.0% from 90.4%, mainly because of ceded unearned premiums associated with the manufactured- and dwelling-home transaction.
- Commercial Specialty gross written premiums increased 17.6% to $380.9 million, but underwriting income fell to $4.7 million from $34.2 million; its combined ratio rose to 98.9% from 88.6%. The segment cited higher non-catastrophe property severity, higher casualty frequency, and a shift from favorable to adverse prior-year reserve development.
- Reinsurance Operations gross written premiums increased 91.6% to $106.5 million, including growth in casualty treaties. Its combined ratio was broadly stable at 97.4% versus 97.3%.
- Farm, Ranch & Stable gross written premiums fell 4.6% to $81.7 million; its combined ratio improved to 100.3% from 101.0% but remained slightly above breakeven.
- Exited Lines gross written premiums declined 20.1% to $113.0 million as the company reduced catastrophe exposure and withdrew from business it considered insufficiently attractive. Its combined ratio worsened to 116.7% from 111.6%.
- Prior-year reserve development was adverse by $8.7 million in 2021, compared with favorable development of $31.5 million in 2020. Gross unpaid losses and loss adjustment expense reserves increased to $759.9 million from $662.8 million.
- Net investment income rose 30.4%, principally due to better alternative-investment returns, while fixed-maturity yields declined. Investment gains also swung from a $14.7 million loss in 2020 to a $15.9 million gain in 2021.
Outlook, events and key risks
- Portfolio actions: On October 26, 2021, the company sold renewal rights for manufactured- and dwelling-home products for $28.0 million cash. It recorded $4.8 million of related impairments across goodwill, intangibles, software and lease assets. The company is exiting or running off selected property brokerage, property and catastrophe reinsurance, and specialty personal lines; core reinsurance activity is focused on casualty and professional business.
- Debt subsequent event: On March 10, 2022, the company announced redemption of the entire $130 million principal amount of its 2047 notes, effective April 15, 2022, plus accrued interest. Planned funding sources included equity-portfolio sales, subsidiary dividends and distributions from investments. This was a post-year-end announcement, not a completed 2021 transaction.
- Distribution outlook: Management anticipated a quarterly distribution of $0.25 per common share ($1.00 annually), subject to board discretion, results and subsidiary dividend restrictions. A $0.25 distribution for March 2022 was approved after year-end.
- Claims and reinsurance risks: Reserves rely on actuarial estimates and are a critical audit matter; actual claim severity, inflation, litigation and long-tail development could differ materially. Net reserves were $665.5 million. Net asbestos and environmental reserves were $21.985 million. The company reported $90.0 million of reinsurance receivables net of allowance and collateral; Munich Re represented $51.9 million of gross receivables. One assumed treaty accounted for 86.7% of Reinsurance Operations’ 2021 gross written premiums and at least 10% of consolidated revenue.
- Market and operating risks: Interest-rate changes affect fixed-income values; the filing estimates a 3.5% decline in bond market value for a 100-basis-point increase. Other risks include catastrophe losses, pandemic effects, investment liquidity and credit risk, cyber incidents, competition, agent concentration and regulatory limits on insurer dividends.
- Governance and tax: Fox Paine entities held approximately 82.9% of voting power. The LLC is generally treated as a publicly traded partnership for U.S. federal tax purposes; common shareholders may owe tax on allocated income even without cash distributions and receive Schedule K-1s. The company affirmed an “A” (Excellent) AM Best rating for its U.S. operating subsidiaries. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
- Management commentary: CEO David S. Charlton was appointed in April 2021 and COO Reiner R. Mauer in May 2021. The filing provides no quantified earnings or premium guidance.
Important facts for investors to verify
- Whether adverse reserve development continues, especially in Commercial Specialty and Exited Lines, and how actual claims compare with actuarial estimates.
- Whether continuing-line premium growth produces underwriting profitability, given the 102.1% consolidated combined ratio and weaker Commercial Specialty results.
- Collection and credit quality of reinsurance recoverables, including the concentration in Munich Re and the large treaty concentration.
- Execution and cash consequences of the 2047-note redemption, including the planned asset sales and subsidiary distributions.
- Liquidity and capital available at the parent after distributions, considering that regulated insurance subsidiaries paid no dividends in 2021.
- Investment portfolio performance and sensitivity to rising rates, particularly the impact on fixed-maturity values, equity holdings and less-liquid alternative investments.
- Effects of the renewal-rights sale, remaining Florida and Louisiana exposures, and further runoff decisions on future premiums and expenses.