Global Indemnity Group, LLC — Q1 2023 Form 10-Q
Reporting period: Quarter ended March 31, 2023. Amounts below are in millions of dollars unless stated otherwise. Comparisons are with Q1 2022 unless noted.
Business context
GBLI is a property and casualty insurer operating through Commercial Specialty, Reinsurance Operations, and Exited Lines. It is shifting its focus toward core Wholesale Commercial and InsurTech products, while reducing reinsurance writings and running off exited businesses.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Gross written premiums | $123.0 | $191.0; down 35.6% |
| Net written premiums | $115.9 | $159.5; down 27.4% |
| Net earned premiums | $140.1 | $148.8; down 5.9% |
| Net investment income | $12.0 | $6.6; up 82.2% |
| Net realized investment losses | $(1.5) | $(25.4) |
| Net income (loss) | $2.5 | $(14.8) |
| Income (loss) available to common shareholders | $2.4; $0.17 per diluted share | $(14.9); $(1.03) per diluted share |
| Underwriting income (loss) | $(1.1) | $7.9 |
| Loss / expense / combined ratios | 62.8% / 38.2% / 101.0% | 56.9% / 38.1% / 95.0% |
| Operating cash flow | $5.3 provided | $10.1 used |
At March 31, 2023, total assets were $1,777.3, total liabilities $1,149.0, and shareholders’ equity $628.2. Cash and cash equivalents were $35.7; investments totaled $1,312.4, including $1,257.4 of available-for-sale fixed maturities. The unpaid-loss liability was $857.5 gross and $783.9 net. The filing reports no interest expense in Q1 2023 following redemption of the 7.875% subordinated notes in April 2022; debt balance details are not provided in the supplied filing text.
Fixed maturities had an A average rating and 1.5-year duration; embedded book yield was 3.6%. Fixed maturities were $42.8 below amortized cost at quarter-end, reported as unrealized losses in accumulated other comprehensive income; the Company reported no investment credit-loss allowance. Total investment return was $21.0, or 1.6% (not annualized), versus a loss of $42.6, or (2.8%), in Q1 2022.
Material changes and drivers
- Premium contraction reflected lower writings across continuing and exited lines. Management cited non-renewal of a casualty treaty and restaurant book, underwriting actions against underperforming Commercial Specialty business, and the ongoing run-off of exited lines. Commercial Specialty gross written premiums fell 7.1%; Reinsurance Operations fell 42.9%; Exited Lines fell 91.4%.
- Despite higher earned premiums in continuing lines, total earned premiums declined as Exited Lines earned premiums fell 48.4%, including the effect of the Farm, Ranch & Stable renewal-rights sale.
- The combined ratio worsened by 6.0 percentage points to 101.0%, indicating an underwriting loss. Commercial Specialty’s combined ratio was 102.6%; Reinsurance Operations’ was 97.8%; Exited Lines’ was 97.6%.
- Higher investment income and much smaller realized investment losses, together with no debt interest expense, helped move results from a loss to a profit. Q1 2022 included $25.5 of impairment losses related to securities the Company intended to sell; there was no such charge in Q1 2023.
- Operating cash flow improved by $15.4 year over year. Cash declined $3.1 during the quarter to $35.7 after investing and financing activity, including $6.6 of share repurchases and $4.0 of common and preferred distributions.
Outlook, risks and unusual items
- The restructuring of four brokerage divisions—Professional Liability, Excess Casualty, Environmental, and Middle Market Property—was completed in Q1 2023. The Company incurred $2.2 of Q1 restructuring costs and $5.6 in total since the plan began. Management anticipates recurring annual expense savings of $16.0.
- Management expects Reinsurance Operations to make up a smaller share of the business, with capital directed toward Commercial Specialty growth and initiatives including repurchases. No specific earnings or revenue guidance was provided.
- Q1 prior-year reserve adjustments netted to zero: a $1.5 increase in Commercial Specialty was offset by a $1.5 decrease in Exited Lines. Management notes reserve estimates depend on claims frequency and severity; actual outcomes may differ.
- Key exposures include claims severity and catastrophe frequency, reserve estimation, reinsurance collectability and disputes with reinsurers in run-off, investment valuation and interest-rate movements, and limits on dividends from regulated insurance subsidiaries. The Company says pending legal matters are not expected to have a material adverse effect.
- The $60.0 share-repurchase authorization was increased from $32.0. By May 1, 2023, 1,357,082 shares had been repurchased under the program for approximately $34.0 at an average $25.05 per share. A $0.25-per-common-share distribution was paid in Q1.
- Cash and invested assets include amounts held on deposit or in trust; the filing reports $183.9 of such assets at quarter-end. It also reports $14.2 of unfunded investment commitments, with minimal future calls expected.
Most important facts for investors to verify
- Whether premium reductions and underwriting actions improve loss experience and bring the combined ratio below 100% in subsequent quarters.
- Whether the projected $16.0 annual restructuring savings are realized, and how the completed exits affect earned premiums, expenses, and runoff reserves.
- Development of the $783.9 net loss reserve, including the effect of claims severity, catastrophe losses, and reinsurance recoveries.
- Sustainability of investment income as yields and portfolio duration change, and the liquidity implications of unrealized fixed-income losses.
- Capital available for distributions and repurchases after considering subsidiary dividend restrictions, claims obligations, and remaining repurchase authorization.