Global Indemnity Group, LLC — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. The company is a specialty property and casualty insurer and reinsurer operating through Commercial Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations.
Business context and major corporate change
On August 28, 2020, the group completed its redomestication to the United States, with Global Indemnity Group, LLC replacing Global Indemnity Limited as parent. Its Bermuda reinsurance subsidiary merged into U.S. insurer Penn-Patriot. The parent became a publicly traded partnership for U.S. federal tax purposes; shareholders generally receive Schedule K-1s and may owe tax on allocated income whether or not they receive cash distributions.
Financial results and key metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $583.5 million | $604.5 million |
| Net earned premiums | $567.7 million | $525.3 million |
| Net income (loss) | $(21.0) million | $70.0 million |
| Net income (loss) per diluted share | $(1.48) | $4.88 |
| Underwriting income | $17.9 million | $43.3 million |
| Combined ratio | 97.2% | 92.2% |
| Operating cash flow | $32.7 million | $32.4 million |
| Investments and cash | $1,454.6 million | $1,607.8 million |
| Total assets | $1,904.9 million | $2,075.9 million |
| Shareholders’ equity | $718.3 million | $726.8 million |
The 2020 loss reflected lower investment income and realized investment losses, higher catastrophe and other current-year claims, and elevated corporate costs. Net investment income fell 32.5% to $28.4 million; realized investment results were a $14.7 million loss versus a $35.3 million gain in 2019. Corporate and other operating expenses rose to $42.0 million from $18.9 million, mainly including $10.0 million of redomestication advisory fees and related professional costs. A $3.1 million loss was recorded on extinguishment of debt.
Gross written premiums declined 4.8% to $606.6 million; net written premiums fell 2.5% to $548.2 million. Net earned premiums nevertheless grew 8.1%. Insurance Operations recorded $88.5 million of current-accident-year catastrophe losses, compared with $30.4 million in 2019. Favorable prior-year reserve development reduced losses by $31.5 million in 2020, versus $32.8 million in 2019.
Segment and underwriting developments
- Commercial Specialty: Gross written premiums rose 8.3% to $321.9 million; underwriting income was $25.8 million. Its combined ratio increased to 90.9% from 86.4%, reflecting higher catastrophe and non-catastrophe property losses.
- Specialty Property: Gross written premiums fell 15.4% to $138.4 million. A $16.9 million underwriting loss and 114.1% combined ratio reflected a substantial increase in catastrophe losses, including Hurricanes Laura and Delta.
- Farm, Ranch & Stable: Gross written premiums decreased 2.4% to $85.6 million; underwriting loss was $0.6 million and the combined ratio was 101.0%. The Midwest derecho was the largest catastrophe event for this segment.
- Reinsurance Operations: Third-party gross written premiums fell 31.3% to $60.7 million, primarily after non-renewal of property catastrophe treaties. Underwriting income improved to $9.7 million from $3.9 million.
Liquidity, debt, investments, and distributions
Cash and cash equivalents were $67.4 million; investments totaled $1,387.2 million. Operating cash flow was $32.7 million. Management said operating companies and holding companies had sufficient liquidity, but noted that parent-level cash depends substantially on subsidiary distributions, which are subject to state regulatory limits. U.S. insurance subsidiaries paid no dividends in 2020; stated 2021 ordinary dividend capacity without regulatory approval totaled approximately $69.8 million across the identified subsidiaries.
Outstanding debt at year-end was $130 million principal of 7.875% subordinated notes due 2047, carried at $126.3 million net of issuance costs. The company redeemed $100 million of 7.75% notes due 2045 and repaid its $73.6 million margin borrowing balance during 2020. The board’s anticipated common distribution rate remained $0.25 per share quarterly, subject to its discretion and available funds; $1.00 per share was declared for 2020. A $0.25-per-share distribution for March 2021 was approved after year-end.
Fixed maturities had a 4.2-year duration and 96.1% were investment grade. The portfolio had a $42.2 million pretax unrealized gain at year-end. Other invested assets, including limited partnerships and LLCs, rose to $97.0 million, including a $60.0 million investment in a fund holding non-investment-grade loans. The company reported $31.2 million in remaining investment funding commitments at year-end and entered into a further $25 million commitment in January 2021.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantified earnings or premium guidance. Management said COVID-19 impacts remained uncertain and could affect premium volume and collections, claims, business interruption coverage disputes, and investment values and liquidity.
- Loss reserves are estimates subject to significant uncertainty, particularly for long-tail casualty, construction defect, asbestos, and environmental exposures. Year-end gross and net unpaid losses and loss adjustment expenses were $662.8 million and $580.7 million. Net asbestos and environmental reserves were $15.8 million and $12.9 million, respectively.
- Reinsurance collectability is a material exposure: reinsurance receivables were $97.7 million before a $9.0 million expected-credit-loss allowance; after allowance and collateral, reported net receivables were $83.7 million. Munich Re represented $44.8 million, or 45.9%, of gross reinsurance receivables before allowance. The company remains liable to policyholders if reinsurers do not pay.
- Investment risks include interest-rate, credit, equity-market, liquidity, and alternative-investment risks. A hypothetical 200-basis-point rise in rates would reduce fixed-maturity market value by 8.4%, according to the filing’s sensitivity analysis. Certain partnership investments lack readily available valuations and are not readily transferable.
- Fox Paine entities held approximately 83.9% of voting power through high-vote Class B shares. The company incurred a $2.6 million annual management fee and the $10.0 million redomestication advisory fee payable to Fox Paine & Company, LLC.
- CEO Cynthia Valko resigned effective January 15, 2021 and announced retirement; a successor search was underway. Jonathan Oltman was named president of insurance operations and acting principal executive officer pending appointment of a CEO.
- Ordinary-course legal matters were not expected by management to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and internal controls; management reported no material weaknesses. The valuation of unpaid losses and loss adjustment expenses was identified as a critical audit matter.
Most important facts for investors to verify
- Whether 2020 catastrophe losses, especially in Specialty Property, and current-year claims trends persist or moderate.
- Reserve adequacy and future development, including long-tail, construction defect, asbestos, and environmental claims; assess the significance of favorable prior-year development.
- COVID-19-related premium, claims, business interruption litigation, and investment-market effects as they develop.
- Reinsurer credit quality, concentration and recoverability, including the $9.0 million allowance and Munich Re exposure.
- Holding-company liquidity, regulatory dividend capacity, debt service, and the sustainability of quarterly distributions.
- Performance, valuation, and liquidity of the $60.0 million non-investment-grade loan fund and other alternative investments, as well as the subsequent $25 million commitment.
- Execution of the CEO transition and the implications of Fox Paine’s voting control, management agreement, and related-party fees.
- Shareholder tax consequences of publicly traded partnership status, including K-1 timing and tax obligations that may arise without matching cash distributions.