| • | Investment yields were lower than the IRIS range for Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company and Penn-Patriot Insurance Company. The investment portfolios of these companies are invested in high quality short duration bonds.Investment yields were higher than the IRIS range for United National Insurance Company, due to dividends from affiliates
Change in Surplus and Adjusted Surplus ratios for United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company and Penn-Patriot Insurance Company were outside of the IRIS range due to dividends to affiliates and catastrophe losses in 2017.
| • | | Asset to liability liquidity ratio for Penn-America Insurance Company wasand Penn-Patriot Insurance Company. A high percentage of invested assets for these companies consisted of wholly-owned subsidiaries which did not distribute dividends in 2020. |
| • | Adjusted liabilities to liquid assets ratio for United National Insurance Company and Penn-America Insurance Company were outside of the IRIS range mainly due to intercompany payables to parents and affiliates that will bewere settled in the 1st1st quarter of 2018.2021. |
Estimated current reserve deficiency was outside of the range for Penn-Patriot Insurance Company due to changes in the intercompany pooling agreement in 2016. | • | Change in net written premiums and estimated current reserve deficiencies were outside of the range for Penn-Patriot Insurance Company resulting from the merger with Global Indemnity Reinsurance in 2020. As a result of the merger, and in accordance with statutory accounting principles, Penn-Patriot Insurance Company’s statutory financial statements for were restated to reflect the merger of these companies as if these companies were merged for the periods presented in those statutory financial statements. Furthermore, Penn-Patriot Insurance Company’s 2020 financial statements reflect the addition of Global Indemnity Reinsurance’s insurance premiums and liabilities to the Global Indemnity’s U.S. Insurance pool in August of 2020. |
| • | Change in policyholders’ surplus and adjusted policyholders’ surplus were outside of the range for Penn-Patriot Insurance Company. Penn-Patriot Insurance Company’s financial statements for 2020 reflect a dividend of $226.0 million made by Global Indemnity Reinsurance to its parent, Global Indemnity Limited, in June 2020 prior to its merger with Global Indemnity Reinsurance. |
Risk-Based Capital Regulations The state insurance departments of Pennsylvania, Indiana, Virginia and Arizona require that each domestic insurer report its risk-based capital based on a formula calculated by applying factors to various asset, premium and reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk and business risk. The respective state insurance regulators use the formula as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and generally not as a means to rank insurers. State insurance laws impose broad confidentiality requirements on those engaged in the insurance business (including insurers, general agencies, brokers and others) and on state insurance departments as to the use and publication of risk-based capital data. The respective state insurance regulators have explicit regulatory authority to require various actions by, or to take various actions against, insurers whose total adjusted capital does not exceed certain company action level risk-based capital levels. Based on the standards currently adopted, the U.S. insurance companies reported in their 20172020 statutory filings that their capital and surplus are above the prescribed risk-based capital requirements. The cancellation of the Quota Share arrangement between Global Indemnity Reinsurance and the U.S. Insurance Companies will increase the capital requirements of its U.S. Insurance Companies and additional capital may need to be allocated to these companies in the future. The Company will continue to manage capital levels in its U.S. Insurance Companies to ensure its capital and surplus will remain above the prescribed risk-based capital requirements. See Note 1920 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information on the NAIC’sNAIC's risk-based capital model for determining the levels of statutory capital and surplus an insurer must maintain. Statutory Accounting Principles (“SAP”) SAP is a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. SAP is primarily concerned with measuring an insurer’sinsurer's surplus. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance laws, regulatory provisions, and practices prescribed or permitted by each insurer’sinsurer's domiciliary state. 18
GAAP is concerned with a company’scompany's solvency, but it is also concerned with other financial measurements, such as matching revenues and expenses, income, and cash flows. As a direct result, different line item groupings of assets and liabilities and different amounts of assets and liabilities are reflected in financial statements prepared in accordance with GAAP than financial statements prepared in accordance with SAP. Statutory accounting practices established by the NAIC and adopted in part by the Pennsylvania, Indiana, Virginia, and Arizona regulators determine, among other things, the amount of statutory surplus and statutory net income (loss) of the U.S. insurance companies and thus determine, in part, the amount of funds these subsidiaries have available to pay dividends. State Dividend Limitations The U.S. insurance companies are restricted by statute as to the amount of dividends that they may pay without the prior approval of the applicable state regulatory authorities. Dividends may be paid without advanced regulatory approval only out of unassigned surplus. The dividend limitations imposed by the applicable state laws are based on the statutory financial results of each company within the Insurance Operations that are determined using statutory accounting practices that differ in various respects from accounting principles used in financial statements prepared in conformity with GAAP. See “Regulation —– Statutory Accounting Principles.” Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes, reserve calculation assumptions and surplus notes, if any. See the “Liquidity and Capital Resources” section in Item 7 of Part II of this report for a more complete description of the state dividend limitations. See Note 1920 of the notes to consolidated financial statements in Item 8 of Part II of this report for the dividends declared and paid by Global Indemnity’s U.S. insurance companies in 2017 and the maximum amount of distributions that U.S.the Company’s insurance companies could pay as dividends in 2018.2021. Guaranty Associations and Similar Arrangements Most of the jurisdictions in which the U.S. insurance companies are admitted to transact business require property and casualty insurers doing business within that jurisdiction to participate in guaranty associations. These associations are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent, or failed insurer is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets or in limited circumstances by surcharging policyholders. Federal Insurance Regulation The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) includes a number of provisions having a direct impact on the insurance industry, most notably, the creation of a Federal Insurance Office to monitor the insurance industry, streamlining of surplus lines insurance, credit for reinsurance, and systemic risk regulation. The Federal Insurance Office is empowered to gather data and information regarding the insurance industry and insurers, including conducting a study for submission to the U.S. Congress on how to modernize and improve insurance regulation in the United States. With respect to surplus lines insurance, the Dodd-Frank Act gives exclusive authority to regulate surplus lines transactions to the home state of the insured, and the requirement that a surplus lines broker must first attempt to place coverage in the admitted market is substantially softened with respect to large commercial policyholders. Significantly, the Dodd-Frank Act provides that a state may not prevent a surplus lines broker from placing surplus lines insurance with anon-U.S. insurer that appears on the quarterly listing ofnon-admitted insurers maintained by the International Insurers Department of the National Association of Insurance Commissioners (“NAIC”).NAIC. Regarding credit for reinsurance, the Dodd-Frank Act generally provides that the state of domicile of the ceding company (and no other state) may regulate financial statement credit for the ceded risk. The Dodd-Frank Act also provides the U.S. Federal Reserve with supervisory authority over insurance companies that are deemed to be “systemically important.” The Company continues to monitor the impact the Dodd-Frank Act orfederal insurance regulations and any changes thereto that may have onimpact operations. Operations of Global Indemnity Reinsurance
The insurance laws of the United States regulate or prohibit the sale of insurance and reinsurance within their jurisdictions bynon-domestic insurers and reinsurers that are not admitted to do business within such jurisdictions. Global Indemnity Reinsurance is not admitted to do business in the United States. The Company does not intend for Global Indemnity Reinsurance to maintain offices or solicit, advertise, settle claims or conduct other insurance and reinsurance underwriting activities in any jurisdiction in the United States where the conduct of such activities would require that Global Indemnity Reinsurance be admitted or authorized.
As a reinsurer that is not licensed, accredited, or approved in any state in the United States, Global Indemnity Reinsurance is required to post collateral security with respect to the reinsurance liabilities it assumes from the Company’s Insurance Operations as well as other U.S. ceding companies. The posting of collateral security is generally required in order for U.S. ceding companies to obtain credit on their U.S. statutory financial statements with respect to reinsurance liabilities ceded to unlicensed or unaccredited reinsurers. Under applicable United States “credit for reinsurance” statutory provisions, the security arrangements generally may be in the form of letters of credit, reinsurance trusts maintained by third-party trustees or funds-withheld arrangements whereby the ceded premium is held by the ceding company. If “credit for reinsurance” laws or regulations are made more stringent in Pennsylvania, Indiana, Virginia and Arizona or other applicable states or any of the U.S. insurance companiesre-domesticate to one of the few states that do not allow credit for reinsurance ceded tonon-licensed reinsurers, the Company may be unable to realize some of the benefits expected from its business plan. Accordingly, Global Indemnity Reinsurance could be adversely affected.
Global Indemnity Reinsurance generally is not subject to regulation by U.S. jurisdictions. Specifically, rate and form regulations otherwise applicable to authorized insurers generally do not apply to Global Indemnity Reinsurance’s transactions.
Bermuda Insurance Regulation
The Bermuda Insurance Act 1978 and related regulations, as amended (the “Insurance Act”), regulates the insurance business of Global Indemnity Reinsurance and provides that no person may carry on any such business in or from within Bermuda unless registered as an insurer by the Bermuda Monetary Authority (the “BMA”) under the Insurance Act. Global Indemnity Reinsurance, which is incorporated to carry on general insurance and reinsurance business, is registered as a Class 3B insurer in Bermuda. A corporate body is registrable as a Class 3B insurer if it intends to carry on insurance business in circumstances where 50% or more of the net premiums written or 50% or more of the loss and loss expense provisions represent unrelated business, or its total net premiums written from unrelated business are $50.0 million or more. The continued registration of an applicant as an insurer is subject to it complying with the terms of its registration and such other conditions as the BMA may impose from time to time. An insurer’s registration may be canceled by the BMA on certain grounds specified in the Insurance Act, including failure of the insurer to comply with its obligations under the Insurance Act.
The Insurance Act imposes solvency and liquidity standards, auditing and reporting requirements, and grants the BMA powers to supervise, investigate, require information and the production of documents, and to intervene in the affairs of Bermuda insurance companies. The BMA continues to make amendments to the Insurance Act with a view to enhancing Bermuda’s insurance regulatory regime.
The BMA utilizes a risk-based approach when it comes to licensing and supervising insurance companies. As part of the BMA’s risk-based system, an assessment of the inherent risks within each particular class of insurer is used to determine the limitations and specific requirements which may be imposed. Thereafter the BMA keeps its analysis of relative risk within individual institutions under review on an ongoing basis, including through the scrutiny of regular audited statutory financial statements, and, as appropriate, meeting with senior management during onsite visits.
On March 25, 2016, Bermuda’s prudential framework for (re)insurance and group supervision was confirmed as being fully equivalent to the regulatory standards applied to European reinsurance companies and insurance groups in accordance with the requirements of the Solvency II Directive. Bermuda was granted this full “Solvency II equivalence” for an unlimited period by the European Commission based on an assessment conducted by the European Insurance and Occupational Pensions Authority, and the equivalence decision was applied retroactively to January 1, 2016.
Certain significant aspects of the Bermuda insurance regulatory framework are set forth as follows:
Cancellation of Insurer’s Registration
An insurer’s registration may be canceled by the BMA on certain grounds specified in the Bermuda Insurance Act, including failure of the insurer to comply with its obligations under the Bermuda Insurance Act or if, in the opinion of the BMA, the insurer has not been carrying on business in accordance with sound insurance principles.
Principal Representative and Principal Office
Every registered insurer or reinsurer is required to maintain a principal office in Bermuda and to appoint and maintain a principal representative in Bermuda, subject to certain prescribed requirements under the Bermuda Insurance Act. Further, any registered insurer that is a Class 3A insurer or above is required to maintain a head office in Bermuda and direct and manage its insurance business from Bermuda. The recent amendments to the Bermuda Insurance Act provide that in considering whether an insurer satisfies the requirements of having its head office in Bermuda, the BMA may consider (a) where the underwriting, risk management, and operational decision making occurs; (b) whether the presence of senior executives who are responsible for, and involved in,
the decision making are located in Bermuda; and (c) where meetings of the board of directors occur. The BMA will also consider (a) the location where management meets to effect policy decisions; (b) the residence of the officers, insurance managers or employees; and (c) the residence of one or more directors in Bermuda.
Global Indemnity Reinsurance maintains its principal office in Hamilton, Bermuda and its external management firm has been appointed as its principal representative.
It is the duty of the principal representative upon reaching the view that there is a likelihood of the insurer for which the principal representative acts becoming insolvent or that a reportable “event” has, to the principal representative’s knowledge, occurred or is believed to have occurred, to immediately notify the BMA and to make a report in writing to the BMA within 14 days of the prior notification setting out all the particulars of the case that are available to the principal representative.
Where there has been a significant loss which is reasonably likely to cause the insurer to fail to comply with its enhanced capital requirement (in respect of its general business, as described below under the Enhanced Capital Requirement (“ECR”) and Minimum Solvency Margin (“MSM”) section), the principal representative must also furnish the BMA with a capital and solvency return reflecting an enhanced capital requirement prepared using post-loss data. The principal representative must provide this within 45 days of notifying the BMA regarding the loss.
Furthermore, where a notification has been made to the BMA regarding a material change to an insurer’s business or structure (including a merger or amalgamation), the principal representative has 30 days from the date of such notification to furnish the BMA with unaudited interim statutory financial statements in relation to such period if so requested by the BMA, together with a general business solvency certificate in respect to those statements.
Independent Approved Auditor
Every registered insurer, such as Global Indemnity Reinsurance, must appoint independent auditors who will audit and report annually on the statutory financial statements, the statutory financial return of the insurer and U.S. GAAP statements, which are required to be filed annually with the BMA.
Loss Reserve Specialist
As a registered Class 3B insurer, Global Indemnity Reinsurance is required to submit an opinion of its approved loss reserve specialist in respect of its technical provisions contained within its Economic Balance Sheet (see below).
Annual Financial Statements and Annual Statutory Financial Return
As prescribed by the Insurance Act, Global Indemnity Reinsurance, a Class 3B insurer, must prepare annual statutory financial statements. The statutory financial return shall consist of an insurer information sheet, a report of the approved independent auditor on the GAAP financial statements, a statutory balance sheet, a statutory statement of income, a statutory statement of capital and surplus, notes to the statutory financial statements and a statutory declaration of compliance.
In addition to preparing statutory financial statements, Global Indemnity Reinsurance must file financial statements prepared in accordance with GAAP in respect of each financial year. Such statements must be filed with the BMA within a period of four months from the end of the financial year or such longer period, not exceeding seven months, as the BMA may determine. The audited financial statements will be published by the BMA.
For financial years after January 1, 2016, commercial insurers will also be required to prepare a Financial Condition Report providing details of, among other things, measures governing the business operations, corporate governance framework, solvency and financial performance of the insurer.
Enhanced Capital Requirement (“ECR”) and Minimum Solvency Margin (“MSM”)
The BMA has promulgated the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Amendment Rules 2008, as amended (the “Rules”) which, among other things, mandate that a Class 3B insurer’s ECR be calculated by either (a) the model set out in Schedule I to the Rules, or (b) an internal capital model which the BMA has approved for use for this purpose. For 2017, Global Indemnity Reinsurance used the BMA’s model to calculate its capital and solvency requirements.
The risk-based regulatory capital adequacy and solvency requirements implemented with effect from December 31, 2008 (termed the Bermuda Solvency Capital Requirement or “BSCR”) provide a risk-based capital model as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization. BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to the capital that is dedicated to their business. The framework that has been developed applies a standard measurement format to the risk associated with an insurer’s assets, liabilities and premiums, including a formula to take account of catastrophe risk exposure.
Where an insurer believes that its own internal model for measuring risk and determining appropriate levels of capital better reflects the inherent risk of its business, it may apply to the BMA for approval to use its internal capital model in substitution for the BSCR model. The BMA may approve an insurer’s internal model, provided certain conditions have been established, and may revoke approval of an internal model in the event that the conditions are no longer met or where it feels that the revocation is appropriate. The BMA will review the internal model regularly to confirm that the model continues to meet the conditions.
In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation, the BMA seeks that insurers operate at or above a threshold capital level (termed the Target Capital Level or “TCL”), which exceeds the BSCR or approved internal model minimum amounts. The Rules provide prudential standards in relation to the ECR and Capital and Solvency Return (“CSR”). The ECR is determined using the BSCR or an approved internal model, provided that at all times the ECR must be an amount equal to, or exceeding the MSM. The CSR is the return setting out the insurer’s risk management practices and other information used by the insurer to calculate its approved internal model ECR. The capital requirements require Class 3B insurers to hold available statutory capital and surplus equal to, or exceeding ECR and set TCL at 120% of ECR. In circumstances where an insurer has failed to comply with an ECR given by the BMA, such insurer is prohibited from declaring or paying any dividends until the failure is rectified.
The risk-based solvency capital framework referred to above represents a modification of the minimum solvency margin test set out in the Insurance Returns and Solvency Amendment Regulations 1980 (as amended). While it must calculate its ECR annually by reference to either the BSCR or an approved internal model, Global Indemnity Reinsurance must also ensure at all times that its ECR is at least equal to the MSM for a Class 3B insurer in respect of its general business, which is the greater of:
| (ii) | 50% of net premiums written; |
| (iii) | 15% of net loss and loss adjustment expense reserves and other general business insurance reserves. |
| (iv) | 25% of the insurer’s enhanced capital requirement. |
The BMA has also introduced a three-tiered capital system for Class 3B insurers designed to assess the quality of capital resources that an insurer has available to meet its capital requirements. The tiered capital system classifies
all capital instruments into one of three tiers based on their “loss absorbency” characteristics, with the highest quality capital classified as Tier 1 Capital and lesser quality capital classified as either Tier 2 or Tier 3 Capital. Only Tier 1 and Tier 2 Capital may be used to support an insurer’s MSM. Certain percentages of each of Tier 1, 2 and 3 Capital may be used to satisfy an insurer’s ECR. Any combination of Tier 1, 2 or 3 Capital may be used to meet the TCL.
The Rules introduced a regime that requires Class 3B insurers to perform an assessment of their own risk and solvency requirements, referred to as a Commercial Insurer’s Solvency Self Assessment (“CISSA”). The CISSA will allow the BMA to obtain an insurer’s view of the capital resources required to achieve its business objectives and to assess the company’s governance, risk management and controls surrounding this process. The Rules also introduced a Catastrophe Risk Return, which must be filed with the BMA, which assesses an insurer’s reliance on vendor models in assessing catastrophe exposure.
Economic Balance Sheet Framework
The Economic Balance Sheet (“EBS”) framework is an accounting balance sheet approach using market consistent values for all current assets and current obligations relating toin-force business which applies to Class 3B and 4 insurers and has been in effect since the 2016 financial year end. The EBS framework is embedded as part of the Capital and Solvency Return and forms the basis for the insurer’s ECR.
Minimum Liquidity Ratio
The Insurance Act provides a minimum liquidity ratio for general business insurers, such as Global Indemnity Reinsurance. An insurer engaged in general business is required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities; as such terms are defined in the Insurance Act.
Restrictions on Dividends and Distributions
Global Indemnity Reinsurance is prohibited from declaring or paying any dividends during any financial year if it is in breach of its minimum solvency margin or minimum liquidity ratio or if the declaration or payment of such dividends would cause it to fail to meet such margin or ratio. In addition, if it has failed to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial year, Global Indemnity Reinsurance will be prohibited, without the approval of the BMA, from declaring or paying any dividends during the next financial year.
Global Indemnity Reinsurance is prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital or 25% or more of its total statutory capital and surplus as set out in its previous year’s financial statements, and any application for such approval must include such information as the BMA may require. In addition, if at any time it fails to meet its minimum margin of solvency, Global Indemnity Reinsurance is required within 30 days after becoming aware of such failure or having reason to believe that such failure has occurred, to file with the BMA a written report containing certain information.
Additionally, under the Companies Act, Global Indemnity Reinsurance may not declare or pay a dividend, or make a distribution from contributed surplus, if there are reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would be less than the aggregate of its liabilities and its issued share capital and share premium accounts.
Supervision, Investigation and Intervention
The BMA has wide powers of investigation and document production in relation to Bermuda insurers under the Insurance Act. For example, the BMA may appoint an inspector with extensive powers to investigate the affairs of Global Indemnity Reinsurance if the BMA believes that such an investigation is in the best interests of its
policyholders or persons who may become policyholders. Further, the BMA has the power to appoint a professional person to prepare a report on any aspect of any matter about which the BMA has or could require information. If it appears to the BMA that there is a risk of Global Indemnity Reinsurance becoming insolvent, or that Global Indemnity Reinsurance is in breach of the Insurance Act or any conditions imposed upon its registration, the BMA may, among other things, direct Global Indemnity Reinsurance not to take on any new business, not to vary any current treaties if the effect would be to increase its liabilities, not to make certain investments, to realize or not realize certain investments, to maintain in, or transfer to, the custody of a specified bank, certain assets, not to declare or pay any dividends or other distributions or to restrict the making of such payments, or to limit its premium income or remove an officer.
The BMA may also make additional rules prescribing prudential standards in relation to the ECR, CSR, insurance reserves and eligible capital which Global Indemnity Reinsurance must comply with.
Bermuda Code of Conduct
The BMA has implemented the Insurance Code of Conduct (the “Bermuda Code of Conduct”) which came into effect on July 1, 2010. The BMA established July 1, 2011 as the date of compliance for commercial insurers. The Bermuda Code of Conduct is divided into six categories: (i) Proportionality Principal, (ii) Corporate Governance, (iii) Risk Management, (iv) Governance Mechanism, (v) Outsourcing, and (vi) Market Discipline and Disclosure. These categories contain the duties, requirements and compliance standards to which all insurers must adhere. It stipulates that in order to achieve compliance with the Bermuda Code of Conduct, insurers are to develop and apply policies and procedures capable of assessment by the BMA. Global Indemnity Reinsurance is in compliance with the Bermuda Code of Conduct.
Group Supervision
Emerging international norms in the regulation of global insurance groups are trending increasingly towards the imposition of group-wide supervisory regimes by one principal “home” regulator over all the legal entities in the group, no matter where incorporated. Amendments to the Insurance Act in 2010 introduced such a regime into Bermuda insurance regulation.
The Insurance Act contains provisions regarding group supervision, the authority to exclude specified entities from group supervision, the power for the BMA to withdraw as a group supervisor, the functions of the BMA as group supervisor and the power of the BMA to make rules regarding group supervision.
The BMA has issued the Insurance (Group Supervision) Rules 2011 (the “Group Supervision Rules”) and the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011 (the “Group Solvency Rules”) each effective December 31, 2011. The Group Supervision Rules set out the rules in respect of the assessment of the financial situation and solvency of an insurance group, the system of governance and risk management of the insurance group, and supervisory reporting and disclosures of the insurance group. The Group Solvency Rules set out the rules in respect of the capital and solvency return and enhanced capital requirements for an insurance group. The BMA also intends to publish an insurance code of conduct in relation to group supervision.
Global Indemnity Reinsurance was notified by the BMA that, having considered the matters set out in the 2010 amendments to the Insurance Act, it had determined that it would not be Global Indemnity Reinsurance’s group supervisor.
Notifications to the BMA
In the event that the share capital of an insurer (or its parent) is traded on any stock exchange recognized by the BMA, then any shareholder must notify the BMA within 45 days of becoming a 10%, 20%, 33% or 50%
shareholder of such insurer. An insurer must also provide written notice to the BMA that a person has become, or ceased to be, a “Controller” of that insurer. A Controller for this purpose means a managing director, chief executive or other person in accordance with whose directions or instructions the Directors of Global Indemnity Reinsurance are accustomed to act, including any person who holds, or is entitled to exercise, 10% or more of the voting shares or voting power or is otherwise able to exercise significant influence over the management of Global Indemnity Reinsurance.
Global Indemnity Reinsurance is also required to notify the BMA in writing in the event any person has become or ceased to be an officer of it, an officer being a director, chief executive or senior executive performing duties of underwriting, actuarial, risk management, compliance, internal audit, finance or investment matters. Failure to give required notice is an offense under the Insurance Act.
An insurer, or designated insurer in respect of the group of which it is a member, must notify the BMA in writing that it proposes to take measures that are likely to be of material significance for the discharge, in relation to the insurer or the group, of the BMA’s functions under the Insurance Act. Measures that are likely to be of material significance include:
acquisition or transfer of insurance business being part of a scheme falling within section 25 of the Insurance Act or section 99 of the Companies Act;
amalgamation with or acquisition of another firm; and
a material change in the insurer’s business plan not otherwise reported to the BMA.
In respect of the forgoing, the BMA will typically object to the material change unless it is satisfied that:
the interest of the policyholders and potential policyholders of the insurer or the group would not in any manner be threatened by the material change; and
without prejudice to the first point, that, having regard to the material change, the requirements of the Insurance Act would continue to be complied with, or, if any of those requirements are not complied with, that the insurer concerned is likely to undertake adequate remedial action.
Failure to give such notice constitutes an offence under the Insurance Act. It is possible to appeal a notice of objection served by the BMA.
Disclosure of Information
The BMA may assist other regulatory authorities, including foreign insurance regulatory authorities, with their investigations involving insurance and reinsurance companies in Bermuda, but subject to restrictions. For example, the BMA must be satisfied that the assistance being requested is in connection with the discharge of regulatory responsibilities of the foreign regulatory authority. Further, the BMA must consider whether cooperation is in the public interest. The grounds for disclosure are limited and the Insurance Act provides sanctions for breach of the statutory duty of confidentiality.
Under the Companies Act, the Minister of Finance may assist a foreign regulatory authority that has requested assistance in connection with inquiries being carried out by it in the performance of its regulatory functions. The Minster of Finance’s powers include requiring a person to furnish information to the Minister of Finance, to produce documents to the Minister of Finance, to attend and answer questions and to give assistance to the Minister of Finance in relation to inquiries. The Minister of Finance must be satisfied that the assistance requested by the foreign regulatory authority is for the purpose of its regulatory functions and that the request is in relation to information in Bermuda that a person has in his possession or under his control. The Minister of Finance must consider, among other things, whether it is in the public interest to give the information sought.
Certain Other Bermuda Law Considerations
Although Global Indemnity Reinsurance is incorporated in Bermuda, it is classified as anon-resident of Bermuda for exchange control purposes by the BMA. Pursuant to thenon-resident status, Global Indemnity Reinsurance may engage in transactions in currencies other than Bermuda dollars, and there are no restrictions on its ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to United States residents that are holders of its ordinary shares.
Under Bermuda law, exempted companies are companies formed for the purpose of conducting business outside Bermuda from a principal place of business in Bermuda. As an “exempted” company, Global Indemnity Reinsurance may not, without the express authorization of the Bermuda legislature or under a license or consent granted by the Minister of Finance, participate in certain business transactions, including transactions involving Bermuda landholding rights and the carrying on of business of any kind for which it is not licensed in Bermuda.
Taxation of Global Indemnity and Subsidiaries
Cayman Islands
The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.
Global Indemnity is an exempted company incorporated with limited liability under the laws of the Cayman Islands. Global Indemnity has received an undertaking from the Governor in Cabinet of the Cayman Islands to the effect that, for a period of twenty years from the date of the undertaking, which is February 9, 2016, no law that thereafter is enacted in the Cayman Islands imposing any tax or duty to be levied on profits, income or on gains or appreciation, or any tax in the nature of estate duty or inheritance tax, will apply to any property comprised in or any income arising in respect of Global Indemnity, or to the shareholders thereof, in respect of any such property or income.
Ireland
Global Indemnity Services Ltd., a direct wholly-owned subsidiary, is a company limited by shares incorporated under the laws of Ireland. The company is a resident taxpayer fully subject to Irish corporate income tax laws. Global Indemnity Services Ltd. has only trading income and is subject to corporate income tax of 12.5%.
U.A.I. (Ireland) Limited, U.A.I. (Ireland) II Unlimited Company, GBLI (Ireland) Limited, and Global Indemnity Group Limited, all indirect wholly-owned subsidiaries, are companies incorporated under the laws of Ireland. Each company is a resident taxpayer fully subject to Irish corporate income tax laws.
Bermuda
Under current Bermuda law, the Company and its Bermuda subsidiaries are not required to pay any taxes in Bermuda on income or capital gains. Currently, there is no Bermuda income, corporation or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by Global Indemnity Reinsurance or its shareholders, or GBLI (Bermuda) Limited, or its shareholders, other than shareholders ordinarily resident in Bermuda, if any. Currently, there is no Bermuda withholding or other tax on principal, interest, or dividends paid to holders of the ordinary shares of Global Indemnity Reinsurance or GBLI (Bermuda) Limited, other than holders ordinarily resident in Bermuda, if any. There can be no assurance that Global Indemnity Reinsurance or its shareholders or GBLI (Bermuda) Limited or its shareholders will not be subject to any such tax in the future.
The Company has received a written assurance from the Bermuda Minister of Finance under the Exempted Undertakings Tax Protection Act of 1966 of Bermuda, that if any legislation is enacted in Bermuda that would
impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of that tax would not be applicable to Global Indemnity Reinsurance or GBLI (Bermuda) Limited or to any of its operations, shares, debentures or obligations through March 31, 2035; provided that such assurance is subject to the condition that it will not be construed to prevent the application of such tax to people ordinarily resident in Bermuda, or to prevent the application of any taxes payable by Global Indemnity Reinsurance or GBLI (Bermuda) Limited in respect of real property or leasehold interests in Bermuda held by them. Given the limited duration of the assurance, the Company cannot be certain that the Company will not be subject to any Bermuda tax after March 31, 2035.
Luxembourg
U.A.I. (Luxembourg) I S.à.r.l., U.A.I. (Luxembourg) II S.à.r.l., U.A.I. (Luxembourg) III S.à.r.l., U.A.I. (Luxembourg) IV S.à.r.l., U.A.I. (Luxembourg) Investment S.à.r.l., and Wind River (Luxembourg) S.à.r.l. (the “Luxembourg Companies”) are indirect wholly-owned subsidiaries and private limited liability companies incorporated under the laws of Luxembourg. These are taxable companies, which may carry out any activities that fall within the scope of their corporate object clause. In accordance with Luxembourg regulations, the companies are resident taxpayers fully subject to Luxembourg corporate income tax at a rate of 27.08% and net worth tax at a rate of 0.5%. The companies are entitled to benefits of the tax treaties concluded between Luxembourg and other countries and European Union Directives.
Profit distributions (not in respect to liquidations) by the companies are generally subject to Luxembourg dividend withholding tax at a rate of 15%, unless a domestic law exemption or a lower tax treaty rate applies. Dividends paid by any of the Luxembourg Companies to their Luxembourg resident parent company are exempt from Luxembourg dividend withholding tax, provided that at the time of the dividend distribution, the resident parent company has held (or commits itself to continue to hold) 10% or more of the nominal paid up capital of the distributing entity or, in the event of a lower percentage participation, a participation having an acquisition price of Euro 1.2 million or more for a period of at least 12 months.
The Luxembourg Companies have received advance tax confirmations (“ATCs”) from the Luxembourg Administration des Contributions Directes (the “Luxembourg tax authorities”) that the financing activities of the Luxembourg Companies do not lead to taxation in Luxembourg except for the taxation as provided in the ATCs. Based on these confirmations received, the current financing activities of the Luxembourg Companies should not lead to taxation in Luxembourg other than for such tax as provided for in the financial statements. The Luxembourg Companies have in their files transfer pricing documentation substantiating the arm’s length nature of the financing activities. It is however not guaranteed that the Luxembourg Companies cannot be subject to higher Luxembourg taxes.
Barbados
GBLI (Barbados) Limited, an indirect wholly owned subsidiary, is incorporated under the Companies Act, Cap. 308 of the Laws of Barbados. It is a duly licensed international business company under the International Business Companies Act, Cap. 77 of the Laws of Barbados and subject to a corporate income tax rate as follows:
2.5% on all profits and gains up to $5,000,000;
2% on all profits and gains exceeding $5,000,000 but not exceeding $10,000,000;
1.5% on all profits and gains exceeding $10,000,000 but not exceeding $15,000,000; and
0.25% on all profits and gains exceeding $15,000,000.
United States
The following discussion is a summary of the material U.S. federal income tax considerations relating to the Company’s operations. The Company manages its business in a manner that seeks to mitigate the risk that either
Global Indemnity or Global Indemnity Reinsurance will be treated as engaged in a U.S. trade or business for U.S. federal income tax purposes. However, whether business is being conducted in the United States is an inherently factual determination. Because the United States Internal Revenue Code (the “Code”), regulations and court decisions fail to identify definitively activities that constitute being engaged in a trade or business in the United States, the Company cannot be certain that the Internal Revenue Service (“IRS”) will not contend successfully that Global Indemnity or Global Indemnity Reinsurance is or has been engaged in a trade or business in the United States. Anon-U.S. corporation deemed to be so engaged would be subject to U.S. income tax at regular corporate rates, as well as the branch profits tax, on its income that is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under the permanent establishment provision of an applicable tax treaty, as discussed below. Such income tax, if imposed, would be based on effectively connected income computed in a manner generally analogous to that applied to the income of a U.S. corporation, except that anon-U.S. corporation is generally entitled to deductions and credits only if it timely files a U.S. federal income tax return. Global Indemnity and Global Indemnity Reinsurance are filing protective U.S. federal income tax returns on a timely basis in order to preserve the right to claim income tax deductions and credits if it is ever determined that it is subject to U.S. federal income tax. The highest marginal federal income tax rates to take effect in 2018 are 21% for a corporation’s effectively connected income and 30% for the branch profits tax.
If Global Indemnity Reinsurance is entitled to the benefits under the tax treaty between Bermuda and the United States (the “Bermuda Treaty”), Global Indemnity Reinsurance would not be subject to U.S. income tax on any business profits of its insurance enterprise found to be effectively connected with a U.S. trade or business, unless that trade or business is conducted through a permanent establishment in the United States. No regulations interpreting the Bermuda Treaty have been issued. Global Indemnity Reinsurance currently conducts its activities to reduce the risk that it will have a permanent establishment in the United States, although the Company cannot be certain that it will achieve this result.
An insurance enterprise resident in Bermuda generally will be entitled to the benefits of the Bermuda Treaty if (1) more than 50% of its shares are owned beneficially, directly or indirectly, by individual residents of the United States or Bermuda or U.S. citizens and (2) its income is not used in substantial part, directly or indirectly, to make disproportionate distributions to, or to meet certain liabilities to, persons who are neither residents of either the United States or Bermuda nor U.S. citizens. The Company cannot be certain that Global Indemnity Reinsurance will be eligible for Bermuda Treaty benefits in the future because of factual and legal uncertainties regarding the residency and citizenship of the Company’s shareholders.
Foreign insurance companies carrying on an insurance business within the United States have a certain minimum amount of effectively connected net investment income, determined in accordance with a formula that depends, in part, on the amount of U.S. risk insured or reinsured by such companies. If Global Indemnity Reinsurance is considered to be engaged in the conduct of an insurance business in the United States and it is not entitled to the benefits of the Bermuda Treaty in general (because it fails to qualify under the limitations on treaty benefits discussed above), the Code could subject a significant portion of Global Indemnity Reinsurance’s investment income to U.S. income tax. In addition, while the Bermuda Treaty clearly applies to premium income, it is uncertain whether the Bermuda Treaty applies to other income such as investment income. If Global Indemnity Reinsurance is considered engaged in the conduct of an insurance business in the United States and is entitled to the benefits of the Bermuda Treaty in general, but the Bermuda Treaty is interpreted to not apply to investment income, a significant portion of Global Indemnity Reinsurance’s investment income could be subject to U.S. federal income tax.
The United States also imposes an excise tax on insurance and reinsurance premiums paid to foreign insurers or reinsurers with respect to risks located in the United States. The rates of tax applicable to premiums paid to Global Indemnity Reinsurance on such business are 4% for direct insurance premiums and 1% for reinsurance premiums. Foreign corporations not engaged in a trade or business in the United States are subject to 30% U.S. income tax imposed by withholding on the gross amount of certain “fixed or determinable annual or periodic
gains, profits and income” derived from sources within the United States (such as dividends and certain interest on investments), subject to exemption under the Code or reduction by applicable treaties. The Bermuda Treaty does not reduce the rate of tax in such circumstances.
Global Indemnity Group, Inc. is a Delaware corporation wholly owned by U.A.I. (Luxembourg) Investment S.à.r.l. Under U.S. federal income tax law, dividends and interest paid by a U.S. corporation to anon-U.S. shareholder are generally subject to a 30% withholding tax, unless reduced by treaty. The income tax treaty between Luxembourg and the United States (the “Luxembourg Treaty”) reduces the rate of withholding tax on interest payments to 0% and on dividends to 15%, or 5% (if the shareholder owns 10% or more of the company’s voting stock). There is a risk that interest paid by the Company’s U.S. subsidiary to a Luxembourg affiliate may be subject to a 30% withholding tax.
The Company’s U.S. subsidiaries are each subject to taxation in the United States at regular corporate rates. On December 22, 2017, the United States enacted the TCJA, which contains provisions that can materially affect the tax treatment of the Company’s U.S. subsidiaries. Although the TCJA reduced the U.S. corporate income tax rate to 21 percent, it also imposed a 10 percent base erosion minimum tax, or BEAT, on a U.S. corporation’s modified taxable income, which generally is the corporation’s taxable income calculated without regard to certain otherwise deductible payments made to certain foreign affiliates (including interest payments as well as gross premium or other consideration paid or accrued to a related foreign reinsurance company for reinsurance). In addition to BEAT, the TCJA limits the deductibility of interest expense and executive compensation by the Company’s U.S. subsidiaries. The Company is continuing to study the full extent of the impact of these and other provisions of the TCJA.
Available Information The Company maintains a website at www.globalindemnity.ky.www.global-indemnity.com. The information on the Company’s website is not incorporated herein by reference. The Company will make available, free of charge on its website, the most recent annual report on Form10-K and subsequently filed quarterly reports on Form10-Q, current reports on Form8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company files such material with, or furnishes it to, the United States Securities and Exchange Commission. 19
The public may also read and copy any materials the Company files with the U.S. Securities and Exchange Commission (“SEC”) at the SEC’sSEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at1-800-SEC-0330. The SEC maintains, free of charge, an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The risks and uncertainties described below are those the Company believes to be material. If any of the following actually occur, the Company’s business, prospects, financial condition, results of operations and cash flows could be materially and adversely affected. Risks Related to the Company’s Business If actual claims payments exceed the Company’s reserves for losses and loss adjustment expenses, the Company’s financial condition and results of operations could be adversely affected. The Company’s success depends upon its ability to accurately assess the risks associated with the insurance and reinsurance policies that it writes. The Company establishes reserves on an undiscounted basis to cover its estimated liability for the payment of all losses and loss adjustment expenses incurred with respect to premiums earned on the insurance policies that it writes. Reserves do not represent an exact calculation of liability. Rather, reserves are estimates of what the Company expects to be the ultimate cost of resolution and administration of claims under the insurance policies that it writes. These estimates are based upon actuarial and statistical projections, the Company’s assessment of currently available data, as well as estimates and assumptions as to future trends in claims severity and frequency, judicial theories of liability and other factors. The Company continually refines its reserve estimates in an ongoing process as experience develops and claims are reported and settled. The Company’s insurance subsidiaries obtain an annual statement of opinion from an independent actuarial firm on the reasonableness of these reserves. Establishing an appropriate level of reserves is an inherently uncertain process. The following factors may have a substantial impact on the Company’s future actual losses and loss adjustment experience: | • | claim and expense payments; |
| • | frequency and severity of claims; |
| • | legislative and judicial developments; and |
| • | changes in economic conditions, including the effect of inflation. |
For example, as industry practices and legal, judicial, social and other conditions change, unexpected and unintended exposures related to claims and coverage may emerge. Examples include claims relating to mold, asbestos and construction defects, as well as larger settlements and jury awards against professionals and corporate directors and officers. In addition, there is a growing trend of plaintiffs targeting property and casualty insurers in purported class action litigations relating to claims handling, insurance sales practices and other practices. These exposures may either extend coverage beyond the Company’s underwriting intent or increase the frequency or severity of claims. As a result, such developments could cause the Company’s level of reserves to be inadequate. Actual losses and loss adjustment expenses the Company incurs under insurance policies that it writes may be different from the amount of reserves it establishes, and to the extent that actual losses and loss adjustment expenses exceed the Company’s expectations and the reserves reflected on its financial statements, the Company will be required to immediately reflect those changes by increasing its reserves. In addition, regulators could require that the Company increase its reserves if they determine that the reserves were understated in the past. When the Company increases reserves,pre-tax income for the period in which it does so will decrease by a corresponding amount. In addition to having an effect on reserves andpre-tax income, increasing or “strengthening”"strengthening" reserves causes a reduction in the Company’s insurance companies’companies' surplus and could cause the rating of its insurance company subsidiaries to be downgraded or placed on credit watch. Such a downgrade could, in turn, adversely affect the Company’s ability to sell insurance policies. Catastrophic events can have a significant impact on
20
The occurrence of natural or man-made disasters, including the COVID-19 outbreak, could result in declines in business and increases in claims that could adversely affect the Company’s business, financial condition and operational condition.results of operations. Results
The Company is exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, fires, floods, landslides, tornadoes, typhoons, tsunamis, hailstorms, explosions, climate events or weather patterns and public health crises, illness, epidemics or pandemic health events, as well as man-made disasters, including acts of terrorism, military actions, cyber-terrorism, explosions and biological, chemical or radiological events. The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas. They could also result in reduced underwriting capacity making it more difficult for the Company’s agents to place business. Disasters also could disrupt public and private infrastructure, including communications and financial services, which could disrupt the Company’s ordinary business operations. A natural or man-made disaster also could disrupt the operations of property and casualty insurers are subject toman-made and natural catastrophes. The Company has experienced, and expects to experience in the future, catastrophe losses. It is possible that a catastrophic event or a series of multiple catastrophic events could have a material adverse effect on the Company’s operating resultscounterparties or result in increased prices for the products and financial condition. The Company’s operating resultsservices they provide to the Company. Finally, a natural or man-made disaster could be negatively impacted if it experiences losses from catastrophes that are in excessincrease the incidence or severity of E&O claims against the catastrophe reinsurance coverage ofCompany. For example, the Company may experience disruptions to its Insurance Operations. The Company’s Reinsurance Operations also have exposure to losses from catastrophesbusiness as a result of the reinsurance treaties that it writes. Operating resultsCOVID-19 pandemic and any associated protective or preventative measures as COVID-19 continues to spread in the United States and around the world, including but not limited to: | • | clients choosing to limit purchases of insurance due to declining business conditions, which would inhibit the Company’s ability to generate earned premium; |
| • | travel restrictions and quarantines leading to a lack of in-person meetings, which would hinder the Company’s ability to establish relationships or originate new business; |
| • | cancellation, delays, or non-payment of premium could negatively impact the Company’s liquidity; |
| • | risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions or other conditions included in policies that would otherwise preclude coverage. |
| • | alternative working arrangements, including colleagues working remotely, which could negatively impact the Company’s business should such arrangements remain for an extended period of time; and |
| • | significant volatility in financial markets affecting the market value and liquidity of the Company’s investment portfolio; |
The global outbreak of COVID-19 continues to rapidly evolve. The extent to which COVID-19 impacts the Company’s business will depend on future developments in the United States and other countries, which are highly uncertain and cannot be negatively impacted if losses and expenses related to property catastrophepredicted with confidence, including: | • | the ultimate geographic spread and severity of COVID-19; |
| • | the duration of the outbreak; |
| • | business closures, travel restrictions, social distancing and other actions taken to contain the threat of COVID-19; and |
| • | the effectiveness of actions taken in the United States and other countries to contain and treat the virus, including vaccine development, distribution and effectiveness. |
Given the dynamic nature of these events, exceed premiums assumed. Catastrophes include windstorms, hurricanes, typhoons, floods, earthquakes, tornadoes, tsunamis, hail, severe winter weather, fires and may include terrorist events such as the attacks of September 11, 2001. The Company cannot predict how severe a particular catastrophe may be until after it occurs. Thereasonable estimate the period of time that the COVID-19 pandemic and related market conditions will persist, the full extent of losses from catastrophes is a function of the total amount and type of losses incurred, the number of insureds affected, the frequency of the events and the severity of the particular catastrophe. Most catastrophes occur in small geographic areas. However, some catastrophes may produce significant damage in large, heavily populated areas.
The benefits of acquiring American Reliable may not be realized which couldimpact they will have a material adverse effect on the Company’s business, financial condition or results of operations or the pace or extent of any subsequent recovery.
21
These and other disruptions related to COVID-19 could materially and adversely affect the Company’s business, financial results.condition and results of operations. There may be difficulties
A decline in rating for any of the Company’s insurance or reinsurance subsidiaries could adversely affect its position in the continued integrationinsurance market; making it more difficult to market its insurance products and cause premiums and earnings to decrease. If the rating of American Reliable business, whichany of the Company’s insurance companies is reduced from its current level of “A” (Excellent) by AM Best, the Company’s competitive position in the insurance industry could suffer, and it could be more difficult to market its insurance products. A downgrade could result in a failuresignificant reduction in the number of insurance contracts the Company writes and in a substantial loss of business; as such business could move to realizeother competitors with higher ratings, thus causing premiums and earnings to decrease. These ratings are not an evaluation of, nor are they directed to, investors in Global Indemnity Group, LLC’s class A common shares and are not a recommendation to buy, sell or hold Global Indemnity Group, LLC’s class A common shares. Publications of AM Best indicate that companies are assigned "A" (Excellent) ratings if, in AM Best's opinion, they have an excellent ability to meet their ongoing obligations to policyholders. These ratings are subject to periodic review by, and may be revised downward or revoked at the potential benefitssole discretion of the acquisition. Achieving the anticipated benefits of the acquisition will depend in part upon whether the common aspects of the business can continue to be integrated in an efficient and effective manner with Global Indemnity’s existing businesses. Furthermore, the risk that the Company’s or American Reliable’s prospective insurance premiums, investment yield, or net earnings are less than anticipated (including as a result of unexpected events, competition, costs, charges or outlays whether as a consequence of the transaction or otherwise) could negatively impact the Company’s profitability and results of operations.AM Best.
A failure in the Company’s operational systems or infrastructure or those of third parties, including security breaches or cyber-attacks, could disrupt the Company’s business, its reputation, and / or cause losses which would have a material effect on the Company’s business operations and financial results. The Company’s business is dependent upon the secure processing, storage, and transmission of information over computer networks using applications, systems and other technologies. The business depends on effective information security and systems to perform accounting, policy administration, claims, underwriting, actuarial and all aspects of day to day operations necessary to service the Company’s customers and agents, to value the Company’s investments and to timely and accurately report the Company’s financial results. The information systems the Company relies upon must ensure confidentiality, integrity and availability of the data, including systems maintained by the Company as well as data in and assets held through third-party service providers and systems. The Company employs various measures, systems, applications and software to address the data security. The Company reviews its existing security measures and systems on a continuing basis through internal and independent evaluations. The Company has implemented administrative and technical controls and takes protective actions in an attempt to reduce the risk of cyber incidents. The Company’s internal and external controls, processes, and the vendors used to protect networks, systems and applications, individually or together, may be insufficient to prevent a security incident. Employee or third party vendor errors, malicious acts, unauthorized access, computer viruses, malware, the introduction of malicious code, system failures and disruptions and or cyber-attacks can result in business interruption, compromise of data and loss of assets and that could have security consequences. Complexity of the Company’s technology increases regularly and has increased the risk of a security incident involving data, network, systems and applications. The Company has, from time to time, experienced security incidents, none of which had a material adverse impact on the Company’s business, results of operations, or financial condition. Security incidents have the potential to interrupt business, cause delays in processes and procedures directly affecting the Company, and jeopardize the Company’s, insureds, claimants, agents and others confidential data resulting in data loss and loss of assets and reputational damages. If this occurs it could have a material adverse effect on the Company’s business operations and financial results. Security incidents could require significant resources, both internal and external, to resolve or remediate and could result in financial losses that may not be covered by insurance or not fully recoverable under any insurance. The Company may be subject to litigation and damages or regulatory action under data protection and privacy laws and regulations enacted by federal, state and foreign governments, or other regulatory bodies. As a result, the Company’s ability to conduct its business and its results of operations might be materially and adversely affected. 22
Investment and Debt Related Risks The Company’s failure to adequately protect personal information could have a material adverse effect on its business.
A wide variety of local, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data, including laws mandating the privacy and security of personal health and financial data. These data protection and privacy-related laws and regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions. The Company’s failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement action against it, including fines, imprisonment of company officials and public censure, claims for damages by customers and other affected individuals, damage to the Company’s reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have a material adverse effect on its operations, financial performance and business.
Evolving and changing definitions of personal data and personal information within the European Union, the United States, and elsewhere may limit or inhibit the Company’s ability to operate or expand its business, including limiting technology alliance partners that may involve the sharing of data. Additionally, there is a risk that failures in systems designed to protect private, personal or proprietary data held by the Company will allow such data to be disclosed to or acquired or seen by others, resulting in potential regulatory investigations, enforcement actions, or penalties, remediation obligations and/or private litigation by parties whose data were improperly disclosed. There is also a risk that the Company could be found to have failed to comply with U.S. or foreign laws or regulations regarding the collection, consent, handling, transfer, or disposal of such privacy, personal or proprietary data, which could subject it to fines or other sanctions, as well as adverse reputational impact. Even the perception of privacy concerns, whether or not valid, may harm the Company’s reputation, inhibit adoption of its products by current and future customers, or adversely impact its ability to attract and retain workforce talent.
A decline in rating for any of the Company’s insurance or reinsurance subsidiaries could adversely affect its position in the insurance market; making it more difficult to market its insurance products and cause premiums and earnings to decrease.
If the rating of any of the companies in its Insurance Operations or Reinsurance Operations is reduced from its current level of “A” (Excellent) by A.M. Best, the Company’s competitive position in the insurance industry could suffer, and it could be more difficult to market its insurance products. A downgrade could result in a significant reduction in the number of insurance contracts the Company writes and in a substantial loss of business; as such business could move to other competitors with higher ratings, thus causing premiums and earnings to decrease.
Ratings have become an increasingly important factor in establishing the competitive position for insurance companies. A.M. Best ratings currently range from “A++” (Superior) to “F” (In Liquidation), with a total of 16 separate ratings categories. A.M. Best currently assigns the companies in the Insurance Operations and Reinsurance Operations a financial strength rating of “A” (Excellent), the third highest of their 16 rating categories. The objective of A.M. Best’s rating system is to provide potential policyholders an opinion of an insurer’s financial strength and its ability to meet ongoing obligations, including paying claims. In evaluating a company’s financial and operating performance, A.M. Best reviews its profitability, leverage and liquidity, its spread of risk, the quality and appropriateness of its reinsurance, the quality and diversification of its assets, the adequacy of its policy and loss reserves, the adequacy of its surplus, its capital structure, and the experience and objectives of its management. These ratings are based on factors relevant to policyholders, general agencies, insurance brokers, reinsurers, and intermediaries and are not directed to the protection of investors. These ratings are not an evaluation of, nor are they directed to, investors in the Company’s A ordinary shares and are not a recommendation to buy, sell or hold the Company’s A ordinary shares. Publications of A.M. Best indicate that companies are assigned “A” (Excellent) ratings if, in A.M. Best’s opinion, they have an excellent ability to meet their ongoing obligations to policyholders. These ratings are subject to periodic review by, and may be revised downward or revoked at the sole discretion of A.M. Best.
The Company cannot guarantee that its reinsurers will pay in a timely fashion, if at all, and as a result, the Company could experience losses.
The Company cedes a portion of gross premiums written to third party reinsurers under reinsurance contracts. Although reinsurance makes the reinsurer liable to the Company to the extent the risk is transferred, it does not relieve the Company of its liability to its policyholders. Upon payment of claims, the Company will bill its reinsurers for their share of such claims. The reinsurers may not pay the reinsurance receivables that they owe to the Company or they may not pay such receivables on a timely basis. If the reinsurers fail to pay it or fail to pay on a timely basis, the Company’s financial results would be adversely affected. Lack of reinsurer liquidity, perceived improper underwriting, or claim handling by the Company, and other factors could cause a reinsurer not to pay. See “Business — Reinsurance of Underwriting Risk” in Item 1 of Part I of this report.
See Note 9 of the notes to consolidated financial statements in Item 8 of Part II of this report for further information surrounding the Company’s reinsurance receivable balances as of December 31, 2017 and 2016.
The Company’s investment performance may suffer as a result of adverse capital market developments or other factors, which would in turn adversely affect its financial condition and results of operations. The Company derives a significant portion of its income from its invested assets. As a result, the Company’s operating results depend in part on the performance of its investment portfolio. The Company’s operating results are subject to a variety of investment risks, including risks relating to general economic conditions, market volatility, interest rate fluctuations, liquidity risk and credit and default risk. The fair value of fixed income investments can fluctuate depending on changes in interest rates and the credit quality of underlying issuers. Generally, the fair market value of these investments has an inverse relationship with changes in interest rates, while net investment income earned by the Company from future investments in fixed maturities will generally increase or decrease with changes in interest rates. Additionally, with respect to certain of its investments, the Company is subject topre-payment or reinvestment risk. Credit tightening could negatively impact the Company’s future investment returns and limit the ability to invest in certain classes of investments. Credit tightening may cause opportunities that are marginally attractive to not be financed, which could cause a decrease in the number of bond issuances. If marginally attractive opportunities are financed, they may be at higher interest rates, which would cause credit risk of such opportunities to increase. If new debt supply is curtailed, it could cause interest rates on securities that are deemed to be credit-worthy to decline. Funds generated by operations, sales, and maturities will need to be invested. If the Company invests during a tight credit market, investment returns could be lower than the returns the Company is currently realizing and/or it may have to invest in higher risk securities. With respect to its longer-term liabilities, the Company strives to structure its investments in a manner that recognizes liquidity needs for its future liabilities. However, if the Company’s liquidity needs or general and specific liability profile unexpectedly changes, it may not be successful in continuing to structure its investment portfolio in that manner. To the extent that the Company is unsuccessful in correlating its investment portfolio with its expected liabilities, the Company may be forced to liquidate its investments at times and prices that are not optimal, which could have a material adverse effect on the performance of its investment portfolio. The Company refers to this risk as liquidity risk, which is when the fair value of an investment is not able to be realized due to low demand by outside parties in the marketplace. The Company is also subject to credit risk due tonon-payment of principal or interest. Several classes of securities that the Company holds have default risk. As interest rates rise for companies that are deemed to be less creditworthy, there is a greater risk that they will be unable to pay contractual interest or principal on their debt obligations. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond the Company’s control. Although the Company attempts to take measures to manage the risks of investing in a changing interest rate environment, the Company may not be able to mitigate interest rate sensitivity effectively. A significant increase in interest rates could have a material adverse effect on the market value of the Company’s fixed maturities securities. The Company also has an equity portfolio.portfolio as well as mutual funds that invest in fixed income securities. The performance of the Company’s equity portfolio isand mutual funds are dependent upon a number of factors, including many of the same factors that affect the performance of its fixed income investments, although those factors sometimes have the opposite effect on the performance of the equity portfolio. Individual equity securities have unsystemic risk. The Company could experience market declines on these investments. The Company also has systemic risk, which is the risk inherent in the general market due to broad macroeconomic factors that affect all companies in the market. If the market indexes were to decline, the Company anticipates that the value of its portfolio would be negatively affected. The Company has investments in limited liability companies and limited partnerships which are not liquid. The Company does not have the contractual option to redeem its limited partnership interests but receives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limited partnership interests without consent from the general partner. The Company’s returns could be negatively affected if the market value of the limited liability companies and limited partnerships declines. If the Company needs liquidity, it might be forced to liquidate other investments at a time when prices are not optimal. See Note 54 of the notes to consolidated financial statements in Item 8 of Part II of this report for further information surrounding the Company’s investments as of December 31, 20172020 and 2016.2019. Deterioration in the debt and equity markets could result in a margin call which could have a material adverse effect on the Company’s financial condition and/or results of operations.23
The collateral backing the Company’s margin borrowing facility currently consist of equity securities but could also include fixed income securities in the future. Declines in financial markets could negatively impact the value of the Company’s collateral. Adverse changes in market value could result in a margin call which would require the posting of additional collateral thereby reducing liquidity. Additionally, if such a margin call is not met, the Company could be required to liquidate securities and incur realized losses or it could potentially decrease the Company’s borrowing capacity.
Borrowings under the Company’s margin borrowing facility are based upon a variable rate of interest, which could result in higher expense in the event of increases in interest rates.
As of December 31, 2017, $72.2 million of the Company’s outstanding indebtedness bore interest at a rate that varies depending upon the Fed Funds Effective rate. If Fed Funds Effective rate rises, the interest rates on outstanding debt will increase resulting in increased interest payment obligations under the Company’s margin borrowing facility. This could have a negative effect on the Company’s cash flow and financial condition.
The Company’s outstanding indebtedness could adversely affect its financial flexibility and a failure to make periodicrequired payments related toon the Subordinated Notes could adversely affect the Company. In 2015, the Company sold $100 million aggregate principal amountAs of its 7.75% Subordinated Notes due in 2045. In 2017,December 31, 2020, the Company sold $130 million aggregate principal amount of its 7.875% Subordinated Notes due in 2047.2047 (“Subordinated Notes”) of which the Company and the Company’s indirect subsidiary, GBLI Holdings, LLC (“GBLI Holdings”), are co-obligors is outstanding. The level of debt outstanding could adversely affect the Company’s financial flexibility, including:
| • | increasing vulnerability to changing economic, regulatory and industry conditions; |
| • | limiting the ability to borrow additional funds; and |
| • | requiring the Company to dedicate a substantial portion of cash flow from operations to debt payments, thereby, reducing funds available for working capital, capital expenditures, acquisitions and other purposes. |
Furthermore, failure by the Company to make periodic payments related to its outstanding indebtedness could impact rating agenciesagencies’ and regulatorsregulators’ assessment of the Company’s capital position, adequacy and flexibility and therefore, the financial strengthaccordingly, ratings ofassigned by rating agencies and regulators’ assessment of the solvency of the Company and its subsidiaries. Risks Related to the Company’s Business Partners The Company cannot guarantee that its reinsurers will pay in a timely fashion, if at all, and as a result, the Company could experience losses. The Company cedes a portion of gross written premiums to third party reinsurers under reinsurance contracts. Although reinsurance makes the reinsurer liable to the Company to the extent the risk is dependenttransferred, it does not relieve the Company of its liability to its policyholders. Upon payment of claims, the Company will bill its reinsurers for their share of such claims. The reinsurers may not pay the reinsurance receivables that they owe to the Company or they may not pay such receivables on its senior executives anda timely basis. If the loss of any of these executivesreinsurers fail to pay it or fail to pay on a timely basis, the Company’s inability to attract and retain other key personnel couldfinancial results would be adversely affect its business. The Company’s success depends upon its ability to attract and retain qualified employees and uponaffected. Lack of reinsurer liquidity, perceived improper underwriting or claim handling by the ability of senior managementCompany, and other key employeesfactors could cause a reinsurer not to implementpay. See "Business – Reinsurance of Underwriting Risk" in Item 1 of Part I of this report.
See Note 9 of the notes to consolidated financial statements in Item 8 of Part II of this report for further information surrounding the Company’s business strategy. The Company believes there are a limited numberreinsurance receivable balances as of available, qualified executives in the business lines in which it competes. The success of the Company’s initiativesDecember 31, 2020 and future performance depend, in significant part, upon the continued service of the senior management team. The future loss of any of the services of members of the Company’s senior management team or the inability to attract and retain other talented personnel could impede the further implementation of the Company’s business strategy, which could have a material adverse effect on its business. In addition, the Company does not currently maintain key man life insurance policies with respect to any of its employees.2019. Employee error and misconduct may be difficult to detect and prevent and could adversely affect the Company’s business, results of operations, financial condition and reputation.
Losses may result from, among other things, fraud, errors, failure to document transactions properly, failure to obtain proper internal authorization, or failure to comply with regulatory requirements. It is not always possible to deter or prevent employee misconduct and the precautions the Company takes to prevent and detect this activity may not be effective in all cases. Resultant losses could adversely affect the Company’s business, results of operations, financial condition and reputation.
Since the Company depends on professional general agencies, brokers, other insurance companies and other reinsurance companies for a significant portion of its revenue, a loss of any one of themor more could adversely affect the Company. The Company markets and distributes its insurance products through a group of approximately 395580 professional general agencies (net of 50 professional general agencies which write business in more than one of the Company’s segments) that have specific quoting and binding authority and that in turn sell the Company’s insurance products to insureds through retail insurance brokers. The Company also markets and distributes its reinsurance products through third-party brokers, insurance companies and reinsurance companies. A loss of all or substantially all of the business produced by any one or more of these general agencies, brokers, insurance companies or reinsurance companies could have an adverse effect on the Company’s results of operations. If market conditions cause reinsurance to be more costly or unavailable, the Company may be required to bear increased risks or reduce the level of its underwriting commitments. As part of the Company’s overall strategy of risk and capacity management, it purchases reinsurance for a portion of the risk underwritten by its insurance subsidiaries. Market conditions beyond the Company’s control determine the availability and cost of the reinsurance it purchases, which may affect the level of its business and profitability. The Company’s third party reinsurance facilities are generally subject to annual renewal. The Company may be unable to maintain its current reinsurance facilities or obtain other reinsurance facilities in adequate amounts and at favorable rates. If the Company is unable to renew expiring facilities or obtain new reinsurance facilities, either the net exposure to risk would increase or, if the Company is unwilling to bear an increase in net risk exposures, it would have to reduce the amount of risk it underwrites. 24
The Company’s financial and business results may fluctuate as a result of many factors, including cyclical changes in the insurance industry. Historically, the results of companies in the property and casualty insurance industry have been subject to significant fluctuations and uncertainties. The industry’sindustry's profitability can be affected significantly by: | • | rising levels of actual costs that are not foreseen by companies at the time they price their products; |
volatile and unpredictable developments, including | • | volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes or terrorist attacks; |
changes in loss reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers’ | • | changes in loss reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers' liability develop; and |
| • | fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returns on invested assets and may affect the ultimate payout of losses. |
The demand for property and casualty insurance and reinsurance can also vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases. The property and casualty insurance industry historically is cyclical in nature. These fluctuations in demand and competition could produce underwriting results that would have a negative impact on the Company’s consolidated results of operations and financial condition. The Company faces significant competitive pressures in its business that could cause demand for its products to fall and adversely affect the Company’s profitability. The Company competes with a large number of other companies in its selected lines of business. The Company competes, and will continue to compete, with major U.S. andnon-U.S. insurers and other regional companies, as well as mutual companies, specialty insurance companies, reinsurance companies, underwriting agencies and diversified financial services companies. The Company’s competitors include, among others: American International Group, American Modern Insurance Group, Argo Group International Holdings, Ltd., Berkshire Hathaway, Everest Re Group, Ltd., Foremost Insurance Group, Great American Insurance Group, Hallmark Financial Services, Inc., HCC Insurance Holdings, Inc., IFG Companies, James River Group Holdings, Kinsale Capital Group, Inc., Markel Corporation, Nationwide Insurance, Navigators Insurance Group, RLI Corporation, Selective Insurance Group, Inc., The Hartford, The Travelers Companies, Inc., Validus Group, and W.R. Berkley Corporation. Some of the Company’s competitors have greater financial and marketing resources than the Company does. The Company’s profitability could be adversely affected if it loses business to competitors offering similar products at or below the Company’s prices. TheMany of the Company’s general agencies typically pay the insurance premiums on business they have bound to the Company on a monthly basis. This accumulation of balances due to the Company exposes it to credit risk.
Insurance premiums generally flow from the insured to their retail broker, then into a trust account controlled by the Company’s professional general agencies. TheSeveral of the Company’s professional general agencies are typically required to forward funds, net of commissions, to the Company following the end of each month. Consequently, the Company assumes a degree of credit risk on the aggregate amount of these balances that have been paid by the insured but have yet to reach the Company. Brokers, insurance companies and reinsurance companies typically pay premiums on reinsurance treaties written with the Company on a quarterly basis. This accumulation of balances due to the Company exposes it to credit risk. Assumed premiums on reinsurance treaties generally flow from the ceding companies to the Company on a quarterly basis. In some instances, the reinsurance treaties allow for funds to be withheld for longer periods as specified in the treaties. Consequently, the Company assumes a degree of credit risk on the aggregate amount of these balances that have been collected by the reinsured but have yet to reach the Company. 25
Because the Company provides its general agencies with specific quoting and binding authority, if any of them fail to comply withpre-established guidelines, the Company’s results of operations could be adversely affected. The Company markets and distributes its insurance products through professional general agencies that have limited quoting and binding authority and that in turn sell the Company’s insurance products to insureds through retail insurance brokers. These professional general agencies can bind certain risks without the Company’s initial approval. If any of these wholesale professional general agencies fail to comply with the Company’s underwriting guidelines and the terms of their appointment, the Company could be bound on a particular risk or number of risks that were not anticipated when it developed the insurance products or estimated losslosses and loss adjustment expenses. Such actions could adversely affect the Company’s results of operations. Risks Related to Regulation of the Company The Company’s business practices with respect to data could give rise to liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection. In June 2018, California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 2020. The CCPA, among other things, requires covered companies to provide new disclosures to California consumers and afford such consumers with the rights to opt-out of certain sales of personal information. The CCPA creates a private right of action for statutory damages for certain breaches of information. If the Company fails to protect the privacy of third-party data or implement practices and procedures deemed necessary by regulators or consumers or to comply with the CCPA or other applicable regimes, the Company may be subject to fines, penalties, litigation, and reputational harm and its business may be seriously harmed. In addition, various government and consumer agencies and public advocacy groups have called for new regulation and changes in industry practices. It is possible that new laws, regulations, standards, recommendations, best practices or requirements will be adopted that would affect the Company’s business. To the extent that the Company is subject to new laws or recommendations or chooses to adopt new standards, recommendations, or other requirements, the Company may have greater compliance burdens. If the Company is perceived as not operating in accordance with industry best practices or any such guidelines or codes with regard to privacy, the Company’s reputation may suffer, and the Company could lose relationships with customers or partners. Global Indemnity Group, LLC’s holding company structure and regulatory constraints limit its ability to receive dividends from subsidiaries in order to meet its cash requirements. Global Indemnity Group, LLC is a holding company and, as such, has no substantial operations of its own. The Company’sGlobal Indemnity Group, LLC’s assets primarily consist of cash and ownership of the shares of its direct and indirect subsidiaries. Dividends and other permitted distributions from insurance subsidiaries, which include payment for equity awards granted by Global Indemnity Group, LLC to employees of such subsidiaries, are expected to be Global Indemnity’sIndemnity Group, LLC 's sole source of funds to meet ongoing cash requirements, including debt service payments and other expenses. Due to its corporate structure, most of the dividends that Global Indemnity Group, LLC receives from its subsidiaries must pass through Global Indemnity Reinsurance.Penn-Patriot Insurance Company (“Penn-Patriot”). The inability of Global Indemnity ReinsurancePenn-Patriot to pay dividends in an amount sufficient to enable Global Indemnity Group, LLC to meet its cash requirements at the holding company level could have a material adverse effect on its operations. Bermuda law does not permit payment of dividends or distributions of contributed surplus by a company if there are reasonable grounds for believing that the company, after the payment is made, would be unable to pay its liabilities as they become due, or the realizable value of the company’s assets would be less, as a result of the payment, than the aggregate of its liabilities and its issued share capital and share premium accounts. Furthermore, pursuant to the Bermuda Insurance Act 1978, an insurance company is prohibited from declaring or paying a dividend during the financial year if it is in breach of its minimum solvency margin or minimum liquidity ratio or if the declaration or payment of such dividends would cause it to fail to meet such margin or ratio. See “Regulation — Bermuda Insurance Regulation” in Item 1 of Part I of this report.
In addition, the Company’s U.S.inability of Penn-Patriot’s insurance subsidiaries which are indirect subsidiaries of Global Indemnity Reinsurance, are subject to significant regulatory restrictions limiting theirpay dividends to GBLI Holdings, LLC could limit GBLI Holdings, LLC’s ability to declaremeet its debt obligations and pay dividends, which must first pass through Global Indemnity Reinsurance before being paid to Global Indemnity. corporate expense obligations and could have a material adverse effect on its operations. See “Regulation —"Regulation – U.S. Regulation” in Item 1 of Part I of this report.report and “Liquidity and Capital Resources” section in Item 7 of Part II of this report for more information on state dividend limitations. Also, see Note 1920 of the notes to consolidated financial statements in Item 8 of Part II of this report for the maximum amount of dividends that could be paid by the Company’s U.S. insurance subsidiaries in 2017.2021. 26
The Company’s businesses are heavily regulated and changes in regulation may limit the way it operates. The Company is subject to extensive supervision and regulation in the U.S. states in which the Insurance Operations operate. This is particularly true in those states in which the Company’s insurance subsidiaries are licensed, as opposed to those states where its insurance subsidiaries write business on a surplus lines basis. The supervision and regulation relate to numerous aspects of the Company’s business and financial condition. The primary purpose of the supervision and regulation is the protection of the Company’s insurance policyholders and not its investors. The extent of regulation varies, but generally is governed by state statutes. These statutes delegate regulatory, supervisory, and administrative authority to state insurance departments. This system of regulation covers, among other things: | • | standards of solvency, including risk-based capital measurements; |
| • | restrictions on the nature, quality and concentration of investments; |
| • | restrictions on the types of terms that the Company can include or exclude in the insurance policies it offers; |
| • | restrictions on the way rates are developed and the premiums the Company may charge; |
| • | standards for the manner in which general agencies may be appointed or terminated; |
| • | certain required methods of accounting; |
| • | reserves for unearned premiums, losses and other purposes; and |
| • | potential assessments for the provision of funds necessary for the settlement of covered claims under certain insurance policies provided by impaired, insolvent or failed insurance companies. |
restrictions on the nature, quality and concentration of investments;
restrictions on the types of terms that the Company can include or exclude in the insurance policies it offers;
restrictions on the way rates are developed and the premiums the Company may charge;
standards for the manner in which general agencies may be appointed or terminated;
credit for reinsurance;
certain required methods of accounting;
reserves for unearned premiums, losses and other purposes; and
potential assessments for the provision of funds necessary for the settlement of covered claims under certain insurance policies provided by impaired, insolvent or failed insurance companies.
The statutes or the state insurance department regulations may affect the cost or demand for the Company’s products and may impede the Company from obtaining rate increases or taking other actions it might wish to take to increase profitability. Further, the Company may be unable to maintain all required licenses and approvals and its business may not fully comply with the wide variety of applicable laws and regulations or the relevant authority’sauthority's interpretation of the laws and regulations. Also, regulatory authorities have discretion to grant, renew or revoke licenses and approvals subject to the applicable state statutes and appeal process. If the Company does not have the requisite licenses and approvals (including in some states the requisite secretary of state registration) or do not comply with applicable regulatory requirements, the insurance regulatory authorities could stop or temporarily suspend the Company from carrying on some or all of its activities or monetarily penalize the Company. The U.S. insurance regulatory framework has come under increased federal scrutiny and some state legislators have considered or enacted laws that may alter or increase state regulation of insurance and reinsurance companies and holding companies. Moreover, the NAIC, which is an association of the insurance commissioners of all 50 U.S. States and the District of Columbia, and state insurance regulators regularlyre-examine existing laws and regulations. Changes in these laws and regulations or the interpretation of these laws and regulations could have a material adverse effect on the Company’s business. Although the U.S. federal government has not historically regulated the insurance business, there have been proposals from time to time to impose federal regulation on the insurance industry. In 2010, the President signed into law the Dodd-Frank Act. Among other things, theThe Dodd-Frank Act establishes a Federal Insurance Office within the U.S. Department of the Treasury. The Federal Insurance Office initially has limited regulatory authority and is empowered to gather data and information regarding the insurance industry and insurers, including conducting a study for submission to the U.S. Congress on how to modernize and improve insurance regulation in the U.S. Further, the Dodd-Frank Act gives the Federal Reserve supervisory authority over a number of financial services companies, including insurance companies, if they are designated by atwo-thirds vote of a Financial Stability Oversight Council as “systemically"systemically important.”" While the Company does not believe that it is “systemically"systemically important,”" as defined in the Dodd-Frank Act, it is possible that the Financial Stability Oversight Council may conclude that it is. If the Company were designated as “systemically"systemically important,”" the Federal Reserve’sReserve's supervisory authority could include the ability to impose heightened financial regulation and could impact requirements regarding the Company’s capital, liquidity, leverage, business and investment conduct. As a result of the foregoing, the Dodd-Frank Act, or other additional federal regulation that is adopted in the future, could impose significant burdens on the Company, including impacting the ways in which it conducts business, increasing compliance costs and duplicating state regulation, and could result in a competitive disadvantage, particularly relative to smaller insurers who may not be subject to the same level of regulation. 27
Risks Related to Ownership of Global Indemnity Group, LLC’s Shares and Certain Limited Liability Company Agreement (“LLCA”) Provisions The interests of holders of class A ordinarycommon shares may conflict with the interests of the Company’sGlobal Indemnity Group, LLC’s controlling shareholder. Fox Paine Capital Fund II International L.P. and certain of its affiliates (the “Fox Paine Funds”), which are investment funds managed by Fox Paine & Company, LLC, (“together with Fox Mercury Investments, L.P. and certain of its affiliates (the “FM Entities”), and Fox Paine & Company”Company LLC (collectively, the “Fox Paine Entities”) beneficially ownsown shares havingrepresenting approximately 83%83.9% of the Company’sGlobal Indemnity Group, LLC’s total voting power. The percentage of the Company’sGlobal Indemnity Group, LLC’s total voting power that the Fox Paine & CompanyEntities may exercise is greater than the percentage of the Company’sGlobal Indemnity Group, LLC’s total shares that the Fox Paine & CompanyEntities beneficially ownsown because the Fox Paine & CompanyEntities beneficially ownsown all of the Company’sGlobal Indemnity Group, LLC’s class B ordinarycommon shares, which haveare entitled to ten votes per share as opposed to class A ordinarycommon shares, which haveare entitled to one vote per share. The class A ordinarycommon shares and the class B ordinarycommon shares generally vote together as a single class on matters presented to the Company’sGlobal Indemnity Group, LLC’s shareholders. Based on the ownership structure of the affiliates of Fox Paine & Company that own these shares, these affiliates are not subject to the voting restriction contained in the Company’s articles of association. As a result, the Fox Paine & Company hasEntities have and will continue to have control over the outcome of certain matters requiring shareholder approval, including the power to, among other things: elect all of the Company’s directors; | • | elect any of Global Indemnity Group, LLC’s directors not otherwise appointed by the Fox Paine Entities pursuant to the provisions of the LLCA (as defined below) (which entitles the Fox Paine Entities, in their collective capacity as the “Class B Majority Shareholder” (as defined in the LLCA), to certain Director appointment rights); |
amend the Company’s articles of association (as long as their voting power is greater than 66%); | • | approve changes to the LLCA that require shareholder approval; and |
ratify the appointment of the Company’s auditors;
increase the Company’s share capital; and
resolve to pay dividends or distributions; | • | ratify the appointment of Global Indemnity Group, LLC’s auditors. |
Subject to certain exceptions, the Fox Paine & CompanyEntities may also be able to prevent or cause a change of control.control of Global Indemnity Group, LLC. The Fox Paine & Company’sEntities’ control over Global Indemnity Group, LLC, and the Company, and Fox Paine & Company’sEntities’ ability in certain circumstances to prevent or cause a change of control of Global Indemnity Group, LLC, may delay or prevent a change of control, or cause a change of control to occur at a time when it is not favored by other shareholders. As a result, the trading price of the Company’sGlobal Indemnity Group, LLC’s class A ordinarycommon shares could be adversely affected. In addition, the CompanyGlobal Indemnity Group, LLC has agreed to pay Fox Paine & Company, LLC an annual management fee of $1.9$2.6 million, adjusted annually to reflect change in the consumer price index published by the US Department of Labor Bureau of Labor Statistics“CPI-U” “CPI-U”, in exchange for management services. The CompanyGlobal Indemnity Group, LLC has also agreed to pay a termination fee of cash in an amount to be agreed upon, plus reimbursement of expenses, upon the termination of Fox Paine & Company’sCompany, LLC’s management services in connection with the consummation of a change of control transaction that does not involve Fox Paine & Company, LLC and its affiliates. The CompanyGlobal Indemnity Group, LLC has also agreed to pay Fox Paine & Company, LLC a transaction advisory fee of cash in an amount to be agreed upon, plus reimbursement of expenses upon the consummation of a change of control transaction that does not involve Fox Paine & Company, LLC and its affiliates in exchange for advisory services to be provided by Fox Paine & Company, LLC in connection therewith. The Fox Paine & CompanyEntities may in the future make significant investments in other insurance or reinsurance companies. Some of these companies may compete with the CompanyGlobal Indemnity Group, LLC or its subsidiaries. The Fox Paine & Company isEntities are not obligated to advise the CompanyGlobal Indemnity Group, LLC of any investment or business opportunities of which they are aware, and they are not prohibited or restricted from competing with the CompanyGlobal Indemnity Group, LLC or its subsidiaries. The Company’sGlobal Indemnity Group, LLC’s controlling shareholder has the contractual right to nominateappoint a certain number of the members of the Board of Directors proportionate to such shareholder’s ownership in Global Indemnity Group, LLC and also otherwise controls the election of Directors due to its share ownership.
While the Fox Paine & Company hasEntities have the right under the terms of the memorandum and articles of associationLLCA to nominateappoint a certain number of directors of the Board of Directors, dependent onequal in aggregate to the pro rata percentage of the voting power in Global Indemnity Group, LLC beneficially held by the Fox Paine & Company’s percentage ownership of voting shares in the CompanyEntities for so long as the Fox Paine & Company hold anEntities beneficially own (i) a majority of the outstanding class B common shares and (ii) shares representing, in the aggregate, at least 25% or more of the voting power in the Company,Global Indemnity Group, LLC, it also controls the election of all directors to the Board of Directors due to its controlling share ownership. The Company’s Board of Directors currently consists of ninesix directors, all of whom were identified and proposed for consideration for the Board of Directors by the Fox Paine & Company. 28
The Company’s BoardGlobal Indemnity Group, LLC’s LLCA contains an exclusive forum provision that may discourage lawsuits against the Company orGlobal Indemnity Group, LLC’s directors and officers.
Global Indemnity Group, LLC’s LLCA requires that, unless Global Indemnity Group, LLC otherwise consents, the United States District Court for the District of Directors, in turn,Delaware shall be the sole and exclusive forum for any federal securities laws claims brought under the Securities Act or the Exchange Act, although, for the avoidance of doubt, all claims accompanying any such federal securities laws claim will be subject to its fiduciary dutiesthe mandatory arbitration provisions of Global Indemnity Group, LLC’s LLCA. Any person or entity purchasing or otherwise acquiring any interest in Global Indemnity Group, LLC’s capital stock is deemed to have received notice of and consented to these provisions. Global Indemnity Group, LLC believes that these provisions are enforceable under Cayman Island law, appointsboth state and federal law. Nevertheless, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the members ofSecurities Act or the Company’s senior management, who also have fiduciary dutiesrules and regulations thereunder. Investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Accordingly, there is uncertainty as to the Company. Aswhether a result, Fox Paine & Company effectively has thecourt would enforce this provision. These provisions may increase costs to bring a claim, discourage claims or limit a shareholder’s ability to control the appointment of the members of the Company’s senior management and to prevent any changesbring a claim in senior managementa judicial forum that other shareholdersit finds favorable for disputes with Global Indemnity Group, LLC or Global Indemnity Group, LLC’s directors, officers or other membersemployees, which may discourage such lawsuits against Global Indemnity Group, LLC or Global Indemnity Group, LLC’s directors, officers or other employees. If a court were to find Global Indemnity Group, LLC’s choice of the Board of Directorsforum provision to be inapplicable or unenforceable in an action, Global Indemnity Group, LLC may deem advisable.incur additional costs associated with resolving such action in other jurisdictions. Because the Company relies on certain services provided by Fox Paine & Company, LLC, the loss of such services could adversely affect its business. Fox Paine & Company, LLC provides certain management services to the Company. To the extent that Fox Paine & Company, LLC is unable or unwilling to provide similar services in the future, and the Company is unable to perform those services itself or is unable to secure replacement services, the Company’s business could be adversely affected. The U.S.Risks Related to Taxation
Legislative and global economic and financial industry downturns could harm the Company’s business, its liquidity and financial condition, and its stock price. In past years, global market and economic conditions were severely disrupted. New disruptions may potentially affect (among other aspects of the Company’s business) the demand for and claims made under the Company’s products, the ability of customers, counterparties and others to establish or maintain their relationships with the Company, its ability to access and efficiently use internal and external capital resources, the availability of reinsurance protection, the risks the Company assumes under reinsurance programs, and the Company’s investment performance. Continued volatility inregulatory action by the U.S. Congress could materially and adversely affect the Company.
The Company’s tax position could be adversely impacted by changes in tax laws or tax regulations or the interpretation or enforcement thereof. Legislative action may be taken by the U.S. Congress which, if ultimately enacted, could, among other securities markets maythings, adversely affect the Company’s effective tax rate and cash tax position. Holders of Global Indemnity Group, LLC’s common shares may be subject to U.S. federal income tax and state and local income taxes on their share of Global Indemnity Group, LLC’s taxable income, regardless of whether they receive any cash distributions from Global Indemnity Group, LLC. Under current law, so long as Global Indemnity Group, LLC is not required to register as an investment company under the Investment Company Act and 90% of Global Indemnity Group, LLC’s gross income for each taxable year constitutes “qualifying income” within the meaning of the Internal Revenue Code on a continuing basis, Global Indemnity Group, LLC currently expects that it will be treated, for U.S. federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Holders of Global Indemnity Group, LLC’s common shares may be subject to U.S. federal, state, and local taxation on their allocable share of Global Indemnity Group, LLC’s items of income, gain, loss, deduction and credit, for each of Global Indemnity Group, LLC’s taxable years ending with or within their taxable year, regardless of whether they receive any cash distributions from Global Indemnity Group, LLC. Such holders may not receive cash distributions equal to their allocable share of Global Indemnity Group, LLC’s net taxable income or even the tax liability that results from that income. Accordingly, such holders may be required to make tax payments in connection with their ownership of Global Indemnity Group, LLC’s common shares that significantly exceed their cash distributions in any specific year. Income earned by the subsidiaries of Global Indemnity Group, LLC is subject to corporate tax in the United States and certain foreign jurisdictions and, therefore, is not taxable to Global Indemnity Group, LLC’s shareholders until the income is distributed by the subsidiaries to Global Indemnity Group, LLC. There can be no assurance that amounts paid as distributions on Global Indemnity Group, LLC’s common shares will be sufficient to cover the tax liability arising from ownership of the common shares. Any distributions paid on Global Indemnity Group, LLC’s common shares will not take into account a holder’s particular tax situation and, therefore, because of the foregoing as well as other possible reasons, may not be sufficient to pay their full amount of tax based upon such holder’s share of Global Indemnity Group, LLC’s net taxable income. In addition, the actual 29
amount and timing of distributions will always be subject to the discretion of Global Indemnity Group, LLC’s board of directors. Even if Global Indemnity Group, LLC does not distribute cash in an amount that is sufficient to fund a holder’s tax liabilities, they will still be required to pay income taxes on their share of Global Indemnity Group, LLC’s taxable income. If Global Indemnity Group, LLC is treated as a corporation for U.S. federal income tax purposes, the value of the shares could be adversely affected. The value of an investment in Global Indemnity Group, LLC’s common shares may depend in part on Global Indemnity Group, LLC being treated as a partnership for U.S. federal income tax purposes. A publicly traded partnership will be treated as a partnership, and not as a corporation, for U.S. federal income tax purposes so long as 90% or more of its gross income for each taxable year constitutes “qualifying income” within the meaning of the Internal Revenue Code, and it is not required to register as an investment company under the Investment Company Act of 1940 and related rules. Qualifying income generally includes dividends, interest, capital gains from the sale or other disposition of stocks and securities and certain other forms of investment income. Although Global Indemnity Group, LLC currently intends to manage its affairs so that the partnership will meet the 90% test described above in each taxable year, no assurance can be given as to the types of income that will be earned in any given year. As a result, Global Indemnity Group, LLC may not meet these requirements or Global Indemnity Group, LLC may determine it is prudent to change Global Indemnity Group, LLC’s structure. In either case, Global Indemnity Group, LLC may be treated as a corporation for U.S. federal income tax purposes in the future. Global Indemnity Group, LLC have not requested, and does not plan to request, a ruling from the Internal Revenue Service (the “IRS”) on its treatment as a partnership for U.S. federal income tax purposes, or on any other matter affecting Global Indemnity Group, LLC. Global Indemnity Group, LLC’s interests in certain businesses are held through entities that are treated as corporations for U.S. federal income tax purposes; such corporations may be liable for significant taxes and may create other adverse tax consequences, which could potentially adversely affect the value of an investment in Global Indemnity Group, LLC. In light of the publicly traded partnership rules under U.S. federal income tax law and other requirements, Global Indemnity Group, LLC currently holds interests in certain businesses through entities that are treated as corporations for U.S. federal income tax purposes, including, in particular, each of Global Indemnity Group, LLC’s insurance company subsidiaries. Each such corporation could be liable for significant U.S. federal income taxes and applicable state, local and other taxes, which could adversely affect the value of an investment in Global Indemnity Group, LLC. Furthermore, it is possible that the IRS could challenge the manner in which such corporation’s taxable income is computed by Global Indemnity Group, LLC. Taxable gain or loss on a sale or other disposition of Global Indemnity Group, LLC’s common shares could be more or less than expected. If a sale or other disposition of Global Indemnity Group, LLC’s common shares by a holder of such shares is taxable in the United States, the holder will recognize gain or loss equal to the difference between the amount realized by such holder on the sale or other disposition and such holder’s adjusted tax basis in those shares. A holder’s adjusted tax basis in the shares at the time of sale or other disposition will generally be lower than the holder’s original tax basis in the shares to the extent that prior distributions to such holder exceed the total taxable income allocated to such holder. A holder of Global Indemnity Group, LLC’s common shares may therefore recognize a gain on a sale or other disposition of Global Indemnity Group, LLC’s common shares if the shares are sold or disposed of at a price that is less than their original cost. In addition, a portion of the amount realized, whether or not representing gain, may be treated as ordinary income to such holder to the extent attributable to the holder’s allocable share of unrealized gain or loss in Global Indemnity Group, LLC’s assets that consist of certain unrealized receivables or inventory (if any). Global Indemnity Group, LLC cannot match transferors and transferees ofGlobal Indemnity Group, LLC’s common shares, and therefore, Global Indemnity Group, LLC has adopted certain income tax accounting conventions that may not conform with all aspects of applicable tax requirements. The Internal Revenue Code provides that items of partnership income and deductions must be allocated between transferors and transferees of Global Indemnity Group, LLC’s common shares. Because Global Indemnity Group, LLC cannot match transferors and transferees of Global Indemnity Group, LLC’s common shares, Global Indemnity Group, LLC will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, loss, deduction and credit to holders in a manner that reflects such holders’ beneficial shares of Global Indemnity Group, LLC’s items. These conventions are designed to more closely align the receipt of cash and the allocation of income between holders of Global Indemnity Group, LLC’s common shares, but these assumptions and conventions may not be in compliance with all aspects 30
of applicable tax requirements. In addition, as a result of such allocation method, you may be allocated income even if you do not receive any distributions. If Global Indemnity Group, LLC’s conventions are not allowed by the Treasury Regulations (or only apply to transfers of less than all of a holder’s shares) or if the IRS otherwise does not accept Global Indemnity Group, LLC’s conventions, the IRS may contend that Global Indemnity Group, LLC’s income or losses must be reallocated among the holders of Global Indemnity Group, LLC’s common shares. If such a contention were sustained, certain holders’ respective tax liabilities would be adjusted to the possible detriment of certain other holders. Tax-exempt shareholders may face certain adverse U.S. tax consequences from owning Global Indemnity Group, LLC’s common shares. Global Indemnity Group, LLC is not required to manage its operations in a manner that would minimize the likelihood of generating income that would constitute “unrelated business taxable income” (“UBTI”) to the extent allocated to a tax-exempt shareholder. Although Global Indemnity Group, LLC’s insurance operations are conducted by subsidiaries that are treated as corporations for U.S. federal income tax purposes and the operations of such corporation would generally not result in an allocation of UBTI to a shareholder on account of the activities of those subsidiaries, Global Indemnity Group, LLC may make certain investments other than through a corporate subsidiary. Moreover, UBTI also includes income attributable to debt-financed property and Global Indemnity Group, LLC is not prohibited from incurring debt to finance its investments, including investments in subsidiaries. Furthermore, Global Indemnity Group, LLC is not prohibited from being (or causing a subsidiary to be) a guarantor of loans made to a subsidiary. If Global Indemnity Group, LLC (or certain of Global Indemnity Group, LLC’s subsidiaries) were treated as the borrower for U.S. tax purposes on account of such guarantees, some or all of Global Indemnity Group, LLC’s investments could be considered debt-financed property. The potential for income to be characterized as UBTI could make Global Indemnity Group, LLC’s common shares an unsuitable investment for a tax-exempt entity. Tax-exempt shareholders are urged to consult their own tax advisors regarding the tax consequences of an investment in Global Indemnity Group, LLC’s common shares. The IRS Schedules K-1 Global Indemnity Group, LLC provides to holders of Global Indemnity Group, LLC’s common shares each year are more complicated than the IRS Forms 1099 provided by corporations to their stockholders. In addition, Global Indemnity Group, LLC may not be able to furnish to each holder of Global Indemnity Group, LLC’s common shares specific tax information within 90 days after the close of each calendar year and such holders may be required to request an extension of time to file their tax returns. Holders of Global Indemnity Group, LLC’s common shares are required to take into account their allocable share of Global Indemnity Group, LLC’s items of income, gain, loss, deduction and other items of the partnership for Global Indemnity Group, LLC’s taxable year ending within or with their taxable year, regardless of whether they received cash distributions. As a publicly traded partnership, Global Indemnity Group, LLC’s operating results, including distributions of income, dividends, gains, losses or deductions and adjustments to carrying basis, for each year will be reported on IRS Schedules K-1. Income earned by the subsidiaries of Global Indemnity Group, LLC is subject to corporate tax in the United States and certain foreign jurisdictions and, therefore, is not taxable to Global Indemnity Group, LLC’s shareholders until the income is distributed by the subsidiaries to Global Indemnity Group, LLC.Global Indemnity Group, LLC intends to furnish holders of the common shares, as soon as reasonably practicable after the close of each calendar year, with tax information (including IRS Schedules K-1), which describes their allocable share of gross ordinary income for Global Indemnity Group, LLC’s preceding taxable year. However, it may require longer than 90 days after the end of Global Indemnity Group, LLC’s calendar year to obtain the requisite information from all lower-tier entities so that IRS Schedules K-1 may be prepared by Global Indemnity Group, LLC. Consequently, holders of Global Indemnity Group, LLC’s common shares who are U.S. taxpayers may need to file annually with the IRS (and certain states) a request for an extension past the April 15 or the otherwise applicable due date of their income tax return for the taxable year. In addition, holders of Global Indemnity Group, LLC’s common shares are required to report for all tax purposes consistently with the information provided by Global Indemnity Group, LLC for each taxable year. As a result, it is possible that a holder of Global Indemnity Group, LLC’s common shares will be required to file amended income tax returns as a result of adjustments to items on the corresponding income tax returns of the partnership. Any obligation for a holder of Global Indemnity Group, LLC’s common shares to file amended income tax returns for that or any other reason, including any costs incurred in the preparation or filing of such returns, are the responsibility of each such holder. Finally, because holders are required to report their allocable share of gross ordinary income, tax reporting for holders of Global Indemnity Group, LLC’s common shares is more complicated than for shareholders of a regular corporation. 31
Holders of Global Indemnity Group, LLC’s common shares may be subject to an additional U.S. federal income tax on net investment income allocated to such holder by Global Indemnity Group, LLC and on gain on the sale of Global Indemnity Group, LLC’s common shares. Individuals, estates and trusts are currently subject to an additional 3.8% tax on “net investment income” (or undistributed “net investment income,” in the case of estates and trusts) for each taxable year, with such tax applying to the lesser of such income or the excess of such person’s adjusted gross income (with certain adjustments) over a specified amount. Net investment income includes net income from interest, dividends, annuities, royalties and rents and net gain attributable to the disposition of investment property. It is anticipated that net income and gain attributable to an investment in Global Indemnity Group, LLC will be included in a holder of Global Indemnity Group, LLC’s common share’s “net investment income” subject to this additional tax. The ability of Global Indemnity Group, LLC’s corporate subsidiaries to use their net operating loss carryforwards to offset their future taxable income may be subject to limitations. The ability of Global Indemnity Group, LLC’s corporate subsidiaries to use their federal net operating losses and built-in losses (“NOLs”) to offset potential future taxable income and related income taxes may be limited. The Internal Revenue Code imposes an annual limitation on the amount of taxable income that may be offset by loss carryforwards of a “loss corporation” if the corporation experiences an “ownership change” (generally, a cumulative change in ownership that exceeds 50% of the value of a corporation’s stock price.over a rolling three-year period). Global Indemnity Group, LLC’s corporate subsidiaries may experience an ownership change as a result of issuances or other changes in ownership of Global Indemnity Group, LLC’s shares. In addition, certain anti-avoidance rules could result in the application of similar limitations on the ability of Global Indemnity Group, LLC’s corporate subsidiaries to use their NOLs. To the extent Global Indemnity Group, LLC’s corporate subsidiaries experience an ownership change or the above rules otherwise become applicable, the ability of Global Indemnity Group, LLC’s corporate subsidiaries to utilize their federal NOLs could be significantly limited, and similar limitations may apply at the state level. Risks Related to Employees If the Company does not successfully manage the transition associated with the retirement of its Chief Executive Officer and the appointment of a new Chief Executive Officer, it could adversely affect the Company. On January 19, 2021, the Company announced that Cynthia Y. Valko, chief executive officer and a member of Global Indemnity Group, LLC’s Board of Directors, informed the Board of Directors that she will retire effective as of January 31, 2021. In connection with her retirement, Ms. Valko resigned from her positions as chief executive officer of the Company and a member of the Board of Directors, in each case, effective as of January 15, 2021, although Ms. Valko will continue to serve the Company in an advisory capacity. The Board of Directors is conducting a search to identify the successor to Ms. Valko for the chief executive officer position of the Company. Such leadership transitions can be inherently difficult to manage, and an inadequate transition may cause disruption to the Company and may also make it more difficult to hire and retain key employees. The Company is dependent on its senior executives and the loss of any of these executives or the Company’s inability to attract and retain other key personnel could adversely affect its business. The Company’s success depends upon its ability to attract and retain qualified employees and upon the ability of senior management and other key employees to implement the Company’s business strategy. The Company believes there are a limited number of available, qualified executives in the business lines in which it competes. The success of the Company’s initiatives and future performance depend, in significant part, upon the continued service of the senior management team. The future loss of any of the services of members of the Company’s senior management team or the inability to attract and retain other talented personnel could impede the further implementation of the Company’s business strategy, which could have a material adverse effect on its business. In addition, the Company does not currently maintain key man life insurance policies with respect to any of its employees. 32
General Risk Factors If the Company is unable to maintain effective internal control over financial reporting, the Company’s business may be adversely affected, investors may lose confidence in the accuracy and completeness of the Company’s financial reports and the market price of the Company’sGlobal Indemnity Group, LLC’s common stock could be adversely affected. Global IndemnityThe Company is required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. The Sarbanes-Oxley Act requires that the Company evaluate and determine the effectiveness of its internal control over financial reporting,provide a management report on internal control over financial reporting and requires that the Company’s internal control over financial reporting be attested to by its independent registered public accounting firm. In 2014, the
The Company identified a material weakness in internal control over financial reporting, which was remediated in 2015. Global Indemnity may discover other material weaknesses in the future which may lead to its financial statements being materially misstated. As a result, , the market price of the Company’sGlobal Indemnity Group, LLC’s common stock could be adversely affected, and the CompanyGlobal Indemnity Group, LLC could become subject to investigations by the stock exchange on which its securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources. The cost of remediating a potential material weakness could materially adversely affect the Company’s business and financial condition.
The Company’s operating results and shareholders’ equity may be adversely affected by currency fluctuations. The Company’s functional currency is the U.S. dollar. The Reinsurance Operations conducts business with some customers in foreign currencies and several of the Company’s U.S. andnon-U.S. subsidiaries maintains investments andmaintain cash accounts in foreign currencies. Atperiod-end, the Companyre-measuresnon-U.S. re-measures non-U.S. currency financial assets to their current U.S. dollar equivalent. The resulting gain or loss for foreign denominated investments is reflected in accumulated other comprehensive income in shareholders’ equity; whereas, the gain or loss on foreign denominated cash accounts is reflected in income during the period. Financial liabilities, if any, are generally adjusted within the reserving process. However, for known losses on claims to be paid in foreign currencies, the Companyre-measures the liabilities to their current U.S. dollar equivalent each period end with the resulting gain or loss reflected in income during the period. Foreign exchange risk is reviewed as part of the Company’s risk management process. The Company may experience losses resulting from fluctuations in the values ofnon-U.S. currencies relative to the strength of the U.S. dollar, which could adversely impact the Company’s results of operations and financial condition. The Company is incorporated in the Cayman Islands and some of its assets are located outside the United States. As a result, it might not be possible for shareholders to enforce civil liability provisions of the federal or state securities laws of the United States.
The Company is organized under the laws of the Cayman Islands and some of its assets are located outside the United States. A judgment for the payment of money rendered by a court in the United States based on civil liability would not be automatically enforceable in the Cayman Islands. There is no treaty between the Cayman Islands, or the United Kingdom (of which the Cayman Islands is an Overseas Territory) and the United States providing for the reciprocal enforcement of foreign judgments. Similarly, judgments might not be enforceable in countries other than the United States where the Company has assets.
Cayman Islands law differs from the laws in effect in the United States and might afford less protection to shareholders.
The Company’s shareholders could have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. It may be difficult for a shareholder to effect service of process within the U.S. or to enforce judgments obtained against the Company in U.S. courts. The Company has irrevocably agreed that it may be served with process with respect to actions based on offers and sales of securities made in the U.S. by having Global Indemnity Group, Inc. be the Company’s U.S. agent appointed for that purpose. A Cayman court may impose civil liability on the Company or its directors or officers in a suit brought in the Cayman courts against the Company or such persons with respect to a violation of U.S. federal securities laws, provided that the facts surrounding such violation would constitute or give rise to a cause of action under Cayman law.
Risks Related to Taxation
Legislative and regulatory action by the U.S. Congress could materially and adversely affect the Company.
The Company’s tax position could be adversely impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof. Legislative action may be taken by the U.S. Congress which, if ultimately enacted, could, among other things, override tax treaties upon which the Company relies or could broaden the circumstances under which the Company would be considered a U.S. resident, any of which could materially and adversely affect the Company’s effective tax rate and cash tax position.
Recent changes in U.S. tax law may increase taxes of the Company’s U.S. Subsidiaries.
On December 22, 2017, the United States enacted a budget reconciliation act amending the Internal Revenue Code of 1986. The TCJA contains provisions that can materially affect the tax treatment of the Company’s U.S. subsidiaries. Among other things, the TCJA reduces the U.S. corporate income tax rate to 21 percent, imposes a 10 percent base erosion minimum tax (“BEAT”) on income of a U.S. corporation determined without regard to certain otherwise deductible payments made to certain foreign affiliates (including interest payments as well as gross premium or other consideration paid or accrued to a related foreign reinsurance company for reinsurance), and limits the deductibility of interest expense and executive compensation.
While the Company is continuing to study the impact of the TCJA, it is possible that the TCJA may reduce the benefits of lower effective tax rates enjoyed as anon-U.S. company, add expense and have an adverse effect on
the Company’s results of operations. Further, in absence of guidance on various uncertainties and ambiguities in the application of certain provisions of the TCJA, the Company will use what it believes are reasonable interpretations and assumptions in applying the TCJA, but it is possible that the Treasury or the IRS could issue subsequent regulations or guidance that differ from the Company’s prior interpretations and assumptions, which could materially affect the Company’s effective tax rate and cash tax position.
Interest paid by the Company’s U.S. subsidiaries to their foreign affiliates is subject to multipletax-related risks including risks that the interest may become subject to a minimum U.S. federal income tax under BEAT, subject to a 30% U.S. withholding tax, subject to foreign income tax, andnon-deductible in whole or in part for U.S. federal income tax purposes.
The TCJA has created new rules that limit the deductibility of interest for U.S. federal income tax purposes, which may cause some or all of the deduction for interest paid by the Company’s U.S. subsidiaries to be denied for U.S. federal income tax purposes. Second, to the extent interest paid is deductible by the Company’s U.S. Subsidiaries, such U.S. subsidiaries may become subject to a minimum U.S. federal income tax charge under BEAT. Third, should interest paid by the Company’s U.S. subsidiaries to their foreign affiliates become ineligible under an applicable income tax treaty between the United States and the recipient’s jurisdiction of tax residence, such interest could become subject to a 30% U.S. withholding tax. Finally, interest paid by the Company’s U.S. subsidiaries to their foreign affiliates may become subject to income tax in the recipient’s jurisdiction of tax residence, without regard to whether there is any corresponding tax deduction in the United States, potentially subjecting such interest payments to double taxation.
Global Indemnity or Global Indemnity Reinsurance may be subject to U.S. tax that may have a material adverse effect on Global Indemnity’s or Global Indemnity Reinsurance’s results of operations.
Global Indemnity is a Cayman company and Global Indemnity Reinsurance is a Bermuda company. The Company seeks to manage its business in a manner designed to reduce the risk that Global Indemnity and Global Indemnity Reinsurance will be treated as being engaged in a U.S. trade or business for U.S. federal income tax purposes. However, because there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the United States, the Company cannot be certain that the U.S. Internal Revenue Service will not contend successfully that Global Indemnity or Global Indemnity Reinsurance is or has been engaged in a trade or business in the United States. If Global Indemnity or Global Indemnity Reinsurance were considered to be engaged in a business in the United States, the Company could be subject to U.S. corporate income and branch profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case its results of operations could be materially adversely affected.
U.S. persons who hold shares in the Company may be subject to U.S. income taxation at ordinary income rates on the Company’s undistributed earnings and profits.
Controlled Foreign Corporation (“CFC”) Status: The Company’s organizational documents provide, subject to certain exceptions applicable to Fox Paine Company and its affiliates, that if the shares owned, directly, indirectly or by attribution, by any person would otherwise represent more than 9.5% of the aggregate voting power of all the Company’s shares, the voting rights attached to those shares will be reduced so that such person may not exercise and is not attributed more than 9.5% of the total voting power of the shares. These provisions were intended to reduce the likelihood that a shareholder of the Company would be a “10 % U.S. Shareholder” as defined below, and that the Company and itsnon-US subsidiaries are treated as CFCs in any taxable year.
Prior to the enactment of the TCJA a “10 % U.S. Shareholder” was any shareholder that is a U.S. person that owns directly, indirectly or by attribution, 10% or more of the total voting power of the Company. However, for
taxable years beginning after December 31, 2017, the TCJA expands the definition of a “10 % U.S. Shareholder” to include U.S. persons that own directly, indirectly or by attribution, 10% or more of either the total voting power of the Company or total value of the stock of the Company. By expanding the definition to also reference value, the TCJA will increase the likelihood that the Company and itsnon-U.S. subsidiaries will be treated as CFCs in 2018 and in any subsequent taxable years.
If the Company were considered a CFC, any 10 % U.S. Shareholder may be subject to current U.S. income taxation at ordinary income tax rates on all or a portion of the Company’s undistributed earnings and profits attributable to the Company’s insurance and reinsurance income, including underwriting and investment income. Any gain realized on a sale of common shares by such shareholder may also be taxed as a dividend to the extent of the Company’s earnings and profits attributed to such shares during the period that the shareholder held the shares and while the Company was a CFC (with certain adjustments).
Related Person Insurance Income: If the related person insurance income (“RPII”) of any of the Company’snon-U.S. insurance subsidiaries were to equal or exceed 20% of that subsidiary’s gross insurance income in any taxable year, and U.S. persons were treated as owning 25% or more of the subsidiary’s stock, by vote or value, a U.S. person who directly or indirectly owns any common shares on the last day of such taxable year on which the 25% threshold is met would be required to include in income for U.S. federal income tax purposes that person’s ratable share of that subsidiary’s RPII for the taxable year. The amount to be included in income is determined as if the RPII were distributed proportionately to U.S. shareholders on that date, regardless of whether that income is distributed. The amount of RPII to be included in income is limited by such shareholder’s share of the subsidiary’s current-year earnings and profits, and possibly reduced by the shareholder’s share of prior year deficits in earnings and profits. The amount of RPII earned by a subsidiary will depend on several factors, including the identity of persons directly or indirectly insured or reinsured by that subsidiary. Although the Company does not believe that the 20% threshold will be met for itsnon-U.S. insurance subsidiaries, some of the factors that might affect that determination in any period may be beyond the Company’s control. Consequently, the Company cannot assure that it will not exceed the RPII threshold in any taxable year.
If a U.S. person disposes of shares in anon-U.S. insurance corporation that had RPII (even if the 20% threshold was not met) and the 25% threshold is met at any time during the five-year period ending on the date of disposition, and the U.S. person owned any shares at such time, any gain from the disposition will generally be treated as a dividend to the extent of the holder’s share of the corporation’s undistributed earnings and profits that were accumulated during the period that the holder owned the shares (possibly whether or not those earnings and profits are attributable to RPII). In addition, the shareholder will be required to comply with specified reporting requirements, regardless of the amount of shares owned. The Company believes that those rules should not apply to a disposition of common shares because the Company is not itself directly engaged in the insurance business. The Company cannot assure, however, that the IRS will not successfully assert that those rules apply to a disposition of its shares.
U.S. persons who hold shares in the Company could be subject to adverse tax consequences if the Company is considered a passive foreign investment company for U.S. federal income tax purposes.
If the Company is considered a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, a U.S. holder who owns shares in the Company could be subject to adverse tax consequences, including a greater tax liability than might otherwise apply and an interest charge on certain taxes that are deferred as a result of the Company’snon-U.S. status. The Company does not believe that the it was a PFIC for U.S. federal income tax purposes for the taxable year ending on December 31, 2017 because the Company believes that it should be considered, through Global Indemnity Reinsurance Company, Ltd., to be engaged in the active conduct of a global insurance and reinsurance business. The Company cannot provide assurance that the Company will not be deemed to be a PFIC by the IRS.
Further, TCJA limited the exception applicable to corporations engaged in the active conduct of an insurance business by requiring that the applicable insurance liabilities of such corporation exceed 25 percent of its total
assets for the exception to apply. It is unclear regarding how liability reserves are measured and taken into account for purposes of determining the applicable insurance liabilities. In addition, there are no currently effective Treasury Regulations regarding the application of the PFIC provisions to an insurance company, although proposed regulations were published in April 2015, which do not take into account the recent changes to the PFIC provisions by the TCJA. Due to ambiguities in the application of the relevant provisions of the TCJA and the PFIC provisions in general, there can be no assurance with respect to the Company’s status as a PFIC for the current or any future taxable years of the Company.
The Organization for Economic Cooperation and Development (“OECD”) and the European Union (“EU”) are considering measures that might encourage countries to change their tax laws which could have a negative impact on the Company.
The OECD has published an action plan to address base erosion and profit shifting (“BEPS”) impacting its member countries and other jurisdictions. It is possible that jurisdictions in which the Company does business could react to the BEPS initiative or their own concerns by enacting tax legislation that could adversely affect the Company or its shareholders. In addition, the EU issued its Anti-Tax Avoidance Directive in 2016, which requires its member states to adopt specific tax reform measures by 2019. The implementation of these measures could have a negative impact on the Company.
A number of multilateral organizations, including the EU and the OECD have, in recent years, expressed concern about some countries not participating in adequate tax information exchange arrangements and have threatened those that do not agree to cooperate with punitive sanctions by member countries. It is as yet unclear what all of these sanctions might be, which countries might adopt them, and when or if they might be imposed. The Company cannot assure, however, that the Tax Information Exchange Agreements (TIEAs) that have been or will be entered into by the countries where the Company and its subsidiaries are located will be sufficient to preclude all of the sanctions described above, which, if ultimately adopted, could adversely affect the Company or its shareholders.
The Company may become subject to taxes in the Cayman Islands or Bermuda in the future, which may have a material adverse effect on its results of operations.
The Company and its subsidiaries which have been incorporated under the laws of the Cayman Islands as exempted companies and, as such, obtained an undertaking from the Governor in Council of the Cayman Islands substantially that, for a period of 20 years from the date of such undertaking, which is February 9, 2016, no law that is enacted in the Cayman Islands imposing any tax to be levied on profit or income or gains or appreciation shall apply to the Company and no such tax and no tax in the nature of estate duty or inheritance tax will be payable, either directly or by way of withholding, on the Company’s ordinary shares. This undertaking would not, however, prevent the imposition of taxes on any person ordinarily resident in the Cayman Islands or any company in respect of its ownership of real property or leasehold interests in the Cayman Islands. Given the limited duration of the undertaking, the Company cannot be certain that it will not be subject to Cayman Islands tax after the expiration of the20-year period.
Global Indemnity Reinsurance was formed in 2006 through the amalgamation of the Company’snon-U.S. operations. The Company received an assurance from the Bermuda Minister of Finance, under the Bermuda Exempted Undertakings Tax Protection Act of 1966, as amended, that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to Global Indemnity Reinsurance or any of its operations, shares, debentures or other obligations through March 31, 2035. Given the limited duration of the assurance, the Company cannot be certain that it will not be subject to any Bermuda tax after March 31, 2035.
Following the expiration of the periods described above, the Company may become subject to taxes in the Cayman Islands or Bermuda, which may have a material adverse effect on its results of operations.
Global Indemnity or Global Indemnity Reinsurance may be subject to U.S. tax that may have a material adverse effect on Global Indemnity’s or Global Indemnity Reinsurance’s results of operations.
Global Indemnity is a Cayman company and Global Indemnity Reinsurance is a Bermuda company. The Company seeks to manage its business in a manner designed to reduce the risk that Global Indemnity and Global Indemnity Reinsurance will be treated as being engaged in a U.S. trade or business for U.S. federal income tax purposes. However, because there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the United States, the Company cannot be certain that the U.S. Internal Revenue Service will not contend successfully that Global Indemnity or Global Indemnity Reinsurance is or has been engaged in a trade or business in the United States. If Global Indemnity or Global Indemnity Reinsurance were considered to be engaged in a business in the United States, the Company could be subject to U.S. corporate income and branch profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case its results of operations could be materially adversely affected.
The impact of the Letters of Commitment by the Cayman Islands and Bermuda or other concessions to the Organization for EconomicCo-operation and Development to eliminate harmful tax practices is uncertain and could adversely affect the tax status of the Company’s subsidiaries in the Cayman Islands or Bermuda.
The Organization for EconomicCo-operation and Development, which is commonly referred to as the OECD, has published reports and launched a global dialogue among member andnon-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. The Cayman Islands and Bermuda are not listed as uncooperative tax haven jurisdictions because each had previously committed itself to eliminate harmful tax practices and to embrace international tax standards for transparency, exchange of information and the elimination of any aspects of the regimes for financial and other services that attract business with no substantial domestic activity. The Company is not able to predict what changes will arise from the OECD in the future or whether such changes will subject it to additional taxes.
There is a risk that interest paid by the Company’s U.S. subsidiary to a Luxembourg affiliate may be subject to 30% U.S. withholding tax.
U.A.I. (Luxembourg) Investment, S.à.r.l., an indirectly owned Luxembourg subsidiary of Global Indemnity Reinsurance, owns certain loans and notes issued by Global Indemnity Group, Inc., a Delaware corporation. Under U.S. federal income tax law, interest paid by a U.S. corporation to anon-U.S. shareholder is generally subject to a 30% withholding tax, unless reduced by treaty. The income tax treaty between the United States and Luxembourg (the “Luxembourg Treaty”) generally eliminates the withholding tax on interest paid to qualified residents of Luxembourg. Were the IRS to contend successfully that U.A.I. (Luxembourg) Investment, S.à.r.l. is not eligible for benefits under the Luxembourg Treaty, interest paid to U.A.I. (Luxembourg) Investment, S.à.r.l. by Global Indemnity Group, Inc. would be subject to the 30% withholding tax. Such tax may be applied retroactively to all previous years for which the statute of limitations has not expired, with interest and penalties. Such a result may have a material adverse effect on the Company’s financial condition and results of operation.
There is a risk that interest income imputed to the Company’s Irish affiliates may be subject to 25% Irish income tax.
U.A.I. (Ireland) Limited, U.A.I. (Ireland) II Unlimited Company, GBLI (Ireland) Limited, and Global Indemnity Group Limited are companies incorporated under the laws of Ireland. The companies are resident taxpayers fully subject to Irish corporate income tax of 12.5% on any trading income and 25.0% on anynon-trading income, including interest and dividends from foreign companies. The Company believes it has, to date, managed its operations in such way that there will not be any material taxable income generated in Ireland under Irish law for these entities. However, there can be no assurance from the Irish authorities that a law may not be enacted that would impute income to U.A.I. (Ireland) Limited and U.A.I. (Ireland) II Unlimited Company in the future or retroactively arising out of the Companies’ current operations.
None. At December 31, 2017,2020, office space leased in Bala Cynwyd, Pennsylvania, holds the Commercial Lines’Specialty segment’s principal executive offices and headquarters. Additional office space leased in California, Georgia, Illinois, and Texas, serve as field offices for Commercial Lines. Some of the office space in California also serves as office space for Commercial Lines’ claims operations. Office space in Hamilton, Bermuda used by Reinsurance Operations is shared with one of Global Indemnity Reinsurance’s service providers per an agreement between the two. Office space leased in Arizona andis used by the Company’s Specialty Property segment. Office space leased in Nebraska is used by Personal Lines.the Company’s Farm, Ranch & Stable segment. Office space leased in Cavan, Ireland is used to support the operating needs of the Insurance and Reinsurance Operations. The leases for the properties listed are held by various Company subsidiaries. The Company believes the properties listed are suitable and adequate to meet its needs. Additionally, a number of the Company’s personnel work remotely and almost all of the Company’s personnel have the ability to work remotely. The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company purchased insurance and reinsurance coverage for risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on its business, results of operations, cash flows, or financial condition. There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’ have operations that are in runoff, and therefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business. 33
Item 4. | MINE SAFETY DISCLOSURES |
None. 34
PART II Item 5. | MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market forGlobal Indemnity Group, LLC’s Class A Common Shares On August 28, 2020, Global Indemnity Group, LLC completed a scheme of arrangement and amalgamation that effected certain transactions that resulted in the Company’sshareholders of Global Indemnity Limited becoming the holders of all of the issued and outstanding common shares of Global Indemnity Group, LLC. Global Indemnity Group, LLC’s class A Ordinary Shares The Company’s A ordinarycommon shares par value $0.0001 per share, began tradingare publicly traded on the NASDAQ Global Select Market formerly the NASDAQ National Market, under the ticker symbol “UNGL” on December 16, 2003. On March 14, 2005 the Company changed its symbol to “INDM.” On July 6, 2010, the Company changed its symbol to “GBLI” as part of a redomestication transaction whereby all shares of “INDM” were replaced with shares of “GBLI” on aone-for-two basis. On November 7, 2016, in connection with a redomestication from Ireland to Cayman Islands, all ofGBLI. Global Indemnity plc’s ordinary shares were cancelled and replaced with one ordinary share of Global Indemnity Limited on a one for one basis. The ordinary shares of Global Indemnity Limited continue to trade under the symbol “GBLI”. The following table sets forth, for the periods indicated, the high and low intraday sales prices of the Company’s A ordinary shares as reported by the NASDAQ Global Select Market.Group, LLC’s predecessors have been publicly traded since 2003.
| | | | | | | | | | | | High | | | Low | | Fiscal Year Ended December 31, 2017: | | | | | | | | | First Quarter | | $ | 40.96 | | | $ | 34.00 | | Second Quarter | | | 41.55 | | | | 36.04 | | Third Quarter | | | 42.96 | | | | 37.27 | | Fourth Quarter | | | 49.91 | | | | 40.11 | | Fiscal Year Ended December 31, 2016: | | | | | | | | | First Quarter | | $ | 32.07 | | | $ | 27.39 | | Second Quarter | | | 32.09 | | | | 20.96 | | Third Quarter | | | 31.77 | | | | 26.55 | | Fourth Quarter | | | 38.97 | | | | 29.00 | |
There is no established public trading market for the Company’sGlobal Indemnity Group, LLC’s class B ordinary shares, par value $0.0001 per share.common shares. As of February 27, 2018, thereDecember 31, 2020, Global Indemnity Group, LLC’s class A common shares were 4held by approximately 180 shareholders of record. There were four holders of record of the Company’sGlobal Indemnity Group, LLC’s class B ordinarycommon shares, all of whom are affiliatesaffiliated investment funds of Fox Paine & Company, LLC. The number of holders of record, including individual owners of the Company’s A ordinary shares, was 622LLC, as of February 27, 2018. The Company believes that the actual number of beneficial owners of the Company’s A ordinary shares is much higher than the number of record holders as shares are held in “street name” by brokers and others on behalf of individual owners.December 31, 2020. See Note 1617 to the consolidated financial statements in Item 8 of Part II of this report for information regarding securities authorized under the Company’sGlobal Indemnity Group, LLC’s equity compensation plans. Performance of the Company’sGlobal Indemnity Group, LLC’s Class A OrdinaryCommon Shares The following graph represents a five-year comparison of the cumulative total return to shareholders for the Company’s class A ordinarycommon shares and stock of companies included in the NASDAQ Insurance Index and NASDAQ Composite Index, which the Company believes are the most comparative indexes.  
| | | | | | | | | | | | | | 12/31/15 | | | 12/31/16 | | | 12/31/17 | | | 12/31/18 | | | 12/31/19 | | | 12/31/20 | | | | | 12/31/12 | | | 12/31/13 | | | 12/31/14 | | | 12/31/15 | | | 12/31/16 | | | 12/31/17 | | | Global Indemnity Limited | | $ | 100.0 | | | $ | 114.3 | | | $ | 128.2 | | | $ | 131.1 | | | $ | 172.7 | | | $ | 189.9 | | | GBLI | | | $ | 100.0 | | | $ | 131.7 | | | $ | 144.8 | | | $ | 124.8 | | | $ | 102.1 | | | $ | 98.5 | | NASDAQ Insurance Index | | | 100.0 | | | | 128.8 | | | | 139.8 | | | | 148.8 | | | | 172.1 | | | | 177.6 | | | | 100.0 | | | | 115.6 | | | | 119.3 | | | | 109.2 | | | | 138.3 | | | | 139.6 | | NASDAQ Composite Index | | | 100.0 | | | | 138.3 | | | | 156.8 | | | | 165.8 | | | | 178.3 | | | | 228.6 | | | | 100.0 | | | | 107.5 | | | | 137.9 | | | | 132.5 | | | | 179.2 | | | | 257.4 | |
Recent Sales of Unregistered Securities None.
CompanyExcept as disclosed in the Company’s current report on Form 8-K filed with the SEC on August 28, 2020, there were no sales of unregistered equity securities during the year ended December 31, 2020.
Global Indemnity Group, LLC’s Purchases of OrdinaryClass A Common Shares The Company’sGlobal Indemnity Group, LLC’s Share Incentive Plan allows employees to surrender class A ordinarycommon shares as payment for the tax liability incurred upon the vesting of restricted stock and restricted stock units that waswere issued under the Share Incentive Plan. During 2017, the Company2020, Global Indemnity Group, LLC purchased an aggregate 29,5515,120 of surrendered class A ordinarycommon shares from employees for $1.2$0.2 million. All shares purchased from employees are held as treasury stock and recorded at cost
35
until formally retired. On December 29, 2017, Global Indemnity acquired 3,397,031 All treasury stock existing as of its A ordinary shares for approximately $83.0 million inAugust 28, 2020 was retired as part of the aggregate (approximately $24.44 per share) from former investors in vehicles managed by Fox Paine & Company, LLC.redomestication transactions.
See Note 1314 to the consolidated financial statements in Item 8 of Part II of this report for additional information on the retirement of the Company’sGlobal Indemnity Group, LLC’s class A ordinarycommon shares as well as a tabular disclosure of the Company’sGlobal Indemnity Group, LLC’s share repurchases by month. Dividend / Distribution Policy On December 27, 2017, the Company announced the adoption ofadopted a dividend / distribution program with an anticipated initial dividenddistribution rate of $0.25 per share per quarter ($1.00 per share per year). PaymentContinued payment of dividendsdistributions is subject to future determinations by the Board of Directors based on the Company’s results, financial conditions, amounts required to grow the Company’s business, and other factors deemed relevant by the Board. The Company did not declare or pay cash
See Note 14 of the consolidated financial statements in Item 8 of Part II of this report for dividends on any class of its ordinary shares in 2017 or 2016./ distributions declared until the years ended December 31, 2020, 2019, and 2018. The CompanyGlobal Indemnity Group, LLC is a holding company and has no direct operations. The ability of Global Indemnity Limited to pay dividendsdistributions is subject to Cayman Islands regulationsGlobal Indemnity Group, LLC’s Second Amended and Restated Limited Liability Company Agreement (the “LLCA”), and depends, in part, on the ability of its subsidiaries to pay
dividends. Global Indemnity Reinsurance and the U.S.The Company’s insurance subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends. See “Management’s Discussion and Analysis of Financial Condition —– Liquidity and Capital Resources —– Sources and Uses of Funds” in Item 7 of Part II of this report for dividend limitation and Note 1920 of the notes to the consolidated financial statement in Item 8 of Part II of this report for the dividends declared and paid by the U.S.Company’s insurance subsidiaries and Global Indemnity Reinsurance in 2017 and the maximum amount of distributions that they could pay as dividends in 2018. Under the Companies Act, Global Indemnity Reinsurance may only declare or pay a dividend if it has no reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would not be less than the aggregate of its liabilities and its issued share capital and share premium accounts.
For 2018, the Company believes that Global Indemnity Reinsurance should have sufficient liquidity and solvency to pay dividends. In the future, the Company anticipates using dividends from Global Indemnity Reinsurance to fund obligations of Global Indemnity. Global Indemnity Reinsurance is prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital or 25% or more of its total statutory capital and surplus as set out in its previous year’s statutory financial statements, and any application for such approval must include such information as the BMA may require. Based upon the total statutory capital plus the statutory surplus as set out in its 2017 statutory financial statements that will be filed in 2018, Global Indemnity Reinsurance could pay a dividend of up to $227.1 million in 2018 without requesting BMA approval. Global Indemnity Reinsurance is dependent on receiving distributions from its subsidiaries in order to pay the full dividend in cash. In 2017, Global Indemnity Reinsurance declared a dividend of $120.0 million to its parent, Global Indemnity. Of this amount, $100.0 million was paid to Global Indemnity in December, 2017. As of December 31, 2017, accrued dividends were $20.0 million.
Barbados resident companies are subject to a 15% withholding tax on dividends to a nonresident company or individual, with a 25% rate for dividends paid out oftax-exempt profits. Dividends paid by Barbados resident companies classified as International Business Companies (“IBCs”) to nonresidents are exempt from withholding tax. GBLI (Barbados) Limited is an IBC.
In 2017, profit distributions (not in respect to liquidations) by the Luxembourg Companies were generally subject to Luxembourg dividend withholding tax at a rate of 15%, unless a domestic law exemption or a lower tax treaty rate applies. Dividends paid by any of the Luxembourg Companies to their Luxembourg resident parent company are exempt from Luxembourg dividend withholding tax, provided that at the time of the dividend distribution, the resident parent company has held (or commits itself to continue to hold) 10% or more of the nominal paid up capital of the distributing entity or, in the event of a lower percentage participation, a participation having an acquisition price of EUR 1.2 million or more for a period of at least twelve months.
2020. For a discussion of factors affecting the Company’s ability to pay dividends,make distributions, see “Business —– Regulation” in Item 1 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —– Liquidity and Capital Resources —– Sources and Uses of Funds” in Item 7 of Part II, and Note 1920 of the notes to the consolidated financial statements in Item 8 of Part II of this report. 36
Item 6. | SELECTED FINANCIAL DATA |
The following table sets forth selected consolidated historical financial data for the Company and should be read together with the consolidated financial statements and accompanying notes and “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" included elsewhere in this report. Cash dividends / distributions totaling $1.00 per share were declared and paid on common stock in 2020, 2019 and 2018. No cash dividends were declared or paid on common stock in any year presented induring the table.years ended December 31, 2017 and 2016. | | | | | | | | | | | | For the Years Ended December 31, | | (Dollars in thousands, except shares and per
share data) | | For the Years Ended December 31, | | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | | 2017 | | 2016 | | | 2015 | | 2014 | | | 2013 | | | Consolidated Statements of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 516,334 | | | $ | 565,845 | | | $ | 590,233 | | | $ | 291,253 | | | $ | 290,723 | | | Net premiums written | | | 450,180 | | | 470,940 | | | | 501,244 | | | 273,181 | | | | 271,984 | | | Net premiums earned | | | 438,034 | | | 468,465 | | | | 504,143 | | | 268,519 | | | | 248,722 | | | Gross written premiums | | | $ | 606,603 | | | $ | 636,861 | | | $ | 547,897 | | | $ | 516,334 | | | $ | 565,845 | | Net written premiums | | | | 548,167 | | | | 562,089 | | | | 472,547 | | | | 450,180 | | | | 470,940 | | Net earned premiums | | | | 567,699 | | | | 525,262 | | | | 467,775 | | | | 438,034 | | | | 468,465 | | Net realized investment gains (losses) | | | 1,576 | | | 21,721 | | | | (3,374 | ) | | 35,860 | | | | 27,412 | | | | (14,662 | ) | | | 35,342 | | | | (16,907 | ) | | | 1,576 | | | | 21,721 | | Total revenues | | | 485,515 | | | 534,514 | | | | 538,778 | | | 333,755 | | | | 319,134 | | | | 583,547 | | | | 604,472 | | | | 498,938 | | | | 485,515 | | | | 534,514 | | Net income (loss) | | | (9,551 | ) | | 49,868 | | | | 41,469 | | | 62,856 | | | | 61,690 | | | | (21,006 | ) | | | 70,015 | | | | (56,696 | ) | | | (9,551 | ) | | | 49,868 | | Per share data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) available to common shareholders (1) | | $ | (9,551 | ) | | $ | 49,868 | | | $ | 41,469 | | | $ | 62,856 | | | $ | 61,690 | | | $ | (21,158 | ) | | $ | 70,015 | | | $ | (56,696 | ) | | $ | (9,551 | ) | | $ | 49,868 | | Basic | | | (0.55 | ) | | 2.89 | | | | 1.71 | | | 2.50 | | | | 2.46 | | | $ | (1.48 | ) | | $ | 4.93 | | | $ | (4.02 | ) | | $ | (0.55 | ) | | $ | 2.89 | | Diluted | | | (0.55 | ) | | 2.84 | | | | 1.69 | | | 2.48 | | | | 2.45 | | | $ | (1.48 | ) | | $ | 4.88 | | | $ | (4.02 | ) | | $ | (0.55 | ) | | $ | 2.84 | | Weighted-average number of shares outstanding | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | 17,308,663 | | | 17,246,717 | | | | 24,253,657 | | | 25,131,811 | | | | 25,072,712 | | | | 14,291,265 | | | | 14,191,756 | | | | 14,088,883 | | | | 17,308,663 | | | | 17,246,717 | | Diluted | | | 17,308,663 | | | 17,547,061 | | | | 24,505,851 | | | 25,331,420 | | | | 25,174,015 | | | | 14,291,265 | | | | 14,334,706 | | | | 14,088,883 | | | | 17,308,663 | | | | 17,547,061 | | Cash dividends / distributions declared per common share | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | — | | | $ | — | |
(1) | For the yearyears ended December 31, 2020, 2018 and 2017, “diluted” lossweighted average shares outstanding – basic was used to calculate diluted earnings per share is the same as “basic” loss per share since there wasdue to a net loss for the period. |
| Consolidated Insurance Operating Ratios based on
the Company’s GAAP Results: (1) | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | | Loss ratio (2) (3) | | | 61.5 | | | | 56.4 | | | | 54.6 | | | | 51.2 | | | | 53.5 | | | | 59.2 | | | | 52.5 | | | | 71.5 | | | | 61.5 | | | | 56.4 | | Expense ratio | | | 41.9 | | | | 42.0 | | | | 39.9 | | | | 40.8 | | | | 42.5 | | | | 38.0 | | | | 39.7 | | | | 40.8 | | | | 41.9 | | | | 42.0 | | | | | | | | | | | | | | | | | | | Combined ratio (2) (3) | | | 103.4 | | | | 98.4 | | | | 94.5 | | | | 92.0 | | | | 96.0 | | | | 97.2 | | | | 92.2 | | | | 112.3 | | | | 103.4 | | | | 98.4 | | | | | | | | | | | | | | | | | | | Net/ gross premiums written | | | 87.2 | | | | 83.2 | | | | 84.9 | | | | 93.8 | | | | 93.6 | | | | | | | | | | | | | | | | | | | | Net/gross written premiums | | | | 90.4 | | | | 88.3 | | | | 86.2 | | | | 87.2 | | | | 83.2 | | Financial Position as of Last Day of Period: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total investments and cash and cash equivalents | | $ | 1,533,900 | | | $ | 1,501,819 | | | $ | 1,516,093 | | | $ | 1,498,009 | | | $ | 1,567,415 | | | $ | 1,454,553 | | | $ | 1,607,813 | | | $ | 1,510,152 | | | $ | 1,533,900 | | | $ | 1,501,819 | | Reinsurance receivables, net of allowance | | | 105,060 | | | | 143,774 | | | | 115,594 | | | | 125,718 | | | | 197,887 | | | | 88,708 | | | | 83,938 | | | | 114,418 | | | | 105,060 | | | | 143,774 | | Total assets | | | 2,001,669 | | | | 1,972,946 | | | | 1,957,294 | | | | 1,930,033 | | | | 1,911,779 | | | | 1,904,908 | | | | 2,075,885 | | | | 1,960,266 | | | | 2,001,669 | | | | 1,972,946 | | 7.75% Subordinated notes payable | | | 96,619 | | | | 96,497 | | | | 96,388 | | | | — | | | | — | | | | — | | | | 96,864 | | | | 96,742 | | | | 96,619 | | | | 96,497 | | 7.875% Subordinated notes payable | | | 125,864 | | | | — | | | | — | | | | — | | | | — | | | | 126,288 | | | | 126,147 | | | | 126,005 | | | | 125,864 | | | | — | | Margin borrowing facility | | | 72,230 | | | | 66,646 | | | | 75,646 | | | | 174,673 | | | | 100,000 | | | | — | | | | 73,629 | | | | 65,818 | | | | 72,230 | | | | 66,646 | | Unpaid losses and loss adjustment expenses | | | 634,664 | | | | 651,042 | | | | 680,047 | | | | 675,472 | | | | 779,466 | | | | 662,811 | | | | 630,181 | | | | 680,031 | | | | 634,664 | | | | 651,042 | | Total shareholders’ equity | | | 718,394 | | | | 797,951 | | | | 749,926 | | | | 908,290 | | | | 873,280 | | | | 718,324 | | | | 726,809 | | | | 629,059 | | | | 718,394 | | | | 797,951 | | Book value per share | | | 50.57 | | | | 45.42 | | | | 42.98 | | | | 35.86 | | | | 34.65 | | | | 49.62 | | | | 50.82 | | | | 44.21 | | | | 50.57 | | | | 45.42 | |
(1) | The Company’s insurance operating ratios are GAAP financial measures that are generally viewed in the insurance industry as indicators of underwriting profitability. The loss ratio is the ratio of net losses and loss adjustment expenses to net premiums earned.earned premiums. The expense ratio is the ratio of acquisition costs and other underwriting expenses to net premiums earned.earned premiums. The combined ratio is the sum of the loss and expense ratios. The ratios presented here represent the consolidated results of the Company’s Commercial Lines, Personal Lines, Specialty segment, Specialty Property segment, Farm, Ranch & Stable segment,and Reinsurance Operations. |
(2) | A summary of prior accident year adjustments is summarized as follows: |
2017 loss and combined ratios reflect a $53.9 million reduction of net losses and loss adjustment expenses
| • | 2020 loss and combined ratios reflect a $31.5 million reduction of net losses and loss adjustment expenses |
| • | 2019 loss and combined ratios reflect a $32.8 million reduction of net losses and loss adjustment expenses |
| • | 2018 loss and combined ratios reflect a $28.8 million reduction of net losses and loss adjustment expenses |
| • | 2017 loss and combined ratios reflect a $53.9 million reduction of net losses and loss adjustment expenses |
| • | 2016 loss and combined ratios reflect a $57.3 million reduction of net losses and loss adjustment expenses |
37 2015 loss and combined ratios reflect a $34.7 million reduction of net losses and loss adjustment expenses
2014 loss and combined ratios reflect a $16.4 million reduction of net losses and loss adjustment expenses
2013 loss and combined ratios reflect a $7.9 million reduction of net losses and loss adjustment expenses
See “Results of Operations” in Item 7 of Part II of this report for details of these items and their impact on the loss and combined ratios. (3) | The Company’s loss and combined ratios for 2020, 2019, 2018, 2017, and 2016 2015, 2014, and 2013 include $88.5 million, $30.4 million, $80.6 million, $61.1 million, $72.1 million, $45.0 million, $14.0 million, and $10.0$72.1 million, respectively, of catastrophic losses on a current accident year basis from the Insurance Operations. See “Results of Operations” in Item 7 of Part II of this report for a discussion of the impact of these losses on the loss and combined ratios. |
38
Item 7. | MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes of Global Indemnity included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to the Company’s plans and strategy, constitutes forward-looking statements that involve risks and uncertainties. Please see “Cautionary"Cautionary Note Regarding Forward-Looking Statements”Statements" at the end of this Item 7 and “Risk Factors” in Item 1A above for more information. You should review “Risk Factors” in Item 1A above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein. Recent Developments On March 23, 2017,
COVID-19 The global outbreak of COVID-19 presents significant risks to the Company issued Subordinated Notes duewhich it continues to evaluate. The COVID-19 pandemic may affect the Company’s operations indefinitely. The Company may experience reductions in 2047premium volume, delays in the aggregatecollection of premiums, and increases in COVID-19 related claims. Volatility in the global financial markets may negatively impact the market value of the Company’s investment portfolio and may result in net realized investment losses as well as a decline in the liquidity of the investment portfolio. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, distribution, marketing, customers and agents, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and such effects could exist for an extended period of time even after the pandemic ends. Retirement of Chief Executive Officer On January 19, 2021, the Company announced that Cynthia Y. Valko, chief executive officer and a member of the Board of Directors of Global Indemnity Group, LLC, informed the Board of Directors that she would retire effective as of January 31, 2021. In connection with her retirement, Ms. Valko resigned from her positions as chief executive officer of the Company and a member of the Board of Directors, in each case, effective as of January 15, 2021, although Ms. Valko will continue to serve the Company in an advisory capacity. The Board of Directors is conducting a search to identify the successor to Ms. Valko for the chief executive officer position of the Company. Effective as of January 19, 2021, the Company named Jonathan E. Oltman as president of the Company’s insurance operations. Until Ms. Valko’s successor as chief executive officer of the Company is duly appointed, Mr. Oltman will act as the Company’s principal amountexecutive officer. Mr. Oltman will report directly to the Board of $130.0 millionDirectors through an underwritten public offering. Seeits chairman on a day-to-day basis. Please see Note 1225 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information regarding the retirement of Ms. Valko and the appointment of Mr. Oltman. Board of Directors On December 1, 2020, Michele A. Colucci informed the Company that she was resigning from the Board effective at the conclusion of the Board’s meeting held on December 5, 2020 and December 6, 2020. In connection with the resignation of Ms. Valko and Ms. Colucci, the size of the Board has been reduced from eight to six directors. Redomestication On August 28, 2020, the Company completed its plan to redomesticate to the United States. Please see Note 2 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information on this debt issuance.the redomestication. In April, 2017, the Company entered into a $50 million commitment to purchase an alternative investment vehicle comprised of stressed and distressed debt instruments. As of December 31, 2017, the Company has funded $16.5 million of this commitment leaving $33.5 million as unfunded.
The Company was impacted by losses from Hurricanes Harvey, Irma, and Maria as well as the California wildfires during the third and fourth quarter of 2017. The Company’s current estimate of net loss is approximately $58.7 million from Hurricanes Harvey, Irma, and Maria and the California wildfires. Actual losses from these events may vary materially from the Company’s current estimate due to the inherent uncertainties resulting from several factors, including the preliminary nature of the loss data available and potential inaccuracies and inadequacies of the data provided.
Effective September 16, 2017, David J.W. Bruce, Jason B. Hurwitz, and Arik Rashkes were appointed to the Company’s Board of Directors.
On December 29, 2017, Global Indemnity acquired 3,397,031 of its A ordinary shares for approximately $83.0 million in the aggregate (approximately $24.44 per share) from former investors in vehicles managed by Fox Paine & Company, LLC. The Company paid an $11.0 million advisory fee to Fox Paine in connection with the redemption as well as other services performed. The Company sold $99.0 million of securities from its consolidated investment portfolio during December, 2017 to provide funding for the redemption and other obligations.
During the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend program. Although subject to the absolute discretion of the Board of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability of declaring a quarterly dividend, the Company currently anticipates an initial dividend rate of $0.25 per share per quarter ($1.00 per share per year).
On December 21, 2017, A.M. Best affirmed the financial strength rating of “A” (Excellent) for Global Indemnity Reinsurance and its U.S. insurance subsidiaries.
On December 22, 2017, the United States enacted a budget reconciliation act amending the Internal Revenue Code of 1986. The TCJA contains provisions that can materially affect the tax treatment of the Company’s U.S. subsidiaries. Among other things, the TCJA reduces the U.S. corporate income tax rate to 21 percent, imposes a 10 percent base erosion minimum tax on income of a U.S. corporation determined without regard to certain otherwise deductible payments made to certain foreign affiliates (including interest payments as well as gross premium or other consideration paid or accrued to a related foreign reinsurance company for reinsurance), and significantly limits the deductibility of interest expenses.
As a result of the enactmentCompany moving its Reinsurance Operations to the United States, Steve Green, President of the TCJA,Company’s Reinsurance Operations, will depart the Company effective January 1, 2018, premiums being ceded under the quota share arrangement may potentially be subject to a 10% BEAT tax. As a result,March 31, 2021. 39
Redemption of Debt In August 2020, GBLI Holdings and Global Indemnity ReinsuranceLimited redeemed the entire outstanding $100 million aggregate principal amount of 7.75% Subordinated Notes due 2045 (the “2045 Notes”). Dividends / Distributions During 2020, the Board of Directors approved a dividend payment of $0.25 per common share to all shareholders of record on the close of business on March 24, 2020 and June 23, 2020 and approved a distribution payment of $0.25 per common share to all shareholders of record on the close of business on September 25, 2020 and December 24, 2020. Dividends / distributions paid were $14.3 million during the year ended December 31, 2020. In addition, distributions of $0.1 million were paid to Global Indemnity Group, LLC’s preferred shareholders during the year ended December 31, 2020. AM Best Rating AM Best has seven Rating Categories in the AM Best Financial Strength Rating Scale. The categories ranging from best to worst are Superior, Excellent, Good, Fair, Marginal, Weak and Poor. Within each rating category, there are rating notches of plus or minus to show additional gradation of the ratings. On September 23, 2020, AM Best assigned the Company’s U.S. insurance companies have agreed to terminate the quota share arrangement effective January 1, 2018. Regulatory approval is still pending.subsidiaries a financial strength rating of "A" (Excellent). Overview The Company operates and manages its business through threefour business segments: Commercial Lines, Personal Lines,Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations. The Company’s Commercial LinesSpecialty segment distributesells its property and casualty insurance products through a group of approximately 120185 professional general agencies that have limited quoting and binding authority, as well as a number of wholesale insurance brokers who in turn sell the Company’s insurance products to insureds through retail insurance brokers. Commercial LinesSpecialty operates predominantly in the excess and surplus lines marketplace. The Company manages its Commercial LinesSpecialty segment via product classification.classifications. These product classifications are: 1) Penn-America, which includes property and general liability products for small commercial businesses distributed sold through a select network of wholesale general agents with specific binding authority; 2) United National, which includes property, general liability, and professional lines products distributedsold through program administrators with specific binding authority; 3) Diamond State, which includes property, casualty, and professional lines products distributedsold through wholesale brokers and program administrators with specific binding authority; and 4) Vacant Express, which primarily insures dwellings which are currently vacant, undergoing renovation, or are under construction and is distributedsold through aggregators, brokers, and retail agents.
The Company’s Personal LinesSpecialty Property segment, primarily via American Reliable, offers specialty personal lines property and agricultural coveragecasualty insurance products through a group of approximately 275225 agents, primarily comprised of wholesale general agents, with specific binding authority inauthority. The Company’s Farm, Ranch & Stable segment, primarily via American Reliable, provides specialized property and casualty coverage including Commercial Farm Auto and Excess/Umbrella Coverage for the admitted marketplace.agriculture industry as well as specialized insurance products for the equine mortality and equine major medical industry. These insurance products are sold through a group of approximately 220 agents, primarily comprised of wholesalers and retail agents, with a selected number having specific binding authority. The Company’s Reinsurance Operations consisting solely of the operations of Global Indemnity Reinsurance, currently provides reinsurance solutions through brokers and on a direct basis. Global Indemnity Reinsurance is a Bermuda based treaty reinsurer for specialty property and casualty insurance and reinsurance companies. Global Indemnity Reinsurance conducts business in Bermuda and is focused on usingIt uses its capital capacity to write catastrophe-oriented placementsniche and other niche or specialty-focused treaties meetingand business which meet the Company’s risk tolerance and return thresholds. Prior to the redomestication, the Company’s Reinsurance Operations consisted solely of the operations of Global Indemnity Reinsurance. In connection with the redomestication, Global Indemnity Reinsurance merged into Penn-Patriot Insurance Company and all of its business was assumed by the Company’s existing insurance company subsidiaries. The Company derives its revenues primarily from premiums paid on insurance policies that it writes and from income generated by its investment portfolio, net of fees paid for investment management services. The amount of insurance premiums that the Company receives is a function of the amount and type of policies it writes, as well as prevailing market prices. 40
The Company’s expenses include losses and loss adjustment expenses, acquisition costs and other underwriting expenses, corporate and other operating expenses, interest, investment expenses, and income taxes. Losses and loss adjustment expenses are estimated by management and reflect the Company’s best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates. The Company records its best estimate of losses and loss adjustment expenses considering both internal and external actuarial analyses of the estimated losses the Company expects to incur on the insurance policies it writes. The ultimate losses and loss adjustment expenses will depend on the actual costs to resolve claims. Acquisition costs consist principally of commissions and premium taxes that are typically a percentage of the premiums on the insurance policies the Company writes, net of ceding commissions earned from reinsurers. Other underwriting expenses consist primarily of personnel expenses and general operating expenses related to underwriting activities. Corporate and other operating expenses are comprised primarily of outside legal fees, other professional and accounting fees, directors’ fees, management fees & advisory fees, and salaries and benefits for company personnel whose services relate to the support of corporate activities. Interest expense is primarily comprised of amounts due on outstanding debt. Critical Accounting Estimates and Policies The Company’s consolidated financial statements are prepared in conformity with GAAP, which require it to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. See Note 3 of the notes to consolidated financial statements contained in Item 8 of Part II of this report. Actual results could differ from those estimates and assumptions. The Company believes that of the Company’s significant accounting policies, the following may involve a higher degree of judgment and estimation. Liability for Unpaid Losses and Loss Adjustment Expenses Although variability is inherent in estimates, the Company believes that the liability for unpaid losses and loss adjustment expenses reflects Management’s best estimate for future amounts needed to pay losses and related loss adjustment expenses and the impact of its reinsurance coverage with respect to insured events. In developing losslosses and loss adjustment expense (“loss”("loss" or “losses”"losses") reserve estimates for the U.S.Company’s Insurance Operations, the Company’s actuaries perform detailed reserve analyses each quarter. To perform the analysis, the data is organized at a “reserve category”"reserve category" level. A reserve category can be a line of business such as commercial automobile liability, or it can be a particular type of claim such as construction defect. The reserves within a reserve category level are characterized as long-tail or short-tail. For long-tail business, it will generally be several years between the time the business is written and the time when all claims are settled. The Company’s long-tail exposures include general liability, professional liability, products liability, commercial automobile liability, and excess and umbrella. Short-tail exposures include property, commercial automobile physical damage, and equine mortality. To manage its insurance operations, the Company differentiates by product classifications, which are Penn-America, United National, Diamond State, American Reliable, Collectibles, and Vacant Express. For further discussion about the Company’s product classifications, see “General – Business Segments – Insurance Operations” in Item 1 of Part I of this report. Each of the Company’s product classifications contain both long-tail and short-tail exposures. Every reserve category is analyzed by the Company’s actuaries each quarter. Management is responsible for the final determination of loss reserve selections. Loss reserve estimates for the Company’s Reinsurance Operations are developed by independent, external actuaries; at least annually; however, management is responsible for the final determination of loss reserve selections. The data for this analysis is organized by treaty and treaty year. As with the Company’s reserves for its Insurance Operations, reserves for its Reinsurance Operations are characterized as long-tail or short-tail. Long-tail exposures include workers compensation, professional liability, and excess and umbrella liability. Short-tail exposures are primarily catastrophe exposed property and marine accounts. In addition to the Company’s internal reserve analysis, independent external actuaries perform a full, detailed review of the Insurance and Reinsurance Operations’ reserves annually. The Company reviews both the internal and external actuarial analyses in determining its reserve position. 41
The actuarial methods used to project ultimate losses for both long-tail and short-tail reserve categories include, but are not limited to, the following: | • | Paid Development method; |
| • | Incurred Development method; |
| • | Expected Loss Ratio method; |
| • | Bornhuetter-Ferguson method using premiums and paid loss; |
| • | Bornhuetter-Ferguson method using premiums and incurred loss; and |
The Paid Development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss. Selection of the paid loss pattern requires analysis of several factors including the impact of inflation on claims costs, the rate at which claims professionals make claim payments and close claims, the impact of judicial decisions, the impact of underwriting changes, the impact of large claim payments and other factors. Claim cost inflation itself requires evaluation of changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors. Because this method assumes that losses are paid at a consistent rate, changes in any of these factors can impact the results. Since the method does not rely on case reserves, it is not directly influenced by changes in the adequacy of case reserves. For many reserve categories, paid loss data for recent periods may be too immature or erratic for reliable loss projections. This situation often exists for long-tail exposures. In addition, changes in the factors described above may result in inconsistent payment patterns. Finally, estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail reserve categories. The Incurred Development method is similar to the Paid Development method, but it uses case incurred losses instead of paid losses. Since this method uses more data (case reserves in addition to paid losses) than the Paid Development method, the incurred development patterns may be less variable than paid development patterns. However, selection of the incurred loss pattern requires analysis of all of the factors listed in the description of the Paid Development method. In addition, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available. The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. This method may be useful if loss development patterns are inconsistent, losses emerge very slowly, or there is relatively little loss history from which to estimate future losses. The selection of the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis of inflationary trends, frequency trends, rate changes, underwriting changes, and other applicable factors. The Bornhuetter-Ferguson method using premiums and paid losses is a combination of the Paid Development method and the Expected Loss Ratio method. This method normally determines expected loss ratios similar to the method used for the Expected Loss Ratio method and requires analysis of the same factors described above. The method assumes that only future losses will develop at the expected loss ratio level. The percent of paid loss to ultimate loss implied from the Paid Development method is used to determine what percentage of ultimate loss is yet to be paid. The use of the pattern from the Paid Development method requires consideration of all factors listed in the description of the Paid Development method. The estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each accident year. This method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the Expected Loss Ratio calculation. The Bornhuetter-Ferguson method using premiums and incurred losses is similar to the Bornhuetter-Ferguson method using premiums and paid losses except that it uses case incurred losses. The use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid development patterns. However, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place. The method requires analysis of all the factors that need to be reviewed for the Expected Loss Ratio and Incurred Development methods. 42
The Average Loss method multiplies a projected number of ultimate incurred claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively. In addition, this method can more directly account for changes in coverage that impact the number and size of claims. However, this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes. Projecting the ultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the Company, the impact of judicial decisions, the impact of underwriting changes and other factors. Estimating the ultimate average loss requires analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors. For many reserve categories, especially those that can be considered long-tail, a particular accident year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, the Company’s actuaries typically assign more weight to the Incurred Development method than to the Paid Development method. As claims continue to settle and the volume of paid losses increases, the actuaries may assign additional weight to the Paid Development method. For most of the Company’s reserve categories, even the case incurred losses for accident years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, the Company will not assign any weight to the Paid and Incurred Development methods and will use the Bornhuetter-Ferguson and Expected Loss Ratio methods. For short-tail exposures, the Paid and Incurred Development methods can often be relied on sooner primarily because the Company’s history includes a sufficient number of accident years to cover the entire period over which paid and incurred losses are expected to change. However, the Company may also assign weights to the Expected Loss Ratio, Bornhuetter-Ferguson and Average Loss methods for short-tail exposures when developing estimates of ultimate losses. Generally, reserves for long-tail lines give more weight to the Expected Loss Ratio method in the more recent immature years. As the accident years mature, weight shifts to the Bornhuetter-Ferguson methods and eventually to the Incurred and/or Paid Development method. Claims related to umbrella business are usually reported later than claims for other long-tail lines. For umbrella business, the shift from the Expected Loss Ratio method to the Bornhuetter-Ferguson methods to the Loss Development method may be more protracted than for most long-tailed lines. Reserves for short-tail lines tend to make the shift across methods more quickly than the long-tail lines. For other more complex reserve categories where the above methods may not produce reliable indications, the Company uses additional methods tailored to the characteristics of the specific situation. Such reserve categories include losses from construction defect and A&E claims. For construction defect losses, the Company’s actuaries organize losses by the year in which they were reported to develop an IBNR provision for development on known cases. To estimate losses from claims that have occurred but have not yet been reported to the Company (pure IBNR), various extrapolation techniques are applied to the pattern of claims that have been reported to estimate the number of claims yet to be reported. This process requires analysis of several factors including the rate at which policyholders report claims to the Company, the impact of judicial decisions, the impact of underwriting changes and other factors. An average claim size is determined from past experience and applied to the number of unreported claims to estimate reserves for these claims. Establishing reserves for A&E and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, bankruptcy filings as a result of asbestos-related liabilities, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage. The insurance industry continues to receive a substantial number of asbestos-related bodily injury claims, with an increasing focus being directed toward other parties, including installers of products containing asbestos rather than against asbestos manufacturers. This shift has resulted in significant insurance coverage litigation implicating applicable coverage defenses or determinations, if any, including but not limited to, determinations as to whether or not an asbestos-related bodily injury claim is subject to aggregate limits of liability found in most comprehensive general liability policies. The Company continues to closely monitor its asbestos exposure and make adjustments where they are warranted. 43
Reserve analyses performed by the Company’s internal and external actuaries result in actuarial point estimates. The results of the detailed reserve reviews were summarized and discussed with the Company’s senior management to determine the best estimate of reserves. This group considered many factors in making this decision. The factors included, but were not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in the Company’s pricing and underwriting, and overall pricing and underwriting trends in the insurance market. Management’s best estimate at December 31, 20172020 was recorded as the loss reserve. Management’s best estimate is as of a particular point in time and is based upon known facts, the Company’s actuarial analyses, current law, and the Company’s judgment. This resulted in carried gross and net reserves of $634.7$662.8 million and $537.4$580.7 million, respectively, as of December 31, 2017.2020. A breakout of the Company’s gross and net reserves excluding the effects of the Company’s intercompany pooling arrangements and intercompany stop loss and quota share reinsurance agreements, as of December 31, 20172020 is as follows: | | | | Gross Reserves | | | Gross Reserves | | | (Dollars in thousands) | | Case | | | IBNR (1) | | | Total | | | Case | | | IBNR (1) | | | Total | | Commercial Lines | | $ | 116,222 | | | $ | 302,820 | | | $ | 419,042 | | | Personal Lines | | | 40,443 | | | | 79,812 | | | | 120,255 | | | Commercial Specialty | | | $ | 141,066 | | | $ | 283,928 | | | $ | 424,994 | | Specialty Property | | | | 13,740 | | | | 31,528 | | | | 45,268 | | Farm, Ranch & Stable | | | | 12,017 | | | | 32,824 | | | | 44,841 | | Reinsurance Operations | | | 31,100 | | | | 64,267 | | | | 95,367 | | | | 51,241 | | | | 96,467 | | | | 147,708 | | | | | | | | | | | | | Total | | $ | 187,765 | | | $ | 446,899 | | | $ | 634,664 | | | $ | 218,064 | | | $ | 444,747 | | | $ | 662,811 | | | | | | | | | | | | |
| | | | Net Reserves (2) | | | Net Reserves (2) | | | (Dollars in thousands) | | Case | | | IBNR (1) | | | Total | | | Case | | | IBNR (1) | | | Total | | Commercial Lines | | $ | 92,313 | | | $ | 250,636 | | | $ | 342,949 | | | Personal Lines | | | 32,792 | | | | 66,384 | | | | 99,176 | | | Commercial Specialty | | | $ | 113,779 | | | $ | 247,299 | | | $ | 361,078 | | Specialty Property | | | | 10,288 | | | | 24,505 | | | | 34,793 | | Farm, Ranch & Stable | | | | 10,966 | | | | 26,108 | | | | 37,074 | | Reinsurance Operations | | | 31,099 | | | | 64,197 | | | | 95,296 | | | | 51,241 | | | | 96,467 | | | | 147,708 | | | | | | | | | | | | | Total | | $ | 156,204 | | | $ | 381,217 | | | $ | 537,421 | | | $ | 186,274 | | | $ | 394,379 | | | $ | 580,653 | | | | | | | | | | | | |
(1) | Losses incurred but not reported, including the expected future emergence of case reserves. |
(2) | Does not include reinsurance receivablereceivables on paid losses. |
The Company continually reviews these estimates and, based on new developments and information, includes adjustments of the estimated ultimate liability in the operating results for the periods in which the adjustments are made. The establishment of losslosses and loss adjustment expense reserves makes no provision for the possible broadening of coverage by legislative action or judicial interpretation, or the emergence of new types of losses not sufficiently represented in the Company’s historical experience or that cannot yet be quantified or estimated. The Company regularly analyzes its reserves and reviews reserving methodologies so that future adjustments to prior accident year reserves can be minimized. However, given the complexity of this process, reserves require continual updates and the ultimate liability may be higher or lower than previously indicated. Changes in estimates for losslosses and loss adjustment expense reserves are recorded in the period that the change in these estimates is made. See Note 11 to the consolidated financial statements in Item 8 of Part II of this report for details concerning the changes in the estimate for incurred losslosses and loss adjustment expenses related to prior accident years. The detailed reserve analyses that the Company’s internal and external actuaries complete use a variety of generally accepted actuarial methods and techniques to produce a number of estimates of ultimate loss. The Company determines its best estimate of ultimate loss by reviewing the various estimates provided by its actuaries and other relevant information. The reserve estimate is the difference between the estimated ultimate loss and the losses paid to date. The difference between the estimated ultimate loss and the case incurred loss (paid loss plus case reserve) is considered to be IBNR. IBNR calculated as such includes a provision for development on known cases (supplemental development) as well as a provision for claims that have occurred but have not yet been reported to the Company (pure IBNR). In light of the many uncertainties associated with establishing the estimates and making the assumptions necessary to establish reserve levels, the Company reviews its reserve estimates on a regular basis and makes adjustments in the period that the need for such adjustments is determined. 44
The key assumptions fundamental to the reserving process are often different for various reserve categories and accident years. Some of these assumptions are explicit assumptions that are required of a particular method, but most of the assumptions are implicit and cannot be precisely quantified. An example of an explicit assumption is the pattern employed in the Paid Development method. However, the assumed pattern is itself based on several implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals close claims. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Each reserve category has an implicit frequency and severity for each accident year as a result of the various assumptions made. Previous reserve analyses have resulted in the Company’s identification of information and trends that have caused it to increase or decrease frequency and severity assumptions in prior periods and could lead to the identification of a need for additional material changes in losslosses and loss adjustment expense reserves, which could materially affect results of operations, equity, business and insurer financial strength and debt ratings. Factors affecting loss frequency include, among other things, the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include, among other things, changes in policy limits and deductibles, rate of inflation and judicial interpretations. Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects the Company’s ability to accurately predict loss frequency (loss frequencies are more predictable for short-tail lines) as well as the amount of reserves needed for IBNR. If the actual levels of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s best estimate. For most of its reserve categories, the Company believes that frequency can be predicted with greater accuracy than severity. Therefore, the Company believes management’s best estimate is more likely influenced by changes in severity than frequency. The following table, which the Company believes reflects a reasonable range of variability around its best estimate based on historical loss experience and management’s judgment, reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on the Company’s current accident year net loss estimate of $323.1$367.7 million for claims occurring during the year ended December 31, 2017:2020: | | | | | | Severity Change | | | | | | | Severity Change | | | (Dollars in thousands) | | | | -10% | | -5% | | 0% | | 5% | | 10% | | | | | | | -10% | | | -5% | | | 0% | | | 5% | | | 10% | | Frequency Change | | | -5 | %�� | | $ | (46,850 | ) | | $ | (31,502 | ) | | $ | (16,155 | ) | | $ | (808 | ) | | $ | 14,540 | | | -5% | | | $ | (53,317 | ) | | $ | (35,851 | ) | | $ | (18,385 | ) | | $ | (919 | ) | | $ | 16,547 | | | | | -3 | % | | (41,034 | ) | | (25,363 | ) | | (9,693 | ) | | 5,977 | | | 21,648 | | | -3% | | | | (46,698 | ) | | | (28,864 | ) | | | (11,031 | ) | | | 6,802 | | | | 24,636 | | | | | -2 | % | | (38,126 | ) | | (22,294 | ) | | (6,462 | ) | | 9,370 | | | 25,202 | | | -2% | | | | (43,389 | ) | | | (25,371 | ) | | | (7,354 | ) | | | 10,663 | | | | 28,681 | | | | | -1 | % | | (35,218 | ) | | (19,224 | ) | | (3,231 | ) | | 12,762 | | | 28,756 | | | -1% | | | | (40,079 | ) | | | (21,878 | ) | | | (3,677 | ) | | | 14,524 | | | | 32,725 | | | | | 0 | % | | (32,310 | ) | | (16,155 | ) | | | — | | | 16,155 | | | 32,310 | | | 0% | | | | (36,770 | ) | | | (18,385 | ) | | | — | | | | 18,385 | | | | 36,770 | | | | | 1 | % | | (29,402 | ) | | (13,086 | ) | | 3,231 | | | 19,548 | | | 35,864 | | | 1% | | | | (33,461 | ) | | | (14,892 | ) | | | 3,677 | | | | 22,246 | | | | 40,815 | | | | | 2 | % | | (26,494 | ) | | (10,016 | ) | | 6,462 | | | 22,940 | | | 39,418 | | | 2% | | | | (30,151 | ) | | | (11,399 | ) | | | 7,354 | | | | 26,107 | | | | 44,859 | | | | | 3 | % | | (23,586 | ) | | (6,947 | ) | | 9,693 | | | 26,333 | | | 42,972 | | | 3% | | | | (26,842 | ) | | | (7,906 | ) | | | 11,031 | | | | 29,968 | | | | 48,904 | | | | | 5 | % | | (17,771 | ) | | (808 | ) | | 16,155 | | | 33,118 | | | 50,081 | | | 5% | | | | (20,224 | ) | | | (919 | ) | | | 18,385 | | | | 37,689 | | | | 56,994 | |
The Company’s net reserves for losses and loss adjustment expenses of $537.4$580.7 million as of December 31, 20172020 relate to multiple accident years. Therefore, the impact of changes in frequency and severity for more than one accident year could be higher or lower than the amounts reflected above. Recoverability of Reinsurance Receivables The Company regularly reviews the collectability of its reinsurance receivables, and includes adjustments resulting from this review in earnings in the period in which the adjustment arises. A.M.An allowance for uncollectible reinsurance receivables is recognized based upon the Company’s ongoing review of key aspects of amounts outstanding, including but not limited to, length of collection periods, disputes, applicable coverage defenses, insolvent reinsurers, financial strength of solvent reinsurers based on AM Best ratings, financial history, available collateral,Ratings and payment history with the reinsurers are several of the factors that the Company considers when judging collectability.other relevant factors. Changes in loss reserves can also affect the valuation of reinsurance receivables if the change is related to loss reserves that are ceded to reinsurers. Certain amounts may be uncollectible if the Company’s reinsurers dispute a loss or if the reinsurer is unable to pay. If its reinsurers do not pay, the Company remains legally obligated to pay the loss. See Note 9 of the notes to consolidated financial statements in Item 8 of Part II of this report for further information surrounding the Company’s reinsurance receivable balances and collectability as of December 31, 20172020 and 2016. 2019.For a listing of the ten reinsurers for which the Company has the largest reinsurance asset amounts as of December 31, 2017,2020, see “Reinsurance of Underwriting Risk” in Item 1 of Part I of this report. 45
Investments The carrying amount of the Company’s investments approximates their fair value. The Company regularly performs various analytical valuation procedures with respect to investments, including reviewing each fixed maturity security in an unrealized loss position to determine whether the amount of unrealized loss related todecline in fair value below amortized cost basis has resulted from a credit loss and the amount related to allor other factors, such as changes in interest rates. TheIn assessing whether a credit loss representsexists, the portion ofCompany compares the amortized book value in excess of the net present value of the projected future cash flows discounted atexpected to be collected from the effective interest rate implicitsecurity to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for expected credit losses is recorded. Subsequent changes in the debt security prior to impairment. Theallowances are recorded in the period of change as either credit loss componentexpense or reversal of the other than temporary impairment is recorded through earnings, whereas the amount relatingcredit loss expense. Any impairments related to factors other than credit losses or the intent to sell are recorded inthrough other comprehensive income, net of taxes. During its review, the Company considers credit rating, market price, and issuer specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which the Company determines that a credit loss is likely are subjected to further analysis to estimate the credit loss to be recognized in earnings, if any. See Note 34 of the notes to consolidated financial statements in Item 8 of Part II of this report for the specific methodologies and significant assumptions used by asset class. Upon identification of such securities and periodically thereafter, a detailed review is performed to determine whether the decline is considered other than temporary. This review includes an analysis of several factors, including but not limited to, the credit ratings and cash flows of the securities, and the magnitude and length of time that the fair value of such securities is below cost. Forclass as well as an analysis of the Company’s securities with gross unrealized losses as of December 31, 20172020 and 2016, and for other than temporary impairment losses that the Company recorded for the years ended December 31, 2017, 2016, and 2015, please see Note 5 of the notes to the consolidated financial statements in Item 8 of Part II of this report.2019.
Fair Value Measurements The Company categorizes its invested assets and derivative instruments that are accounted for at fair value in the consolidated statements into a fair value hierarchy. The fair value hierarchy is directly related to the amount of subjectivity associated with the inputs utilized to determine the fair value of these assets. The reported value of financial instruments not carried at fair value, principally cash and cash equivalents and margin borrowing facility approximate fair value. See Note 76 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further information about the fair value hierarchy and the Company’s assets that are accounted for at fair value. Goodwill and Intangible Assets The Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of goodwill for impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the carrying amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. The amount of the impairment loss would be equal to the excess carrying value of the goodwill over the implied fair value of the reporting unit goodwill. Based on the qualitative assessment performed, therethere was no impairment of goodwill as of December 31, 2017.2020. Impairment of intangible assets with indefinite useful lives is tested at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of intangible assets for impairment using both qualitative and quantitative factors. Impairment of indefinite lived intangible assets is recognized only if the carrying amount of the intangible assets exceeds the fair value of said assets. The amount of the impairment loss would be equal to the excess carrying value of the assets over the fair value of said assets. Based on the qualitative assessment performed, therethere were no impairments of indefinite lived intangible assets as of December 31, 2017.2020. Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of definite lived intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the difference between the carrying amount and the estimated fair value of the asset. As of December 31, 2017,2020, there were no triggering events that occurred during the year that would result in an impairment of definite lived intangible assets. See Note 87 of the notes to the consolidated financial statements in Item 8 of Part II of this report for more details concerning the Company’s goodwill and intangible assets. Deferred Acquisition Costs The costs of acquiring new and renewal insurance and reinsurance contracts include commissions, premium taxes and certain other costs that are directly related to the successful acquisition of new and renewal insurance and reinsurance contracts. The excess of the Company’s costs of acquiring new and renewal insurance and reinsurance contracts over the related ceding commissions earned from reinsurers is capitalized as deferred acquisition costs and amortized over the period in which the related premiums are earned. 46
In accordance with accounting guidance for insurance enterprises, the method followed in computing such amounts limits them to amounts recoverable from premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. A premium deficiency is recognized if the sum of expected losslosses and loss adjustment expenses and unamortized acquisition costs exceeds related unearned premium. This evaluation is done at a distribution and product line level in Insurance Operations and at a treaty level in Reinsurance Operations. Any future expected loss on the related unearned premium is recorded first by impairing the unamortized acquisition costs on the related unearned premium followed by an increase to losslosses and loss adjustment expense reserves on additional expected loss in excess of unamortized acquisition costs. The Company calculates deferred acquisition costs for Insurance Operations separately by productdistribution lines and for its Reinsurance Operations separately for each treaty. Taxation The Company provides for income taxes in accordance with applicable accounting guidance. The Company’s deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of the Company’s assets and liabilities. At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. A valuation allowance would be based on all available information including the Company’s assessment of uncertain tax positions and projections of future taxable income from eachtax-paying component in each jurisdiction, principally derived from business plans and available tax planning strategies. There are no valuation allowances as of December 31, 20172020 and 2016.2019. The deferred tax asset balance is analyzed regularly by management. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of carryforward periods, and tax planning strategies and/or actions. Based on these analyses, the Company has determined that its deferred tax asset is recoverable. Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actual experience. If, in the future, the Company’s assumptions and estimates that resulted in the forecast of future taxable income for eachtax-paying component prove to be incorrect, a valuation allowance may be required. This could have a material adverse effect on the Company’s financial condition, results of operations, and liquidity. The Company applies a more likely than not recognition threshold for all tax uncertainties, only allowing the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by therelevant taxing authorities. Please see Note 10 of the notes to the consolidated financial statements in Item 8 of Part II of this report for a discussion of the Company’s tax uncertainties. Leases The Company determines if an arrangement is a lease at inception. Leases with a term of 12 months or less are not recorded on the consolidated balance sheets. Lease right-of-use assets (“ROU”) are included in other assets on the consolidated balance sheets and lease liabilities are included in other liabilities on the consolidated balance sheets. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company’s leases do not provide an implicit rate; therefore, the Company uses its incremental borrowing rate at the commencement date in determining the present value of future payments. The ROU asset is calculated using the initial lease liability amount, plus any lease payments made at or before the commencement date, minus any lease incentives received, plus any initial direct costs incurred. Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. The Company’s lease agreements may contain both lease and non-lease components which are accounted separately. The Company elected the practical expedient on not separating lease components from non-lease components for its equipment leases. 47
Business Segments The Company manages its business through threefour business segments: Personal Lines, Commercial Lines,Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations. The Personal LinesCommercial Specialty, Specialty Property, and Commercial LinesFarm, Ranch & Stable segments comprise the Company’s U.S. Insurance Operations, which currently includes the operations of United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company, Penn-Patriot Insurance Company, American Reliable Insurance Company, American Insurance Adjustment Agency, Inc., Collectibles Insurance Services, LLC, Global Indemnity Insurance Agency, LLC, and J.H. Ferguson & Associates, LLC. Prior to the redomestication, the Company’s Reinsurance Operations includesconsisted solely of the operations of Global Indemnity Reinsurance. In connection with the redomestication, Global Indemnity Reinsurance merged into Penn-Patriot Insurance Company Ltd.and all of its business was assumed by the Company’s existing insurance company subsidiaries. The Company evaluates the performance of these threefour segments based on gross and net written premiums, written, revenues in the form of net earned premiums, earned, and expenses in the form of (1) net losses and loss adjustment expenses, (2) acquisition costs, and (3) other underwriting expenses.expenses. During the 1stfirst quarter of 2017,2019, the Companyre-evaluated its Personal Lines segment and determined that Personal Lines should be bifurcated into two reportable segments: Specialty Property and Farm, Ranch & Stable. This is the result of changing how Specialty Property and Farm, Ranch & Stable are managed and reported. Specialty Property is managed out of the Company’s Scottsdale, Arizona office; whereas, Farm, Ranch & Stable is managed out of the Company’s Omaha, Nebraska office. In the past, Farm, Ranch & Stable reported to the Scottsdale, Arizona office and now it reports directly to the Company’s main headquarters in Bala Cynwyd, Pennsylvania. Results for Specialty Property and Farm, Ranch & Stable are separately measured, resources are separately allocated to each of these lines, and employees in each line are now being rewarded based on each line’s separate results. Accordingly, the Company now reports Specialty Property and Farm, Ranch & Stable as two separate reportable segments. In addition, the Company changed the name of its Commercial Lines and Personal Lines segments and determined that certain portions of business will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportable segments changed slightly. Premium that is written through a wholly owned agency that mainly sellssegment to individuals, which was previously included as part of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs written by American Reliable Insurance Company, which was previously included within the Personal Lines segment, is now aggregated within the Commercial Lines segment. Accordingly, theSpecialty to better align with its key product offerings. The segment results for the years ended December 31, 2016 and 20152018 have been revised to reflect these changes. See “Business Segments” in Item 1 of Part I of this report for a description of the Company’s segments. 48
Results of Operations The following table summarizes the Company’s results for the years ended December 31, 2017, 2016,2020, 2019, and 2015:2018: | | | | Years Ended
December 31, | | %
Change | | | Years Ended
December 31, | | %
Change | | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | | (Dollars in thousands) | | 2017 | | 2016 (4) | | 2016 (4) | | 2015 (4) | | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Gross premiums written | | $ | 516,334 | | | $ | 565,845 | | | (8.7 | %) | | $ | 565,845 | | | $ | 590,233 | | | (4.1 | %) | | Gross written premiums | | | $ | 606,603 | | | $ | 636,861 | | | | (4.8 | %) | | $ | 636,861 | | | $ | 547,897 | | | | 16.2 | % | Net written premiums | | | $ | 548,167 | | | $ | 562,089 | | | | (2.5 | %) | | $ | 562,089 | | | $ | 472,547 | | | | 18.9 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 450,180 | | | $ | 470,940 | | | (4.4 | %) | | $ | 470,940 | | | $ | 501,244 | | | (6.0 | %) | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 438,034 | | | $ | 468,465 | | | (6.5 | %) | | $ | 468,465 | | | $ | 504,143 | | | (7.1 | %) | | Net earned premiums | | | $ | 567,699 | | | $ | 525,262 | | | | 8.1 | % | | $ | 525,262 | | | $ | 467,775 | | | | 12.3 | % | Other income | | 6,582 | | | 10,345 | | | (36.4 | %) | | 10,345 | | | 3,400 | | | 204.3 | % | | | 2,038 | | | | 1,816 | | | | 12.2 | % | | | 1,816 | | | | 1,728 | | | | 5.1 | % | | | | | | | | | | | | | | | | | | | | | Total revenues | | 444,616 | | | 478,810 | | | (7.1 | %) | | 478,810 | | | 507,543 | | | (5.7 | %) | | | 569,737 | | | | 527,078 | | | | 8.1 | % | | | 527,078 | | | | 469,503 | | | | 12.3 | % | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | 269,212 | | | 264,003 | | | 2.0 | % | | 264,003 | | | 275,368 | | | (4.1 | %) | | | 336,201 | | | | 275,402 | | | | 22.1 | % | | | 275,402 | | | | 334,625 | | | | (17.7 | %) | Acquisition costs and other underwriting expenses | | 183,733 | | | 196,650 | | | (6.6 | %) | | 196,650 | | | 201,303 | | | (2.3 | %) | | | 215,607 | | | | 208,403 | | | | 3.5 | % | | | 208,403 | | | | 190,778 | | | | 9.2 | % | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | (8,329 | ) | | 18,157 | | | (145.9 | %) | | 18,157 | | | 30,872 | | | (41.2 | %) | | | 17,929 | | | | 43,273 | | | | (58.6 | %) | | | 43,273 | | | | (55,900 | ) | | | (177.4 | %) | Net investment income | | 39,323 | | | 33,983 | | | 15.7 | % | | 33,983 | | | 34,609 | | | (1.8 | %) | | | 28,392 | | | | 42,052 | | | | (32.5 | %) | | | 42,052 | | | | 46,342 | | | | (9.3 | %) | Net realized investment gains (losses) | | 1,576 | | | 21,721 | | | (92.7 | %) | | 21,721 | | | (3,374 | ) | | NM | | | | (14,662 | ) | | | 35,342 | | | | (141.5 | %) | | | 35,342 | | | | (16,907 | ) | | | — | | Other income | | | | 80 | | | | — | | | NM | | | | — | | | | — | | | | — | | Corporate and other operating expenses | | (25,714 | ) | | (17,338 | ) | | 48.3 | % | | (17,338 | ) | | (24,448 | ) | | (29.1 | %) | | | (41,998 | ) | | | (18,888 | ) | | | 122.4 | % | | | (18,888 | ) | | | (29,766 | ) | | | (36.5 | %) | Interest expense | | (16,906 | ) | | (8,905 | ) | | 89.8 | % | | (8,905 | ) | | (4,913 | ) | | 81.3 | % | | | (15,792 | ) | | | (20,022 | ) | | | (21.1 | %) | | | (20,022 | ) | | | (19,694 | ) | | | 1.7 | % | | | | | | | | | | | | | | | | | | | | | Loss on extinguishment of debt | | | | (3,060 | ) | | | — | | | NM | | | | — | | | | — | | | | — | | Income (loss) before income taxes | | (10,050 | ) | | 47,618 | | | (121.1 | %) | | 47,618 | | | 32,746 | | | 45.4 | % | | | (29,111 | ) | | | 81,757 | | | | (135.6 | %) | | | 81,757 | | | | (75,925 | ) | | NM | | Income tax benefit | | 499 | | | 2,250 | | | (77.8 | %) | | 2,250 | | | 8,723 | | | (74.2 | %) | | | | | | | | | | | | | | | | | | | | | | Income tax (expense) benefit | | | | 8,105 | | | | (11,742 | ) | | | (169.0 | %) | | | (11,742 | ) | | | 19,229 | | | | (161.1 | %) | Net income (loss) | | $ | (9,551 | ) | | $ | 49,868 | | | (119.2 | %) | | $ | 49,868 | | | $ | 41,469 | | | 20.3 | % | | $ | (21,006 | ) | | $ | 70,015 | | | | (130.0 | %) | | $ | 70,015 | | | $ | (56,696 | ) | | NM | | | | | | | | | | | | | | | | | | | | | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio (1): | | 61.5 | % | | 56.4 | % | | | | 56.4 | % | | 54.6 | % | | | | Loss ratio (1) | | | | 59.2 | % | | | 52.5 | % | | | | | | | 52.5 | % | | | 71.5 | % | | | | | Expense ratio (2) | | 41.9 | % | | 42.0 | % | | | | 42.0 | % | | 39.9 | % | | | | | 38.0 | % | | | 39.7 | % | | | | | | | 39.7 | % | | | 40.8 | % | | | | | | | | | | | | | | | | | | | | | | | Combined ratio (3) | | 103.4 | % | | 98.4 | % | | | | 98.4 | % | | 94.5 | % | | | | | 97.2 | % | | | 92.2 | % | | | | | | | 92.2 | % | | | 112.3 | % | | | | | | | | | | | | | | | | | | | | | | |
NM —– not meaningful (1) | The loss ratio is a GAAP financial measure that is generally viewed in the insurance industry as an indicator of underwriting profitability and is calculated by dividing net losses and loss adjustment expenses by net premiums earned.earned premiums. |
(2) | The expense ratio is a GAAP financial measure that is calculated by dividing the sum of acquisition costs and other underwriting expenses by net premiums earned.earned premiums. |
(3) | The combined ratio is a GAAP financial measure and is the sum of the Company’s loss and expense ratios. |
(4) | On September 30, 2016, Diamond State Insurance Company sold all the outstanding shares of capital stock of one of its wholly owned subsidiaries, United National Specialty Insurance Company. Financial results for 2016 and 2015 include United National Specialty Insurance. Company. This transaction did not have a significant impact on the Company’s ongoing business operations. Subsequent to the sale, any business previously written by United National Specialty Insurance Company is being written by other companies within the Company’s U.S. Insurance Operations. |
49
Premiums The following table summarizes the change in premium volume by business segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | %
Change | | | Years Ended
December 31, | | | %
Change | | | (Dollars in thousands) | | 2017 | | | 2016 | | | | 2016 | | | 2015 | | | Gross premiums written (1) | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines (3) (4) | | $ | 249,777 | | | $ | 302,947 | | | | (17.6 | %) | | $ | 302,947 | | | $ | 327,147 | | | | (7.4 | %) | Commercial Lines (4) | | | 212,670 | | | | 203,061 | | | | 4.7 | % | | | 203,061 | | | | 213,353 | | | | (4.8 | %) | Reinsurance (5) | | | 53,887 | | | | 59,837 | | | | (9.9 | %) | | | 59,837 | | | | 49,733 | | | | 20.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total gross premiums written | | $ | 516,334 | | | $ | 565,845 | | | | (8.7 | %) | | $ | 565,845 | | | $ | 590,233 | | | | (4.1 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Ceded premiums written | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines (4) | | $ | 39,978 | | | $ | 74,764 | | | | (46.5 | %) | | $ | 74,764 | | | $ | 73,990 | | | | 1.0 | % | Commercial Lines (4) | | | 26,222 | | | | 20,105 | | | | 30.4 | % | | | 20,105 | | | | 14,949 | | | | 34.5 | % | Reinsurance (5) | | | (46 | ) | | | 36 | | | | (227.8 | %) | | | 36 | | | | 50 | | | | (28.0 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Total ceded premiums written | | $ | 66,154 | | | $ | 94,905 | | | | (30.3 | %) | | $ | 94,905 | | | $ | 88,989 | | | | 6.6 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written (2) | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines (4) | | $ | 209,799 | | | $ | 228,183 | | | | (8.1 | %) | | $ | 228,183 | | | $ | 253,157 | | | | (9.9 | %) | Commercial Lines (4) | | | 186,448 | | | | 182,956 | | | | 1.9 | % | | | 182,956 | | | | 198,404 | | | | (7.8 | %) | Reinsurance (5) | | | 53,933 | | | | 59,801 | | | | (9.8 | %) | | | 59,801 | | | | 49,683 | | | | 20.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total net premiums written | | $ | 450,180 | | | $ | 470,940 | | | | (4.4 | %) | | $ | 470,940 | | | $ | 501,244 | | | | (6.0 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | | | | | | | | | | | | | | | | | | | | | | | | Personal Lines (4) | | $ | 215,983 | | | $ | 237,555 | | | | (9.1 | %) | | $ | 237,555 | | | $ | 253,948 | | | | (6.5 | %) | Commercial Lines (4) | | | 178,798 | | | | 189,342 | | | | (5.6 | %) | | | 189,342 | | | | 198,404 | | | | (4.6 | %) | Reinsurance (5) | | | 43,253 | | | | 41,568 | | | | 4.1 | % | | | 41,568 | | | | 51,791 | | | | (19.7 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Total net premiums earned | | $ | 438,034 | | | $ | 468,465 | | | | (6.5 | %) | | $ | 468,465 | | | $ | 504,143 | | | | (7.1 | %) | | | | | | | | | | | | | | | | | | | | | | | | | |
NM — not meaningful
| | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | (Dollars in thousands) | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Gross written premiums (1) | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Specialty (4) | | $ | 321,879 | | | $ | 297,332 | | | | 8.3 | % | | $ | 297,332 | | | $ | 249,948 | | | | 19.0 | % | Specialty Property (3) (4) | | | 138,401 | | | | 163,503 | | | | (15.4 | %) | | | 163,503 | | | | 170,168 | | | | (3.9 | %) | Farm, Ranch & Stable (4) | | | 85,646 | | | | 87,745 | | | | (2.4 | %) | | | 87,745 | | | | 79,738 | | | | 10.0 | % | Reinsurance (5) | | | 60,677 | | | | 88,281 | | | | (31.3 | %) | | | 88,281 | | | | 48,043 | | | | 83.8 | % | Total gross written premiums | | $ | 606,603 | | | $ | 636,861 | | | | (4.8 | %) | | $ | 636,861 | | | $ | 547,897 | | | | 16.2 | % | Ceded premiums written | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Specialty (4) | | $ | 29,663 | | | $ | 38,613 | | | | (23.2 | %) | | $ | 38,613 | | | $ | 23,121 | | | | 67.0 | % | Specialty Property (4) | | | 17,290 | | | | 22,833 | | | | (24.3 | %) | | | 22,833 | | | | 42,698 | | | | (46.5 | %) | Farm, Ranch & Stable (4) | | | 11,483 | | | | 13,329 | | | | (13.8 | %) | | | 13,329 | | | | 9,521 | | | | 40.0 | % | Reinsurance (5) | | | — | | | | (3 | ) | | | (100.0 | %) | | | (3 | ) | | | 10 | | | | (130.0 | %) | Total ceded premiums written | | $ | 58,436 | | | $ | 74,772 | | | | (21.8 | %) | | $ | 74,772 | | | $ | 75,350 | | | | (0.8 | %) | Net written premiums (2) | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Specialty (4) | | $ | 292,216 | | | $ | 258,719 | | | | 12.9 | % | | $ | 258,719 | | | $ | 226,827 | | | | 14.1 | % | Specialty Property (4) | | | 121,111 | | | | 140,670 | | | | (13.9 | %) | | | 140,670 | | | | 127,470 | | | | 10.4 | % | Farm, Ranch & Stable (4) | | | 74,163 | | | | 74,416 | | | | (0.3 | %) | | | 74,416 | | | | 70,217 | | | | 6.0 | % | Reinsurance (5) | | | 60,677 | | | | 88,284 | | | | (31.3 | %) | | | 88,284 | | | | 48,033 | | | | 83.8 | % | Total net written premiums | | $ | 548,167 | | | $ | 562,089 | | | | (2.5 | %) | | $ | 562,089 | | | $ | 472,547 | | | | 18.9 | % | Net earned premiums | | | | | | | | | | | | | | | | | | | | | | | | | Commercial Specialty (4) | | $ | 285,694 | | | $ | 237,758 | | | | 20.2 | % | | $ | 237,758 | | | $ | 218,357 | | | | 8.9 | % | Specialty Property (4) | | | 131,474 | | | | 140,232 | | | | (6.2 | %) | | | 140,232 | | | | 128,768 | | | | 8.9 | % | Farm, Ranch & Stable (4) | | | 76,166 | | | | 71,312 | | | | 6.8 | % | | | 71,312 | | | | 69,248 | | | | 3.0 | % | Reinsurance (5) | | | 74,365 | | | | 75,960 | | | | (2.1 | %) | | | 75,960 | | | | 51,402 | | | | 47.8 | % | Total net earned premiums | | $ | 567,699 | | | $ | 525,262 | | | | 8.1 | % | | $ | 525,262 | | | $ | 467,775 | | | | 12.3 | % |
(1) | Gross written premiums written represent the amount received or to be received for insurance policies written without reduction for reinsurance costs or other deductions. |
(2) | Net written premiums written equal gross written premiums written less ceded premiums written. |
(3) | Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of ($1.3)less than $0.1 million, $35.3($0.3) million, and $55.8($2.1) million during the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. |
(4) | Includes business ceded to the Company’s Reinsurance Operations.Operations under a quota share agreement. This quota share agreement was cancelled effective January 1, 2018. |
(5) | External business only, excluding business assumed from affiliates. |
Gross written premiums written decreased by 8.7%4.8% for year ended December 31, 20172020 as compared to 2016.2019. Gross written premiums written include business written by American Reliable that is ceded to insurance entities owned by Assurant under a 100% quota share reinsurance agreement in the amount of ($1.3)less than $0.1 million and $35.3($0.3) million for the years ended December 31, 20172020 and 2016,2019, respectively. Excluding the business that is ceded 100% to insurance entities owned by Assurant, gross written premiums written decreased by 2.4%4.8% for the year ended December 31, 20172020 as compared to 2016.2019. The declinedecrease is mainly due to the discontinuancereduction of one unprofitable programcatastrophe exposed business within the Company’s Commercial Lines, underwriting actions taken within the Company’s Personal Lines to improve profitability,both Specialty Property and aFarm, Ranch & Stable, reduction in business not providing an adequate return on capital within Specialty Property, and Reinsurance Operations’ non-renewal of its property catastrophe treaties. In addition, non-renewals of several small business classes was higher and new business growth slowed within Commercial Specialty which was likely the result of Covid-19. These reductions in premiums written within the Company’s Reinsurance Operations related to cancellation of a treaty. This decline waswere partially offset by an increaseorganic growth from existing agents, increased pricing, and several new programs within Commercial Specialty and growth of the new casualty treaty entered into by Reinsurance Operations in gross2019. 50
Gross written premiums written within the Company’s Commercial Lines due to the introduction of a new program as well as increased production as a result of providing additional commission incentives for increased business. Gross premiums written decreased by 4.1%16.2% for year ended December 31, 20162019 as compared to 2015.2018. Gross written premiums written include business written by American Reliable that is ceded to insurance entities owned by Assurant under a 100% quota share reinsurance agreement in the amount of $35.3($0.3) million and $55.8($2.1) million for the years ended December 31, 20162019 and 2015,2018, respectively. Excluding the business that is ceded 100% to insurance entities owned by Assurant, gross written premiums written decreasedincreased by 0.7%15.9% for the year ended December 31, 20162019 as compared to 2015.2018. The declineincrease is mainly due to targeted reductionsseveral new programs and increases in excess & surplus lines submissions within Commercial Specialty, rate increases within Specialty Property and Farm, Ranch & Stable, new agent appointments within Farm, Ranch & Stable, and growth in the Reinsurance Operation’s property catastrophe book primarily driven by rate increases as well as a new casualty treaty. This new casualty treaty contributed $26.9 million in gross written premiums during the year ended December 31, 2019. This growth in premiums was partially offset by a continued reduction of catastrophe exposed business within the Company’s U.S. Insurance Operations offset by an increase in gross premiums written within the Company’s Reinsurance Operations due to a new mortgage insurance treaty written in the fourth quarter of 2016. This new mortgage insurance treaty contributed $22.4 million to gross premiums written in 2016both Commercial Specialty and is expected to earn over an eight year period.Specialty Property.
Net Retention The ratio of net written premiums written to gross written premiums written is referred to as the Company’s net premium retention. The Company’s net premium retention is summarized by segments as follows: | | | | Years Ended
December 31, | | Change | | | Years Ended
December 31, | | Change | | | Years Ended December 31, | | | | | | | Years Ended December 31, | | | | | | | (Dollars in thousands) | | 2017 | | 2016 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Personal Lines (1) | | 83.5 | % | | 85.3 | % | | (1.8 | %) | | 85.3 | % | | 93.3 | % | | (8.0 | %) | | Commercial Lines | | 87.7 | % | | 90.1 | % | | (2.4 | %) | | 90.1 | % | | 93.0 | % | | (2.9 | %) | | Commercial Specialty | | | | 90.8 | % | | | 87.0 | % | | | 3.8 | % | | | 87.0 | % | | | 90.7 | % | | | (3.7 | %) | Specialty Property (1) | | | | 87.5 | % | | | 85.9 | % | | | 1.6 | % | | | 85.9 | % | | | 74.0 | % | | | 11.9 | % | Farm, Ranch & Stable | | | | 86.6 | % | | | 84.8 | % | | | 1.8 | % | | | 84.8 | % | | | 88.1 | % | | | (3.3 | %) | Reinsurance | | 100.1 | % | | 99.9 | % | | 0.2 | % | | 99.9 | % | | 99.9 | % | | 0.0 | % | | | 100.0 | % | | | 100.0 | % | | | — | % | | | 100.0 | % | | | 100.0 | % | | | — | % | | | | | | | | | | | | | | | | | | | Total (1) | | 87.0 | % | | 88.8 | % | | (1.8 | %) | | 88.8 | % | | 93.8 | % | | (5.0 | %) | | | 90.4 | % | | | 88.2 | % | | | 2.2 | % | | | 88.2 | % | | | 85.9 | % | | | 2.3 | % | | | | | | | | | | | | | | | | | | |
(1) | Excludes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of less than $0.1 million, ($1.3)0.3) million, and $35.3($2.1) million during the years ended December 31, 20172020, 2019, and 2016,2018, respectively. |
The net premium retention for the year ended December 31, 2017 decreased2020 increased by 1.72.2 points for Personal Lines and decreased by 2.4 points for Commercial Lines as compared to 2016 primarily due to2019. This increase in retention is driven by the Property Catastrophe Quota ShareTreatythat became effective on April 15, 2017. Please seerestructuring of the Liquidity and Capital Resource section below for additional information onCompany’s catastrophe reinsurance treaties as well as a change in the Property Catastrophe Quota Share.mix of business. The net premium retention for the Personal Linesyear ended December 31, 2019 increased by 2.3 points as compared to 2018. This increase in retention is primarily driven by growth of casualty premiums and reinsurance premiums. It is also being driven by the downsizing of catastrophe exposed business within Specialty Property. Net Earned Premiums Net earned premiums within the Commercial Specialty segment increased by 20.2% for the year ended December 31, 2016 decreased by 8.0 points compared to the same period in 2015. The reduction in the Personal Lines’ retention rate for the year ended December 31, 2016 was primarily due to an increase in catastrophe reinsurance as well as the quota share arrangement that was put in place during the second quarter of 2016. Net Premiums earned
Net premiums earned within the Personal Lines segment decreased by 9.1% for the year ended December 31, 20172020 as compared to the same period in 20162019. The increase in net earned premiums was primarily due to a declinegrowth in gross premiums written as well as the cedinga result of additional premiums under the property catastrophe treaties.organic growth from existing agents, pricing increases, and several new programs. Property net earned premiums earned were $183.5$131.1 million and $203.1$110.7 million for the years ended December 31, 20172020 and 2016,2019, respectively. Casualty net earned premiums earned were $32.5$154.6 million and $34.4$127.0 million for the years ended December 31, 20172020 and 2016,2019, respectively.
Net earned premiums earned within the Personal LinesCommercial Specialty segment decreasedincreased by 6.5%8.9% for the year ended December 31, 20162019 as compared to the same period in 2015. This decline2018. The increase in net earned premiums was primarily due to the purchasea growth in premiums written as a result of additional catastrophe reinsurance. In addition, net premiums earned also decreased due to incurring a reinstatement premium of
$7.1 million in connection with wildfires that occurred in Tennessee during the 4th quarter of 2016 . These wildfires resulted in the Company incurring $25.0 million in net losses in 2016.several new programs. Property net earned premiums earned were $203.1$110.7 million and $223.6$115.2 million for the years ended December 31, 20162019 and 2015,2018, respectively. Casualty net earned premiums earned were $34.4$127.0 million and $30.3$103.1 million for the years ended December 31, 20162019 and 2015,2018, respectively.
Net earned premiums earned within the Commercial LinesSpecialty Property segment decreased by 5.6%6.2% for the year ended December 31, 20172020 as compared to the same period in 2016. The decline in net premiums earned was2019 primarily due to the Company discontinuing onea continued reduction of its programs within the Commercial Lines as well as the Company ceding additional premiums under the new Property Catastrophe Quota Share Treaty which was effective April 15, 2017. This decline was partially offset bycatastrophe exposed business and a reduction in business not providing an increase in gross premiums due to the introduction of a new program.adequate return on capital. Property net earned premiums earned were $90.0$122.6 million and $102.4$129.5 million for the years ended December 31, 20172020 and 2016,2019, respectively. Casualty net earned premiums earned were $88.8$8.6 million and $87.0$10.8 million for the years ended December 31, 20172020 and 2016,2019, respectively. Net earned premiums earned within the Commercial LinesSpecialty Property segment decreasedincreased by 4.6%8.9% for the year ended December 31, 20162019 as compared to the same period in 2015. The decline in net premiums earned was2018 primarily due to decreasing the Company’s property retention, the purchase of additional property excess of loss reinsurance, and a slight reductionan increase in gross premiums written.net written premiums. Property net earned premiums earned were $102.4$129.5 million and $112.6$117.7 million for the years ended December 31, 20162019 and 2015,2018, respectively. Casualty net earned premiums earned were $87.0$10.8 million and $85.8$11.1 million for the years ended December 31, 20162019 and 2015,2018, respectively. 51
Net earned premiums within the Farm, Ranch & Stable segment increased by 6.8% for the year ended December 31, 2020 as compared to the same period in 2019 primarily due to a growth in premiums written in prior periods as a result of rate increases and new agent appointments. Property net earned premiums were $55.8 million and $50.9 million for the years ended December 31, 2020 and 2019, respectively. Casualty net earned premiums were $20.4 million for each of the years ended December 31, 2020 and 2019. Net earned premiums within the Farm, Ranch & Stable segment increased by 3.0% for the year ended December 31, 2019 as compared to the same period in 2018 primarily due to a growth of the business as a result of adding new agents. Property net earned premiums were $50.9 million and $49.6 million for the years ended December 31, 2019 and 2018, respectively. Casualty net earned premiums were $20.4 million and $19.6 million for the years ended December 31, 2019 and 2018, respectively. Net earned premiums within the Reinsurance Operations segment decreased by 2.1% for the year ended December 31, 2020 as compared to the same period in 2019 due to the non-renewal of its property catastrophe treaties partially offset by the new casualty treaty entered into during 2019. Property net earned premiums were $28.3 million and $56.8 million for the years ended December 31, 2020 and 2019, respectively. Casualty net earned premiums were $46.1 million and $19.2 million for the years ended December 31, 2020 and 2019, respectively. Net earned premiums within the Reinsurance Operations segment increased by 4.1%47.8% for the year ended December 31, 20172019 as compared to the same period in 2016. This increase was2018 primarily due to agrowth in gross written premiums within the property catastrophe line of business as well as the new mortgagecasualty treaty written in the fourth quarter of 2016 which is expected to earn out over an eight year period. This new mortgage insurance treaty will not be renewed.entered into during 2019. Property net earned premiums earned were $38.4$56.8 million and $37.6$45.2 million for the years ended December 31, 20172019 and 2016,2018, respectively. Casualty net earned premiums earned were $4.8$19.2 million and $4.0$6.2 million for the years ended December 31, 20172019 and 2016,2018, respectively. Net premiums earned within the Reinsurance Operations segment decreased by 19.7% for the year ended December 31, 2016 as compared to the same period in 2015. The decline in net premiums earned was primarily due to one treaty beingnon-renewed in 2016 in an effort to reduce catastrophe exposure. Property net premiums earned were $37.6 million and $49.5 million for the years ended December 31, 2016 and 2015, respectively. Casualty net premiums earned were $4.0 million and $2.3 million for the years ended December 31, 2016 and 2015, respectively.
Underwriting Results Personal LinesCommercial Specialty
The components of income from the Company’s Personal LinesCommercial Specialty segment and corresponding underwriting ratios are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | %
Change | | | Years Ended
December 31, | | | %
Change | | | (Dollars in thousands) | | 2017 (3) | | | 2016 (3) | | | | 2016 (3) | | | 2015 (3) | | | Gross premiums written (1) | | $ | 249,777 | | | $ | 302,947 | | | | (17.6 | %) | | $ | 302,947 | | | $ | 327,147 | | | | (7.4 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 209,799 | | | $ | 228,183 | | | | (8.1 | %) | | $ | 228,183 | | | $ | 253,157 | | | | (9.9 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 215,983 | | | $ | 237,555 | | | | (9.1 | %) | | $ | 237,555 | | | $ | 253,948 | | | | (6.5 | %) | Other income | | | 6,288 | | | | 3,712 | | | | 69.4 | % | | | 3,712 | | | | 3,493 | | | | 6.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 222,271 | | | | 241,267 | | | | (7.9 | %) | | | 241,267 | | | | 257,441 | | | | (6.3 | %) | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 165,798 | | | | 174,528 | | | | (5.0 | %) | | | 174,528 | | | | 163,045 | | | | 7.0 | % | Acquisition costs and other underwriting expenses (2) | | | 93,113 | | | | 99,109 | | | | (6.0 | %) | | | 99,109 | | | | 97,687 | | | | 1.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | $ | (36,640 | ) | | $ | (32,370 | ) | | | (13.2 | %) | | $ | (32,370 | ) | | $ | (3,291 | ) | | | NM | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | (Dollars in thousands) | | 2020 | | | 2019 (2) | | | Change | | | 2019 (2) | | | 2018 (2) | | | Change | | Gross written premiums | | $ | 321,879 | | | $ | 297,332 | | | | 8.3 | % | | $ | 297,332 | | | $ | 249,948 | | | | 19.0 | % | Net written premiums | | $ | 292,216 | | | $ | 258,719 | | | | 12.9 | % | | $ | 258,719 | | | $ | 226,827 | | | | 14.1 | % | Net earned premiums | | $ | 285,694 | | | $ | 237,758 | | | | 20.2 | % | | $ | 237,758 | | | $ | 218,357 | | | | 8.9 | % | Total revenues | | | 285,694 | | | | 237,758 | | | | 20.2 | % | | | 237,758 | | | | 218,357 | | | | 8.9 | % | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 155,271 | | | | 108,911 | | | | 42.6 | % | | | 108,911 | | | | 114,476 | | | | (4.9 | %) | Acquisition costs and other underwriting expenses (1) | | | 104,659 | | | | 96,475 | | | | 8.5 | % | | | 96,475 | | | | 87,371 | | | | 10.4 | % | Underwriting income | | $ | 25,764 | | | $ | 32,372 | | | | (20.4 | %) | | $ | 32,372 | | | $ | 16,510 | | | | 96.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | Point
Change | | | Years Ended
December 31, | | | Point
Change | | | | | 2017 (3) | | | 2016 (3) | | | | 2016 (3) | | | 2015 (3) | | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year | | | 79.8 | % | | | 73.5 | % | | | 6.3 | | | | 73.5 | % | | | 64.4 | % | | | 9.1 | | Prior accident year | | | (3.1 | %) | | | 0.0 | % | | | (3.1 | ) | | | 0.0 | % | | | (0.2 | %) | | | 0.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Calendar year loss ratio | | | 76.7 | % | | | 73.5 | % | | | 3.2 | | | | 73.5 | % | | | 64.2 | % | | | 9.3 | | Expense ratio | | | 43.1 | % | | | 41.7 | % | | | 1.4 | | | | 41.7 | % | | | 38.5 | % | | | 3.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Combined ratio | | | 119.8 | % | | | 115.2 | % | | | 4.6 | | | | 115.2 | % | | | 102.7 | % | | | 12.5 | | | | | | | | | | | | | | | | | | | | | | | | | | |
NM — not meaningful
| | Years Ended December 31, | | | Point | | | Years Ended December 31, | | | Point | | | | 2020 | | | 2019 (2) | | | Change | | | 2019 (2) | | | 2018 (2) | | | Change | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year | | | 60.5 | % | | | 53.5 | % | | | 7.0 | | | | 53.5 | % | | | 55.7 | % | | | (2.2 | ) | Prior accident year | | | (6.2 | %) | | | (7.7 | %) | | | 1.5 | | | | (7.7 | %) | | | (3.3 | %) | | | (4.4 | ) | Calendar year loss ratio | | | 54.3 | % | | | 45.8 | % | | | 8.5 | | | | 45.8 | % | | | 52.4 | % | | | (6.6 | ) | Expense ratio | | | 36.6 | % | | | 40.6 | % | | | (4.0 | ) | | | 40.6 | % | | | 40.0 | % | | | 0.6 | | Combined ratio | | | 90.9 | % | | | 86.4 | % | | | 4.5 | | | | 86.4 | % | | | 92.4 | % | | | (6.0 | ) |
(1) | Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of ($1.3) million, $35.3 million, and $55.8 during the years ended December 31, 2017, 2016, and 2015, respectively. |
(2) | Includes excise tax related to cessions from the Company’s Personal LinesCommercial Specialty segment to its Reinsurance Operations of $0.9$0.4 million $0.9 million, and $1.3 millionfor the year ended December 31, 2018, respectively. Due to the termination of the quota share agreement in 2018, there was no excise tax related to cessions from the Company’s Commercial Specialty segment to its Reinsurance Operations for the years ended December 31, 2017, 2016,2020 and 2015, respectively.2019. |
(3)(2) | Includes business ceded to the Company’s Reinsurance Operations.Operations under a quota share agreement. This quota share agreement was cancelled effective January 1, 2018. |
Premiums52
See “ResultReconciliation of Operations” above for a discussion on consolidated premiums for 2017.
Other Income
Other income was $6.3 million, $3.7 million and $3.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. Other income is primarily comprised of fee income on installments, commission income, and accrued interest on the anticipated indemnification of unpaid loss and loss adjustment expense reserves. In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., any variance paid related to the loss indemnification will be subject to interest of 5% compounded
semi-annually. The increase in other income is primarily the result of the Company increasing its estimate of unpaid losses and loss adjustment expenses that would be indemnified by $19.4 million and $1.5 million during 2017 and 2016, respectively.
Loss Ratio
The current accident year losses and loss ratio is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | %
Change | | | Years Ended
December 31, | | | %
Change | | | (Dollars in thousands) | | 2017 | | | 2016 | | | | 2016 | | | 2015 | | | Property losses | | | | | | | | | | | | | | | | | | | | | | | | | Catastrophe | | $ | 51,015 | | | $ | 58,590 | | | | (12.9 | %) | | $ | 58,590 | | | $ | 33,961 | | | | 72.5 | % | Non-catastrophe | | | 98,676 | | | | 91,521 | | | | 7.8 | % | | | 91,521 | | | | 110,225 | | | | (17.0 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Property losses | | | 149,691 | | | | 150,111 | | | | (0.3 | %) | | | 150,111 | | | | 144,186 | | | | 4.1 | % | Casualty losses | | | 22,711 | | | | 24,398 | | | | (6.9 | %) | | | 24,398 | | | | 19,285 | | | | 26.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total accident year losses | | $ | 172,402 | | | $ | 174,509 | | | | (1.2 | %) | | $ | 174,509 | | | $ | 163,471 | | | | 6.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | Point
Change | | | Years Ended
December 31, | | | Point
Change | | | | | 2017 | | | 2016 | | | | 2016 | | | 2015 | | | Current accident year loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | | | | | | | | | Catastrophe | | | 27.8 | % | | | 28.8 | % | | | (1.0 | ) | | | 28.8 | % | | | 15.2 | % | | | 13.6 | | Non-catastrophe | | | 53.8 | % | | | 45.1 | % | | | 8.7 | | | | 45.1 | % | | | 49.3 | % | | | (4.2 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Property loss ratio | | | 81.6 | % | | | 73.9 | % | | | 7.7 | | | | 73.9 | % | | | 64.5 | % | | | 9.4 | | Casualty loss ratio | | | 69.8 | % | | | 70.9 | % | | | (1.1 | ) | | | 70.9 | % | | | 63.6 | % | | | 7.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total accident year loss ratio | | | 79.8 | % | | | 73.5 | % | | | 6.3 | | | | 73.5 | % | | | 64.4 | % | | | 9.1 | | | | | | | | | | | | | | | | | | | | | | | | | | |
The current accident year catastrophe loss ratio for 2017 improved by 1.0 point compared to 2016. 2016 included net losses from the Tennessee wildfires as well as some smaller catastrophes. 2017 included catastrophe losses from hurricanes Harvey, Irma, and Maria as well as losses from the California wildfires. The current accident year catastrophe loss ratio for 2016 increased by 13.6 points compared to 2015 primarily due to the higher catastrophe losses experienced during the fourth accident quarter of 2016, particularly from the Tennessee Wildfires.
The current accident yearnon-catastrophe loss ratio for 2017 increased by 8.7 point compared to 2016 mainly due to higher claims frequency and severity compared to last year. The current accident yearnon-catastrophe loss ratio for 2016 improved by 4.2 point compared to 2015 mainly due to lower case incurred emergence resulting from a decrease in reported claim frequency.
The current accident year casualty loss ratio for 2017 improved by 1.1 points compared to 2016 driven primarily by lower reported claims frequency as compared to the same period last year. The current accident year casualty loss ratio for 2016 increased by 7.3 points compared to 2015 mainly due to an increase in claims severity compared to the previous year.
The calendar year loss ratio for the years ended December 31, 2017, 2016, and 2015 includes a decrease of $6.6 million, or 3.1 percentage points, an increase of $0.02 million, or less than 0.1 percentage points, and a decrease of $0.4 million, or 0.2 percentage points, respectively, related to reserve development on prior accident years. There were no changes to net prior accident year losses during the year ended December 31, 2015. Please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further discussion on prior accident year development.
Reconciliation ofnon-GAAP financial measures and ratios
The table below reconciles thenon-GAAP measures or ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP measure or ratio. The Company believes thenon-GAAP measures or ratios are useful to investors when evaluating the Company’sCompany's underwriting performance as trends in the Company’s Personal LinesCompany's Commercial Specialty segment may be obscured by prior accident year adjustments. Thesenon-GAAP measures or ratios should not be considered as a substitute for its most directly comparable GAAP measure or ratio and does not reflect the overall underwriting profitability of the Company. | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | | | | Losses $ | | Loss
Ratio | | Losses $ | | Loss
Ratio | | Losses $ | | Loss
Ratio | | | Losses | | | Loss Ratio | | | Losses | | | Loss Ratio | | | Losses | | | Loss Ratio | | Property | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non catastrophe property losses and ratio excluding the effect of prior accident year (1) | | $ | 98,676 | | | 53.8 | % | | $ | 91,521 | | | 45.1 | % | | $ | 110,225 | | | 49.3 | % | | $ | 59,424 | | | | 45.3 | % | | $ | 46,026 | | | | 41.6 | % | | $ | 49,846 | | | | 43.3 | % | Effect of prior accident year | | (3,933 | ) | | (2.1 | %) | | 39 | | | | — | | | (314 | ) | | (0.1 | %) | | | (684 | ) | | | (0.5 | %) | | | (4,310 | ) | | | (3.9 | %) | | | (1,251 | ) | | | (1.1 | %) | | | | | | | | | | | | | | | | | | | | | Non catastrophe property losses and ratio (2) | | $ | 94,743 | | | 51.6 | % | | $ | 91,560 | | | 45.1 | % | | $ | 109,911 | | | 49.2 | % | | $ | 58,740 | | | | 44.8 | % | | $ | 41,716 | | | | 37.7 | % | | $ | 48,595 | | | | 42.2 | % | | | | | | | | | | | | | | | | | | | | | Catastrophe losses and ratio excluding the effect of prior accident year (1) | | $ | 51,015 | | | 27.8 | % | | $ | 58,590 | | | 28.8 | % | | $ | 33,961 | | | 15.2 | % | | $ | 27,254 | | | | 20.8 | % | | $ | 9,996 | | | | 9.0 | % | | $ | 12,179 | | | | 10.6 | % | Effect of prior accident year | | (2,188 | ) | | (1.2 | %) | | (20 | ) | | | — | | | (112 | ) | | (0.1 | %) | | | 6,479 | | | | 4.9 | % | | | 3,387 | | | | 3.1 | % | | | (626 | ) | | | (0.5 | %) | | | | | | | | | | | | | | | | | | | | | Catastrophe losses and ratio (2) | | $ | 48,827 | | | 26.6 | % | | $ | 58,570 | | | 28.8 | % | | $ | 33,849 | | | 15.1 | % | | $ | 33,733 | | | | 25.7 | % | | $ | 13,383 | | | | 12.1 | % | | $ | 11,553 | | | | 10.1 | % | | | | | | | | | | | | | | | | | | | | | Total property losses and ratio excluding the effect of prior accident year (1) | | $ | 149,691 | | | 81.6 | % | | $ | 150,111 | | | 73.9 | % | | $ | 144,186 | | | 64.5 | % | | $ | 86,678 | | | | 66.1 | % | | $ | 56,022 | | | | 50.6 | % | | $ | 62,025 | | | | 53.9 | % | Effect of prior accident year | | (6,121 | ) | | (3.3 | %) | | 19 | | | | — | | | (426 | ) | | (0.2 | %) | | | 5,795 | | | | 4.4 | % | | | (923 | ) | | | (0.8 | %) | | | (1,877 | ) | | | (1.6 | %) | | | | | | | | | | | | | | | | | | | | | Total property losses and ratio (2) | | $ | 143,570 | | | 78.3 | % | | $ | 150,130 | | | 73.9 | % | | $ | 143,760 | | | 64.3 | % | | $ | 92,473 | | | | 70.5 | % | | $ | 55,099 | | | | 49.8 | % | | $ | 60,148 | | | | 52.3 | % | | | | | | | | | | | | | | | | | | | | | Casualty | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Casualty losses and ratio excluding the effect of prior accident year (1) | | $ | 22,711 | | | 69.8 | % | | $ | 24,398 | | | 70.9 | % | | $ | 19,285 | | | 63.6 | % | | $ | 86,219 | | | | 55.8 | % | | $ | 71,255 | | | | 56.1 | % | | $ | 59,701 | | | | 57.9 | % | Effect of prior accident year | | (483 | ) | | (1.5 | %) | | | — | | | | — | | | | — | | | | — | | | | (23,421 | ) | | | (15.2 | %) | | | (17,443 | ) | | | (13.7 | %) | | | (5,373 | ) | | | (5.2 | %) | | | | | | | | | | | | | | | | | | | | | Total Casualty losses and ratio (2) | | $ | 22,228 | | | 68.4 | % | | $ | 24,398 | | | 70.9 | % | | $ | 19,285 | | | 63.6 | % | | $ | 62,798 | | | | 40.6 | % | | $ | 53,812 | | | | 42.4 | % | | $ | 54,328 | | | | 52.7 | % | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) | | $ | 172,402 | | | 79.8 | % | | $ | 174,509 | | | 73.5 | % | | $ | 163,471 | | | 64.4 | % | | $ | 172,897 | | | | 60.5 | % | | $ | 127,277 | | | | 53.5 | % | | $ | 121,726 | | | | 55.7 | % | Effect of prior accident year | | (6,604 | ) | | (3.1 | %) | | 19 | | | | — | | | (426 | ) | | (0.2 | %) | | | (17,626 | ) | | | (6.2 | %) | | | (18,366 | ) | | | (7.7 | %) | | | (7,250 | ) | | | (3.3 | %) | | | | | | | | | | | | | | | | | | | | | Total net losses and loss adjustment expense and total loss ratio (2) | | $ | 165,798 | | | 76.7 | % | | $ | 174,528 | | | 73.5 | % | | $ | 163,045 | | | 64.2 | % | | $ | 155,271 | | | | 54.3 | % | | $ | 108,911 | | | | 45.8 | % | | $ | 114,476 | | | | 52.4 | % | | | | | | | | | | | | | | | | | | | | |
(1) | Non-GAAP measure / ratio |
(2) | Most directly comparable GAAP measure / ratio |
Expense Ratios
The expense ratio increased 1.4 points from 41.7% for 2016 to 43.1% for 2017 mainly due to a reduction in Personal Lines’ net premiums earned in 2017 as compared to 2016; as a result of underwriting actions taken to improve profitability.
The expense ratio increased 3.2 points from 38.5% for 2015 to 41.7% for 2016 primarily due to the reduction in earned premiums in 2016 as a result of the quota share arrangement and the purchase of additional reinsurance.
The increase in the expense ratio was also due to the 2015 expense ratio benefitting from accounting adjustments related to the purchase of American Reliable.
Commercial Lines
The components of income from the Company’s Commercial Lines segment and corresponding underwriting ratios are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | %
Change | | | Years Ended
December 31, | | | %
Change | | | (Dollars in thousands) | | 2017 (2) | | | 2016 (2) | | | | 2016 (2) | | | 2015 (2) | | | Gross premiums written | | $ | 212,670 | | | $ | 203,061 | | | | 4.7 | % | | $ | 203,061 | | | $ | 213,353 | | | | (4.8 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 186,448 | | | $ | 182,956 | | | | 1.9 | % | | $ | 182,956 | | | $ | 198,404 | | | | (7.8 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 178,798 | | | $ | 189,342 | | | | (5.6 | %) | | $ | 189,342 | | | $ | 198,404 | | | | (4.6 | %) | Other income | | | 78 | | | | 6,857 | | | | (98.9 | %) | | | 6,857 | | | | — | | | | NM | | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 178,876 | | | | 196,199 | | | | (8.8 | %) | | | 196,199 | | | | 198,404 | | | | (1.1 | %) | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 62,834 | | | | 75,401 | | | | (16.7 | %) | | | 75,401 | | | | 98,471 | | | | (23.4 | %) | Acquisition costs and other underwriting expenses (1) | | | 75,990 | | | | 81,477 | | | | (6.7 | %) | | | 81,477 | | | | 84,623 | | | | (3.7 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | $ | 40,052 | | | $ | 39,321 | | | | 1.9 | % | | $ | 39,321 | | | $ | 15,310 | | | | 156.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | Point
Change | | | Years Ended
December 31, | | | Point
Change | | | | | 2017 (2) | | | 2016 (2) | | | | 2016 (2) | | | 2015 (2) | | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year | | | 57.2 | % | | | 63.0 | % | | | (5.8 | ) | | | 63.0 | % | | | 62.3 | % | | | 0.7 | | Prior accident year | | | (22.0 | %) | | | (23.1 | %) | | | 1.1 | | | | (23.1 | %) | | | (12.7 | %) | | | (10.4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Calendar year loss ratio | | | 35.2 | % | | | 39.9 | % | | | (4.7 | ) | | | 39.9 | % | | | 49.6 | % | | | (9.7 | ) | Expense ratio | | | 42.5 | % | | | 43.0 | % | | | (0.5 | ) | | | 43.0 | % | | | 42.7 | % | | | 0.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | Combined ratio | | | 77.7 | % | | | 82.9 | % | | | (5.2 | ) | | | 82.9 | % | | | 92.3 | % | | | (9.4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
NM — not meaningful
(1) | Includes excise tax related to cessions from the Company’s Commercial Lines to its Reinsurance Operations of $0.7 million, $0.8 million, and $1.0 million for the years ended December 31, 2017, 2016, and 2015, respectively. |
(2) | Includes business ceded to the Company’s Reinsurance Operations. |
Premiums See “Result of Operations” above for a discussion on consolidated premiums. Other Income53
Other income was $0.1 million and $6.9 million for the years ended December 31, 2017 and 2016, respectively. There was no other income in 2015. For the years ended December 31, 2017, other income is primarily comprised of fee income. For the year ended December 31, 2016, other income is comprised of the net gain on the asset sale of the Company’s wholly owned subsidiary, United National Specialty Insurance Company.
Loss Ratio The current accident year losses and loss ratio is summarized as follows: | | | | Years Ended
December 31, | | %
Change | | | Years Ended
December 31, | | %
Change | | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | | (Dollars in thousands) | | 2017 | | 2016 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Property losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-catastrophe | | | $ | 59,424 | | | $ | 46,026 | | | | 29.1 | % | | $ | 46,026 | | | $ | 49,846 | | | | (7.7 | %) | Catastrophe | | $ | 10,081 | | | $ | 13,550 | | | (25.6 | %) | | $ | 13,550 | | | $ | 11,037 | | | 22.8 | % | | | 27,254 | | | | 9,996 | | | | 172.6 | % | | | 9,996 | | | | 12,179 | | | | (17.9 | %) | Non-catastrophe | | 35,879 | | | 49,812 | | | (28.0 | %) | | 49,812 | | | 53,865 | | | (7.5 | %) | | | | | | | | | | | | | | | | | | | | | | Property losses | | 45,960 | | | 63,362 | | | (27.5 | %) | | 63,362 | | | 64,902 | | | (2.4 | %) | | | 86,678 | | | | 56,022 | | | | 54.7 | % | | | 56,022 | | | | 62,025 | | | | (9.7 | %) | Casualty losses | | 56,229 | | | 55,842 | | | 0.7 | % | | 55,842 | | | 58,771 | | | (5.0 | %) | | | 86,219 | | | | 71,255 | | | | 21.0 | % | | | 71,255 | | | | 59,701 | | | | 19.4 | % | | | | | | | | | | | | | | | | | | | | | Total accident year losses | | $ | 102,189 | | | $ | 119,204 | | | (14.3 | %) | | $ | 119,204 | | | $ | 123,673 | | | (3.6 | %) | | $ | 172,897 | | | $ | 127,277 | | | | 35.8 | % | | $ | 127,277 | | | $ | 121,726 | | | | 4.6 | % | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Years Ended December 31, | | | Point | | | Years Ended December 31, | | | Point | | | | | Years Ended
December 31, | | Point
Change | | | Years Ended
December 31, | | Point
Change | | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | | | | 2017 | | 2016 | | 2016 | | 2015 | | | Current accident year loss ratio: | | | | | | | | | | | | | | Current accident year loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-catastrophe | | | | 45.3 | % | | | 41.6 | % | | | 3.7 | | | | 41.6 | % | | | 43.3 | % | | | (1.7 | ) | Catastrophe | | 11.2 | % | | 13.2 | % | | (2.0 | ) | | 13.2 | % | | 9.8 | % | | 3.4 | | | | 20.8 | % | | | 9.0 | % | | | 11.8 | | | | 9.0 | % | | | 10.6 | % | | | (1.6 | ) | Non-catastrophe | | 39.8 | % | | 48.7 | % | | (8.9 | ) | | 48.7 | % | | 47.9 | % | | 0.8 | | | | | | | | | | | | | | | | | | | | | | | Property loss ratio | | 51.0 | % | | 61.9 | % | | (10.9 | ) | | 61.9 | % | | 57.7 | % | | 4.2 | | | | 66.1 | % | | | 50.6 | % | | | 15.5 | | | | 50.6 | % | | | 53.9 | % | | | (3.3 | ) | Casualty loss ratio | | 63.4 | % | | 64.2 | % | | (0.8 | ) | | 64.2 | % | | 68.5 | % | | (4.3 | ) | | | 55.8 | % | | | 56.1 | % | | | (0.3 | ) | | | 56.1 | % | | | 57.9 | % | | | (1.8 | ) | | | | | | | | | | | | | | | | | | | | | Total accident year loss ratio | | 57.2 | % | | 63.0 | % | | (5.8 | ) | | 63.0 | % | | 62.3 | % | | 0.7 | | | | 60.5 | % | | | 53.5 | % | | | 7.0 | | | | 53.5 | % | | | 55.7 | % | | | (2.2 | ) | | | | | | | | | | | | | | | | | | | | |
The current accident year catastrophe loss ratio for 2017 improved by 2.0 points compared to 2016 primarily due to lower claims severity in 2017. The current accident year catastrophe loss ratio for 2016 increased by 3.4 points compared to 2015 primarily due to losses from convective storms occurring during the first six months of the year.
The current accident year propertynon-catastrophe loss ratio for 2017 improved2020 increased by 8.93.7 points compared to 20162019. The increase in the loss ratio primarily due to Property Brokerage having several large losses in 2016.reflects a higher claims severity as the claims incurred frequency was up slightly at twelve months of development from last year. The current accident year propertynon-catastrophe loss ratio for 2016 increased2019 improved by 0.81.7 points compared to 2015.2018. The loss ratio improvement reflects a lower claims severity compared to last year as each accident quarter except for the third accident quarter had a lower claims severity compared to the same accident quarters last year. The twelve-month claims incurred frequency was unchanged from last year. The current accident year property catastrophe loss ratio for 2020 increased by 11.8 points compared to 2019 due to a higher claims frequency and severity. The current accident year property catastrophe loss ratio for 2019 improved by 1.6 points compared to 2018 reflecting a lower claims severity compared to last year. The twelve-month claims incurred frequency was equivalent to last year. The current accident year casualty loss ratio for 20172020 improved by 0.80.3 points compared to 2016 driven primarily by2019 reflecting a lower reported claims frequency as compared to the same period last year.at twelve months of development. The current accident year casualty loss ratio for 20162019 improved by 4.31.8 points compared to 2015 mainly due2018 reflecting lower claims frequency compared to last year. The claims frequency was lower for each accident quarter compared to the decrease in reported claim frequency which reflects the milder winter weather experienced during 2016. Also, underwriting actions and rate increases over the past several years have contributed to the improvement experienced to date.same accident quarters last year. The calendar year loss ratio for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 includes a decrease of $39.4$17.6 million, or 22.06.2% percentage points, a decrease of $43.8$18.4 million or 23.17.7% percentage points, and a decrease of $25.2$7.3 million or 12.73.3% percentage points, respectively, related to reserve development on prior accident years. Please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further discussion on prior accident year development. Expense Ratios The expense ratio improved 4.0 points from 40.6% for 2019 to 36.6% for 2020 primarily due to higher earned premiums. The expense ratio increased 0.6 points from 40.0% for 2018 to 40.6% for 2019 primarily due to an increase in compensation cost related to good results for 2019. COVID-19 COVID-19 could result in declines in business, non-payment of premiums, and increases in claims that could adversely affect Commercial Specialty’s business, financial condition, and results of operation. 54
There is risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within the Company’s Commercial Specialty policies, or other conditions included in these policies that would otherwise preclude coverage. Specialty Property The components of income from the Company’s Specialty Property segment and corresponding underwriting ratios are as follows: | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | (Dollars in thousands) | | 2020 | | | 2019 (3) | | | Change | | | 2019 (3) | | | 2018 (3) | | | Change | | Gross written premiums (1) | | $ | 138,401 | | | $ | 163,503 | | | | (15.4 | %) | | $ | 163,503 | | | $ | 170,168 | | | | (3.9 | %) | Net written premiums | | $ | 121,111 | | | $ | 140,670 | | | | (13.9 | %) | | $ | 140,670 | | | $ | 127,470 | | | | 10.4 | % | Net earned premiums | | $ | 131,474 | | | $ | 140,232 | | | | (6.2 | %) | | $ | 140,232 | | | $ | 128,768 | | | | 8.9 | % | Other income | | | 1,705 | | | | 1,820 | | | | (6.3 | %) | | | 1,820 | | | | 1,782 | | | | 2.1 | % | Total revenues | | | 133,179 | | | | 142,052 | | | | (6.2 | %) | | | 142,052 | | | | 130,550 | | | | 8.8 | % | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 94,540 | | | | 75,426 | | | | 25.3 | % | | | 75,426 | | | | 122,709 | | | | (38.5 | %) | Acquisition costs and other underwriting expenses (2) | | | 55,547 | | | | 58,768 | | | | (5.5 | %) | | | 58,768 | | | | 55,760 | | | | 5.4 | % | Underwriting income (loss) | | $ | (16,908 | ) | | $ | 7,858 | | | NM | | | $ | 7,858 | | | $ | (47,919 | ) | | | 116.4 | % |
| | Years Ended December 31, | | | Point | | | Years Ended December 31, | | | Point | | | | 2020 | | | 2019 (3) | | | Change | | | 2019 (3) | | | 2018 (3) | | | Change | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year | | | 76.9 | % | | | 61.5 | % | | | 15.4 | | | | 61.5 | % | | | 101.4 | % | | | (39.9 | ) | Prior accident year | | | (5.0 | %) | | | (7.7 | %) | | | 2.7 | | | | (7.7 | %) | | | (6.1 | %) | | | (1.6 | ) | Calendar year loss ratio | | | 71.9 | % | | | 53.8 | % | | | 18.1 | | | | 53.8 | % | | | 95.3 | % | | | (41.5 | ) | Expense ratio | | | 42.2 | % | | | 41.9 | % | | | 0.3 | | | | 41.9 | % | | | 43.3 | % | | | (1.4 | ) | Combined ratio | | | 114.1 | % | | | 95.7 | % | | | 18.4 | | | | 95.7 | % | | | 138.6 | % | | | (42.9 | ) |
(1) | Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of less than $0.1 million, ($0.3) million, and ($2.1) million during the years ended December 31, 2020, 2019, and 2018, respectively. |
(2) | Includes excise tax related to cessions from the Company’s Specialty Property segment to its Reinsurance Operations of $0.3 million for the year ended December 31, 2018. Due to the termination of the quota share agreement in 2018, there was no excise tax related to cessions from the Company’s Specialty Property segment to its Reinsurance Operations for the years ended December 31, 2020 and 2019. |
(3) | Includes business ceded to the Company’s Reinsurance Operations under a quota share agreement. This quota share agreement was cancelled effective January 1, 2018. |
55
Reconciliation ofnon-GAAP financial measures and ratios The table below reconciles thenon-GAAP measures or ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP measure or ratio. The Company believes thenon-GAAP measures or ratios are useful to investors when evaluating the Company’sCompany's underwriting performance as trends in the Company’s Commercial LinesCompany's Specialty Property segment may be obscured by prior accident year adjustments. Thesenon-GAAP measures or ratios should not be considered as a substitute for its most directly comparable GAAP measure or ratio and does not reflect the overall underwriting profitability of the Company. | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | | | | Losses $ | | Loss
Ratio | | Losses $ | | Loss
Ratio | | Losses $ | | Loss
Ratio | | | Losses | | | Loss Ratio | | | Losses | | | Loss Ratio | | | Losses | | | Loss Ratio | | Property | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non catastrophe property losses and ratio excluding the effect of prior accident year (1) | | $ | 35,879 | | | 39.8 | % | | $ | 49,812 | | | 48.7 | % | | $ | 53,865 | | | 47.9 | % | | $ | 52,022 | | | | 42.4 | % | | $ | 67,944 | | | | 52.5 | % | | $ | 68,492 | | | | 58.2 | % | Effect of prior accident year | | (4,903 | ) | | (5.4 | %) | | 926 | | | 0.9 | % | | (887 | ) | | (0.8 | %) | | | (3,192 | ) | | | (2.6 | %) | | | 121 | | | | 0.1 | % | | | (4,153 | ) | | | (3.5 | %) | | | | | | | | | | | | | | | | | | | | | Non catastrophe property losses and ratio (2) | | $ | 30,976 | | | 34.4 | % | | $ | 50,738 | | | 49.6 | % | | $ | 52,978 | | | 47.1 | % | | $ | 48,830 | | | | 39.8 | % | | $ | 68,065 | | | | 52.6 | % | | $ | 64,339 | | | | 54.7 | % | | | | | | | | | | | | | | | | | | | | | Catastrophe losses and ratio excluding the effect of prior accident year (1) | | $ | 10,081 | | | 11.2 | % | | $ | 13,550 | | | 13.2 | % | | $ | 11,037 | | | 9.8 | % | | $ | 45,149 | | | | 36.8 | % | | $ | 12,375 | | | | 9.6 | % | | $ | 54,905 | | | | 46.7 | % | Effect of prior accident year | | (1,351 | ) | | (1.5 | %) | | (482 | ) | | (0.5 | %) | | 361 | | | 0.3 | % | | | (1,295 | ) | | | (1.1 | %) | | | (10,308 | ) | | | (8.0 | %) | | | (1,575 | ) | | | (1.3 | %) | | | | | | | | | | | | | | | | | | | | | Catastrophe losses and ratio (2) | | $ | 8,730 | | | 9.7 | % | | $ | 13,068 | | | 12.7 | % | | $ | 11,398 | | | 10.1 | % | | $ | 43,854 | | | | 35.7 | % | | $ | 2,067 | | | | 1.6 | % | | $ | 53,330 | | | | 45.4 | % | | | | | | | | | | | | | | | | | | | | | Total property losses and ratio excluding the effect of prior accident year (1) | | $ | 45,960 | | | 51.0 | % | | $ | 63,362 | | | 61.9 | % | | $ | 64,902 | | | 57.7 | % | | $ | 97,171 | | | | 79.2 | % | | $ | 80,319 | | | | 62.1 | % | | $ | 123,397 | | | | 104.9 | % | Effect of prior accident year | | (6,255 | ) | | (6.9 | %) | | 444 | | | 0.4 | % | | (526 | ) | | (0.5 | %) | | | (4,487 | ) | | | (3.7 | %) | | | (10,187 | ) | | | (7.9 | %) | | | (5,728 | ) | | | (4.8 | %) | | | | | | | | | | | | | | | | | | | | | Total property losses and ratio (2) | | $ | 39,705 | | | 44.1 | % | | $ | 63,806 | | | 62.3 | % | | $ | 64,376 | | | 57.2 | % | | $ | 92,684 | | | | 75.5 | % | | $ | 70,132 | | | | 54.2 | % | | $ | 117,669 | | | | 100.1 | % | | | | | | | | | | | | | | | | | | | | | Casualty | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Casualty losses and ratio excluding the effect of prior accident year (1) | | $ | 56,229 | | | 63.4 | % | | $ | 55,842 | | | 64.2 | % | | $ | 58,771 | | | 68.5 | % | | $ | 3,968 | | | | 44.8 | % | | $ | 5,957 | | | | 55.3 | % | | $ | 7,198 | | | | 64.8 | % | Effect of prior accident year | | (33,100 | ) | | (37.3 | %) | | (44,247 | ) | | (50.9 | %) | | (24,676 | ) | | (28.7 | %) | | | (2,112 | ) | | | (23.8 | %) | | | (663 | ) | | | (6.2 | %) | | | (2,158 | ) | | | (19.4 | %) | | | | | | | | | | | | | | | | | | | | | Total Casualty losses and ratio (2) | | $ | 23,129 | | | 26.1 | % | | $ | 11,595 | | | 13.3 | % | | $ | 34,095 | | | 39.8 | % | | $ | 1,856 | | | | 21.0 | % | | $ | 5,294 | | | | 49.1 | % | | $ | 5,040 | | | | 45.4 | % | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) | | $ | 102,189 | | | 57.2 | % | | $ | 119,204 | | | 63.0 | % | | $ | 123,673 | | | 62.3 | % | | $ | 101,139 | | | | 76.9 | % | | $ | 86,276 | | | | 61.5 | % | | $ | 130,595 | | | | 101.4 | % | Effect of prior accident year | | (39,355 | ) | | (22.0 | %) | | (43,803 | ) | | (23.1 | %) | | (25,202 | ) | | (12.7 | %) | | | (6,599 | ) | | | (5.0 | %) | | | (10,850 | ) | | | (7.7 | %) | | | (7,886 | ) | | | (6.1 | %) | | | | | | | | | | | | | | | | | | | | | Total net losses and loss adjustment expense and total loss ratio (2) | | $ | 62,834 | | | 35.2 | % | | $ | 75,401 | | | 39.9 | % | | $ | 98,471 | | | 49.6 | % | | $ | 94,540 | | | | 71.9 | % | | $ | 75,426 | | | | 53.8 | % | | $ | 122,709 | | | | 95.3 | % | | | | | | | | | | | | | | | | | | | | |
(3)(1) | Non-GAAP measure / ratio |
(4)(2) | Most directly comparable GAAP measure / ratio |
Expense Ratios
The expense ratio improved 0.5 points from 43.0% for 2016 to 42.5% for 2017.
The expense ratio increased 0.3 points from 42.7% for 2015 to 43.0% for 2016.
Reinsurance Operations
The components of income from the Company’s Reinsurance Operations segment and corresponding underwriting ratios are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | %
Change | | | Years Ended
December 31, | | | %
Change | | | (Dollars in thousands) | | 2017 (1) | | | 2016 (1) | | | | 2016 (1) | | | 2015 (1) | | | Gross premiums written | | $ | 53,887 | | | $ | 59,837 | | | | (9.9 | %) | | $ | 59,837 | | | $ | 49,733 | | | | 20.3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 53,933 | | | $ | 59,801 | | | | (9.8 | %) | | $ | 59,801 | | | $ | 49,683 | | | | 20.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 43,253 | | | $ | 41,568 | | | | 4.1 | % | | $ | 41,568 | | | $ | 51,791 | | | | (19.7 | %) | Other income (loss) | | | 216 | | | | (224 | ) | | | (196.4 | %) | | | (224 | ) | | | (93 | ) | | | 140.9 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Total revenues | | | 43,469 | | | | 41,344 | | | | 5.1 | % | | | 41,344 | | | | 51,698 | | | | (20.0 | %) | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 40,580 | | | | 14,074 | | | | 188.3 | % | | | 14,074 | | | | 13,852 | | | | 1.6 | % | Acquisition costs and other underwriting expenses | | | 14,630 | | | | 16,064 | | | | (8.9 | %) | | | 16,064 | | | | 18,993 | | | | (15.4 | %) | | | | | | | | | | | | | | | | | | | | | | | | | | Underwriting income (loss) | | $ | (11,741 | ) | | $ | 11,206 | | | | (204.8 | %) | | $ | 11,206 | | | $ | 18,853 | | | | (40.6 | %) | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Years Ended
December 31, | | | Point
Change | | | Years Ended
December 31, | | | Point
Change | | | | | 2017 (1) | | | 2016 (1) | | | | 2016 (1) | | | 2015 (1) | | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year (2) | | | 112.2 | % | | | 66.3 | % | | | 45.9 | | | | 66.3 | % | | | 44.3 | % | | | 22.0 | | Prior accident year | | | (18.4 | %) | | | (32.4 | %) | | | 14.0 | | | | (32.4 | %) | | | (17.5 | %) | | | (14.9 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Calendar year loss ratio (3) | | | 93.8 | % | | | 33.9 | % | | | 59.9 | | | | 33.9 | % | | | 26.8 | % | | | 7.1 | | Expense ratio | | | 33.8 | % | | | 38.6 | % | | | (4.8 | ) | | | 38.6 | % | | | 36.7 | % | | | 1.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | Combined ratio | | | 127.6 | % | | | 72.5 | % | | | 55.1 | | | | 72.5 | % | | | 63.5 | % | | | 9.0 | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | External business only, excluding business assumed from affiliates |
(3) | Most directly comparable GAAP ratio |
Reconciliation ofnon-GAAP financial ratios
The table above includes a reconciliation of the current accident year loss ratio, which is anon-GAAP ratio, to its calendar year loss ratio, which is its most directly comparable GAAP ratio. The Company believes thisnon-GAAP ratio is useful to investors when evaluating the Company’s underwriting performance as trends in the Company’s Reinsurance Operations may be obscured by prior accident year adjustments. Thisnon-GAAP ratio should not be considered as a substitute for its most directly comparable GAAP ratio and does not reflect the overall underwriting profitability of the Company.
Premiums See “Result of Operations” above for a discussion on consolidated premiums.premiums for 2020. Other Income (Loss) Reinsurance Operations recognized other income of $0.2 million in 2017, a loss of $0.2 million in 2016, and a loss of $0.1 million in 2015. Other income (loss)was $1.7 million, $1.8 million and $1.8 million for the years ended December 31, 2020, 2019, and 2018, respectively. Other income is primarily comprised of foreign exchange gains and losses.
56
Loss Ratio The current accident year losses and loss ratio is summarized as follows: | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | (Dollars in thousands) | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Property losses | | | | | | | | | | | | | | | | | | | | | | | | | Non-catastrophe | | $ | 52,022 | | | $ | 67,944 | | | | (23.4 | %) | | $ | 67,944 | | | $ | 68,492 | | | | (0.8 | %) | Catastrophe | | | 45,149 | | | | 12,375 | | | NM | | | | 12,375 | | | | 54,905 | | | | (77.5 | %) | Property losses | | | 97,171 | | | | 80,319 | | | | 21.0 | % | | | 80,319 | | | | 123,397 | | | | (34.9 | %) | Casualty losses | | | 3,968 | | | | 5,957 | | | | (33.4 | %) | | | 5,957 | | | | 7,198 | | | | (17.2 | %) | Total accident year losses | | $ | 101,139 | | | $ | 86,276 | | | | 17.2 | % | | $ | 86,276 | | | $ | 130,595 | | | | (33.9 | %) |
| | Years Ended December 31, | | | Point | | | Years Ended December 31, | | | Point | | | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Current accident year loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | | | | | | | | | Non-catastrophe | | | 42.4 | % | | | 52.5 | % | | | (10.1 | ) | | | 52.5 | % | | | 58.2 | % | | | (5.7 | ) | Catastrophe | | | 36.8 | % | | | 9.6 | % | | | 27.2 | | | | 9.6 | % | | | 46.7 | % | | | (37.1 | ) | Property loss ratio | | | 79.2 | % | | | 62.1 | % | | | 17.1 | | | | 62.1 | % | | | 104.9 | % | | | (42.8 | ) | Casualty loss ratio | | | 44.8 | % | | | 55.3 | % | | | (10.5 | ) | | | 55.3 | % | | | 64.8 | % | | | (9.5 | ) | Total accident year loss ratio | | | 76.9 | % | | | 61.5 | % | | | 15.4 | | | | 61.5 | % | | | 101.4 | % | | | (39.9 | ) |
NM – not meaningful The current accident year property non-catastrophe loss ratio for 2017 increased2020 improved by 45.910.1 points compared to 2016.2019. The increaseimprovement in the loss ratio was mainly attributable to the higher impact from catastrophes, primarily hurricanes Harvey, Irma,recognizes a lower claims frequency and Maria as well as the California wildfires, asseverity compared to the same period last year. The current accident year property non-catastrophe loss ratio for 2016 increased2019 improved by 22.05.7 points compared to 2015 primarily2018. The decrease in the loss ratio reflects a lower claims frequency compared to last year. The current accident year property linescatastrophe loss ratio for both2020 increased by 27.2 points compared to 2019 due to a higher claims frequency and severity at twelve months of development. The impact from Hurricanes Laura and Delta on the loss ratio was 18.8 points which were the two largest events impacting this segment. The current accident year property catastrophe loss ratio for 2019 improved by 37.1 points compared to 2018 reflecting a lower claims frequency andnon-catastrophe contracts. severity for each accident quarter. The higher catastrophe losses were being drivencurrent accident year casualty loss ratio for 2020 improved by the Fort McMurray fires in Canada, Hurricane Matthew,10.5 points compared to 2019. The improvement reflects a lower claims frequency and the New Zealand earthquake.severity compared to last year. The highernon-catastrophe experiencecurrent accident year casualty loss ratio for 2019 improved by 9.5 points compared to 2018. The improvement reflects the impact of the Jubilee platform breakdown in Africa.a lower claims frequency and severity compared to last year. The calendar year loss ratio for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 includes a decrease of $6.6 million, or 5.0 percentage points, a decrease of $10.9 million, or 7.7 percentage points, and an decrease of $7.9 million, or 18.4 percentage points, a decrease of $13.5 million or 32.4 percentage points, and a decrease of $9.1 million or 17.56.1 percentage points, respectively, related to reserve development on prior accident years. Please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further discussion on prior accident year development. Expense RatioRatios The expense ratio increased 0.3 points from 41.9% for 2019 to 42.2% for 2020 primarily due to a reduction in net earned premiums as discussed above. The expense ratio improved 4.81.4 points from 38.6%43.3% for 20162018 to 33.8%41.9% for 2017.2019 primarily due to an increase in net earned premiums as discussed above partially offset by an increase in commission expense. 57
COVID-19 COVID-19 could result in declines in business and non-payment of premiums that could adversely affect Specialty Property’s business, financial condition, and results of operation. Farm, Ranch & Stable The components of income from the Company’s Farm, Ranch & Stable segment and corresponding underwriting ratios are as follows: | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | (Dollars in thousands) | | 2020 | | | 2019 (2) | | | Change | | | 2019 (2) | | | 2018 (2) | | | Change | | Gross written premiums | | $ | 85,646 | | | $ | 87,745 | | | | (2.4 | %) | | $ | 87,745 | | | $ | 79,738 | | | | 10.0 | % | Net written premiums | | $ | 74,163 | | | $ | 74,416 | | | | (0.3 | %) | | $ | 74,416 | | | $ | 70,217 | | | | 6.0 | % | Net earned premiums | | $ | 76,166 | | | $ | 71,312 | | | | 6.8 | % | | $ | 71,312 | | | $ | 69,248 | | | | 3.0 | % | Other income | | | 142 | | | | 132 | | | | 7.6 | % | | | 132 | | | | 156 | | | | (15.4 | %) | Total revenues | | | 76,308 | | | | 71,444 | | | | 6.8 | % | | | 71,444 | | | | 69,404 | | | | 2.9 | % | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 47,151 | | | | 42,700 | | | | 10.4 | % | | | 42,700 | | | | 41,180 | | | | 3.7 | % | Acquisition costs and other underwriting expenses (1) | | | 29,761 | | | | 29,551 | | | | 0.7 | % | | | 29,551 | | | | 29,801 | | | | (0.8 | %) | Underwriting loss | | $ | (604 | ) | | $ | (807 | ) | | | 25.2 | % | | $ | (807 | ) | | $ | (1,577 | ) | | | 48.8 | % |
| | Years Ended December 31, | | | Point | | | Years Ended December 31, | | | Point | | | | 2020 | | | 2019 (2) | | | Change | | | 2019 (2) | | | 2018 (2) | | | Change | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year | | | 64.9 | % | | | 67.6 | % | | | (2.7 | ) | | | 67.6 | % | | | 66.3 | % | | | 1.3 | | Prior accident year | | | (3.0 | %) | | | (7.8 | %) | | | 4.8 | | | | (7.8 | %) | | | (6.9 | %) | | | (0.9 | ) | Calendar year loss ratio | | | 61.9 | % | | | 59.8 | % | | | 2.1 | | | | 59.8 | % | | | 59.4 | % | | | 0.4 | | Expense ratio | | | 39.1 | % | | | 41.4 | % | | | (2.3 | ) | | | 41.4 | % | | | 43.0 | % | | | (1.6 | ) | Combined ratio | | | 101.0 | % | | | 101.2 | % | | | (0.2 | ) | | | 101.2 | % | | | 102.4 | % | | | (1.2 | ) |
(1) | Includes excise tax related to cessions from the Company’s Farm, Ranch & Stable segment to its Reinsurance Operations of $0.1 million for the year ended December 31, 2018. Due to the termination of the quota share agreement in 2018, there was no excise tax related to cessions from the Company’s Farm, Ranch & Stable segment to its Reinsurance Operations for the years ended December 31, 2020 and 2019. |
(2) | Includes business ceded to the Company’s Reinsurance Operations under a quota share agreement. This quota share agreement was cancelled effective January 1, 2018. |
58
Reconciliation of non-GAAP financial measures and ratios The table below reconciles the non-GAAP measures or ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP measure or ratio. The Company believes the non-GAAP measures or ratios are useful to investors when evaluating the Company's underwriting performance as trends in the Company's Farm, Ranch & Stable segment may be obscured by prior accident year adjustments. These non-GAAP measures or ratios should not be considered as a substitute for its most directly comparable GAAP measure or ratio and does not reflect the overall underwriting profitability of the Company. | | Years Ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | | | Losses | | | Loss Ratio | | | Losses | | | Loss Ratio | | | Losses | | | Loss Ratio | | Property | | | | | | | | | | | | | | | | | | | | | | | | | Non catastrophe property losses and ratio excluding the effect of prior accident year (1) | | $ | 22,854 | | | | 41.0 | % | | $ | 29,892 | | | | 58.7 | % | | $ | 21,996 | | | | 44.3 | % | Effect of prior accident year | | | (2,112 | ) | | | (3.8 | %) | | | (2,031 | ) | | | (4.0 | %) | | | (2,072 | ) | | | (4.2 | %) | Non catastrophe property losses and ratio (2) | | $ | 20,742 | | | | 37.2 | % | | $ | 27,861 | | | | 54.7 | % | | $ | 19,924 | | | | 40.1 | % | Catastrophe losses and ratio excluding the effect of prior accident year (1) | | $ | 16,130 | | | | 28.9 | % | | $ | 8,074 | | | | 15.9 | % | | $ | 13,519 | | | | 27.2 | % | Effect of prior accident year | | | 89 | | | | 0.2 | % | | | (1,855 | ) | | | (3.6 | %) | | | 791 | | | | 1.6 | % | Catastrophe losses and ratio (2) | | $ | 16,219 | | | | 29.1 | % | | $ | 6,219 | | | | 12.3 | % | | $ | 14,310 | | | | 28.8 | % | Total property losses and ratio excluding the effect of prior accident year (1) | | $ | 38,984 | | | | 69.9 | % | | $ | 37,966 | | | | 74.6 | % | | $ | 35,515 | | | | 71.5 | % | Effect of prior accident year | | | (2,023 | ) | | | (3.6 | %) | | | (3,886 | ) | | | (7.6 | %) | | | (1,281 | ) | | | (2.6 | %) | Total property losses and ratio (2) | | $ | 36,961 | | | | 66.3 | % | | $ | 34,080 | | | | 67.0 | % | | $ | 34,234 | | | | 68.9 | % | Casualty | | | | | | | | | | | | | | | | | | | | | | | | | Total Casualty losses and ratio excluding the effect of prior accident year (1) | | $ | 10,448 | | | | 51.3 | % | | $ | 10,264 | | | | 50.3 | % | | $ | 10,414 | | | | 53.1 | % | Effect of prior accident year | | | (258 | ) | | | (1.3 | %) | | | (1,644 | ) | | | (8.1 | %) | | | (3,468 | ) | | | (17.7 | %) | Total Casualty losses and ratio (2) | | $ | 10,190 | | | | 50.0 | % | | $ | 8,620 | | | | 42.2 | % | | $ | 6,946 | | | | 35.4 | % | Total | | | | | | | | | | | | | | | | | | | | | | | | | Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) | | $ | 49,432 | | | | 64.9 | % | | $ | 48,230 | | | | 67.6 | % | | $ | 45,929 | | | | 66.3 | % | Effect of prior accident year | | | (2,281 | ) | | | (3.0 | %) | | | (5,530 | ) | | | (7.8 | %) | | | (4,749 | ) | | | (6.9 | %) | Total net losses and loss adjustment expense and total loss ratio (2) | | $ | 47,151 | | | | 61.9 | % | | $ | 42,700 | | | | 59.8 | % | | $ | 41,180 | | | | 59.4 | % |
(1) | Non-GAAP measure / ratio |
(2) | Most directly comparable GAAP measure / ratio |
Premiums See “Result of Operations” above for a discussion on consolidated premiums for 2020. Other Income Other income was $0.1 million, $0.1 million and $0.2 million for the years ended December 31, 2020, 2019, and 2018, respectively. Other income is primarily comprised of fee income. 59
Loss Ratio The current accident year losses and loss ratio is summarized as follows: | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | (Dollars in thousands) | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Property losses | | | | | | | | | | | | | | | | | | | | | | | | | Non-catastrophe | | $ | 22,854 | | | $ | 29,892 | | | | (23.5 | %) | | $ | 29,892 | | | $ | 21,996 | | | | 35.9 | % | Catastrophe | | | 16,130 | | | | 8,074 | | | | 99.8 | % | | | 8,074 | | | | 13,519 | | | | (40.3 | %) | Property losses | | | 38,984 | | | | 37,966 | | | | 2.7 | % | | | 37,966 | | | | 35,515 | | | | 6.9 | % | Casualty losses | | | 10,448 | | | | 10,264 | | | | 1.8 | % | | | 10,264 | | | | 10,414 | | | | (1.4 | %) | Total accident year losses | | $ | 49,432 | | | $ | 48,230 | | | | 2.5 | % | | $ | 48,230 | | | $ | 45,929 | | | �� | 5.0 | % |
| | Years Ended December 31, | | | Point | | | Years Ended December 31, | | | Point | | | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Current accident year loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | | | | | | | | | Non-catastrophe | | | 41.0 | % | | | 58.7 | % | | | (17.7 | ) | | | 58.7 | % | | | 44.3 | % | | | 14.4 | | Catastrophe | | | 28.9 | % | | | 15.9 | % | | | 13.0 | | | | 15.9 | % | | | 27.2 | % | | | (11.3 | ) | Property loss ratio | | | 69.9 | % | | | 74.6 | % | | | (4.7 | ) | | | 74.6 | % | | | 71.5 | % | | | 3.1 | | Casualty loss ratio | | | 51.3 | % | | | 50.3 | % | | | 1.0 | | | | 50.3 | % | | | 53.1 | % | | | (2.8 | ) | Total accident year loss ratio | | | 64.9 | % | | | 67.6 | % | | | (2.7 | ) | | | 67.6 | % | | | 66.3 | % | | | 1.3 | |
The current accident year property non-catastrophe loss ratio for 2020 improved by 17.7 points compared to 2019 reflecting a lower claims frequency and severity. The current accident year property non-catastrophe loss ratio for 2019 increased by 14.4 points compared to 2018 reflecting a higher claims frequency and severity compared to last year. The current accident year property catastrophe loss ratio for 2020 increased by 13.0 points compared to 2019 reflecting a reflecting a higher claims frequency and severity at twelve months of development. The impact from the Midwest derecho on the loss ratio was 7.3 points which was the largest event impacting this segment. The current accident year property catastrophe loss ratio for 2019 improved by 11.3 points compared to 2018 reflecting a lower claims frequency and severity compared to last year. The current accident year casualty loss ratio for 2020 increased by 1.0 point compared to 2019. The increase in the loss ratio reflects a higher claims severity compared to last year. The current accident year casualty loss ratio for 2019 improved by 2.8 points compared to 2018. The decrease in the loss ratio reflects a lower claims severity compared to last year The calendar year loss ratio for the years ended December 31, 2020, 2019, and 2018 includes a decrease of $2.3 million, or 3.0 percentage points, a decrease of $5.5 million, or 7.8 percentage points, and an decrease of $4.7 million, or 6.9 percentage points, respectively, related to reserve development on prior accident years. Please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further discussion on prior accident year development. Expense Ratios The expense ratio improved 2.3 points from 41.4% for 2019 to 39.1% for 2020 primarily due to higher earned premiums. The expense ratio improved 1.6 points from 43.0% for 2018 to 41.4% for 2019 primarily due to an increase in net earned premiums as discussed above as well as a decrease in commission expense. COVID-19 There is risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within the Company’s Farm, Ranch & Stable policies, or other conditions included in these policies that would otherwise preclude coverage. COVID-19 could result in declines in business, non-payment of premiums, and increases in claims that could adversely affect Farm, Ranch & Stable’s business, financial condition, and results of operation.
Reinsurance Operations The components of income from the Company’s Reinsurance Operations segment and corresponding underwriting ratios are as follows: | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | (Dollars in thousands) | | 2020 (1) | | | 2019 (1) | | | Change | | | 2019 (1) | | | 2018 (1) | | | Change | | Gross written premiums | | $ | 60,677 | | | $ | 88,281 | | | | (31.3 | %) | | $ | 88,281 | | | $ | 48,043 | | | | 83.8 | % | Net written premiums | | $ | 60,677 | | | $ | 88,284 | | | | (31.3 | %) | | $ | 88,284 | | | $ | 48,033 | | | | 83.8 | % | Net earned premiums | | $ | 74,365 | | | $ | 75,960 | | | | (2.1 | %) | | $ | 75,960 | | | $ | 51,402 | | | | 47.8 | % | Other income (loss) | | | 191 | | | | (136 | ) | | NM | | | | (136 | ) | | | (210 | ) | | | 35.2 | % | Total revenues | | | 74,556 | | | | 75,824 | | | | (1.7 | %) | | | 75,824 | | | | 51,192 | | | | 48.1 | % | Losses and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 39,239 | | | | 48,365 | | | | (18.9 | %) | | | 48,365 | | | | 56,260 | | | | (14.0 | %) | Acquisition costs and other underwriting expenses | | | 25,640 | | | | 23,609 | | | | 8.6 | % | | | 23,609 | | | | 17,846 | | | | 32.3 | % | Underwriting income (loss) | | $ | 9,677 | | | $ | 3,850 | | | | 151.4 | % | | $ | 3,850 | | | $ | (22,914 | ) | | | (116.8 | %) |
| | Years Ended December 31, | | | Point | | | Years Ended December 31, | | | Point | | | | 2020 (1) | | | 2019 (1) | | | Change | | | 2019 (1) | | | 2018 (1) | | | Change | | Underwriting Ratios: | | | | | | | | | | | | | | | | | | | | | | | | | Loss ratio: | | | | | | | | | | | | | | | | | | | | | | | | | Current accident year (2) | | | 59.5 | % | | | 61.1 | % | | | (1.6 | ) | | | 61.1 | % | | | 126.8 | % | | | (65.7 | ) | Prior accident year | | | (6.8 | %) | | | 2.6 | % | | | (9.4 | ) | | | 2.6 | % | | | (17.3 | %) | | | 19.9 | | Calendar year loss ratio (3) | | | 52.7 | % | | | 63.7 | % | | | (11.0 | ) | | | 63.7 | % | | | 109.5 | % | | | (45.8 | ) | Expense ratio | | | 34.5 | % | | | 31.1 | % | | | 3.4 | | | | 31.1 | % | | | 34.7 | % | | | (3.6 | ) | Combined ratio | | | 87.2 | % | | | 94.8 | % | | | (7.6 | ) | | | 94.8 | % | | | 144.2 | % | | | (49.4 | ) |
(1) | External business only, excluding business assumed from affiliates |
(3) | Most directly comparable GAAP ratio |
Reconciliation of non-GAAP financial ratios The table above includes a reconciliation of the current accident year loss ratio, which is a non-GAAP ratio, to its calendar year loss ratio, which is its most directly comparable GAAP ratio. The Company believes this non-GAAP ratio is useful to investors when evaluating the Company's underwriting performance as trends in the Company's Reinsurance Operations may be obscured by prior accident year adjustments. This non-GAAP ratio should not be considered as a substitute for its most directly comparable GAAP ratio and does not reflect the overall underwriting profitability of the Company. Premiums See “Result of Operations” above for a discussion on consolidated premiums. Other Income (Loss) Reinsurance Operations recognized other income of $0.2 million in 2020, other loss of $0.1 million in 2019, and other loss of $0.2 million in 2018. Other income (loss) is comprised of foreign exchange gains and losses. Loss Ratio The current accident year loss ratio for 2020 improved by 1.6 points compared to 2019. The property and casualty treaties both performed better than 2019. The current accident year loss ratio for 2019 improved by 65.7 points compared to 2018 primarily due to less catastrophes. 61
The calendar year loss ratio for the years ended December 31, 2020, 2019, and 2018 includes a decrease of $5.0 million, or 6.8 percentage points, an increase of $1.9 million or 2.6 percentage points, and a decrease of $8.9 million or 17.3 percentage points, respectively, related to reserve development on prior accident years. Please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further discussion on prior accident year development. Expense Ratio The expense ratio increased 3.4 points from 31.1% for 2019 to 34.5% for 2020. The increase in the expense ratio is primarily due to an increase in commission expense resulting from a change in business mix. The expense ratio improved 3.6 points from 34.7% for 2018 to 31.1% for 2019. The improvement in the expense ratio is primarily due to receiving a federal excise tax refund related to prior yearsan increase in the net earned premiums as discussed above as well as lower contingent commission. The expense ratio increased 1.9 points from 36.7% for 2015 to 38.6% for 2016. The increase is primarily due to higher ceding commission on business written as well as improvements in prior year losses resulting in higher contingent commission partially offset by a reduction in profit sharingcontingent commissions due to prior accident year development.
COVID-19 COVID-19 could result in declines in business, non-payment of premiums, and a recoveryincreases in claims that could adversely affect the Reinsurance Operations’ business, financial condition, and results of prior year cascading excise tax.operation.
Unallocated Corporate Items The Company’s investments are managed distinctly according to assets supporting future insurance obligations and assets in excess of those supporting future insurance obligations. Assets supporting insurance obligations are referred to as the Insurance Obligations Portfolio. The Insurance Obligations Portfolio consists of cash and high-quality fixed income investments. Assets in excess of insurance obligations are referredportfolio, excluding cash, continues to as the Surplus Portfolio. The Surplus Portfolio targets higher returnsmaintain high quality with an AA- average rating and is comprised of cash, fixed income, common stocks, and alternative investments. The Insurance Obligations Portfolio has a market value of $845.2 million. Of this amount, $845.2 million are fixed income securities with a credit quality ofAA- and duration of 3.1 years. The Surplus Portfolio has a market value of $690.2 million. Of this amount, $425.7 million are fixed income securities with a credit quality ofA- and duration of 3.54.2 years.
Since the Company began managing its investments as two portfolios during the 2nd quarter of 2017, year to date
performance metrics are an approximation. The Insurance Obligations Portfolio returned 2.2% for the year ended December 31, 2017 with net investment income of $18.7 million and realized gains of $0.8 million. The Surplus Portfolio returned 4.7% for the year ended December 31, 2017 with net investment income of $20.6 million and realized gains of $0.9 million.
Net Investment Income | | | | Years Ended
December 31, | | %
Change | | | Years Ended
December 31, | | %
Change | | | Years Ended December 31, | | | % | | | Years Ended December 31, | | | % | | | (Dollars in thousands) | | 2017 | | 2016 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | Change | | | 2019 | | | 2018 | | | Change | | Gross investment income (1) | | $ | 42,250 | | | $ | 39,151 | | | 7.9 | % | | $ | 39,151 | | | $ | 37,918 | | | 3.3 | % | | $ | 31,487 | | | $ | 45,267 | | | | (30.4 | %) | | $ | 45,267 | | | $ | 49,178 | | | | (8.0 | %) | Investment expenses | | | (2,927 | ) | | (5,168 | ) | | (43.4 | %) | | (5,168 | ) | | (3,309 | ) | | 56.2 | % | | | (3,095 | ) | | | (3,215 | ) | | | (3.7 | %) | | | (3,215 | ) | | | (2,836 | ) | | | 13.4 | % | | | | | | | | | | | | | | | | | | | | | Net investment income | | $ | 39,323 | | | $ | 33,983 | | | 15.7 | % | | $ | 33,983 | | | $ | 34,609 | | | (1.8 | %) | | $ | 28,392 | | | $ | 42,052 | | | | (32.5 | %) | | $ | 42,052 | | | $ | 46,342 | | | | (9.3 | %) | | | | | | | | | | | | | | | | | | | | |
(1) | Excludes realized gains and losses |
Gross investment income for 2017 increased2020 decreased by 7.9%30.4% and net investment income for 2020 decreased by 32.5% compared to 2016.2019. The increasedecrease was primarily due to an increasedecreased returns from alternative investments, a decrease in yield and a largerwithin the fixed maturities portfolio, resulting from $130.0 millionand a decrease in borrowings offset by a reduction in the investment portfolio of $83.0 million for the redemption in December, 2017.dividend income related to equity securities. Gross investment income for 2016 increased2019 decreased by 3.3%8.0% and net investment income for 2019 decreased by 9.3% compared to 2015.2018. The increasedecrease was primarily due to thedecreased returns from alternative investments offset by an increase in dividend income related to the Company’s limited liability investments during 2016 partially offset by a reduction in the size of the investment portfolio due to redeeming $190.0 million of A ordinary shares during the fourth quarter of 2015. Investment expenses for 2017 decreased by 43.4% compared to 2016. Investment expenses for 2016 increased by 56.2% compared to 2015. The increase in investment expense in 2016 and subsequent decrease in 2017 is mainly attributable to $1.5 million in upfront fees paid in 2016 to enter into a new investment in middle market corporate debt and equity investments in limited liability companies.securities.
At December 31, 2017,2020, the Company held agency mortgage-backed securities with a market value of $81.2$250.6 million. Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 3.24.8 years as of December 31, 2017,2020, compared with 1.94.4 years as of December 31, 2016.2019. Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities, was 3.04.4 years as of December 31, 20172020, compared with 1.8to 4.2 years as of December 31, 2016.2019. Changes in interest rates can cause principal payments on certain investments to extend or shorten which can impact duration. At December 31, 2017,2020, the Company’s embedded book yield on its fixed maturities, not including cash, was 2.7%2.3% compared with 2.1%3.0% at December 31, 2016.2019. The embedded book yield on the $95.1$61.2 million of taxable municipal bonds in the Company’s portfolio which includes $93.5 million of taxable municipal bonds, was 3.0% at December 31, 2017,2020, compared to an embedded book yield of 2.7%3.1% on the Company’s taxable municipal bond portfoliobonds of $156.4$63.4 million at December 31, 2016.2019. 62
At December 31, 2016,2019, the Company held agency mortgage-backed securities with a market value of $59.9$181.5 million. Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 1.94.4 years as of December 31, 2016,2019, compared with 2.43.1 years as of December 31, 2015.2018. Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities, was 1.84.2 years as of December 31, 20162019 compared with 2.32.9 years as of December 31, 2015.2018. Changes in interest rates can cause principal payments on certain investments to extend or shorten which can impact duration. At December 31, 2016,2019, the Company’s embedded book yield on its fixed maturities, not including cash, was 2.1%3.0% compared with 2.2%3.1% at December 31, 2015.2018. The embedded book yield on the $156.4$63.8 million of municipal bonds in the Company’s portfolio, which includes $103.6$63.4 million of taxable municipal bonds, was 2.7%3.2% at December 31, 2016,2019, compared to an embedded book yield of 2.7%3.2% on the Company’s municipal bond portfolio of $205.2$95.6 million at December 31, 2015. Net Realized Investment Gains (Losses) The components of net realized investment gains (losses) for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 were as follows: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Common stock | | $ | 3,547 | | | $ | 27,049 | | | $ | 9,444 | | | Equity Securities | | | $ | (15,250 | ) | | $ | 33,993 | | | $ | (16,101 | ) | Fixed maturities | | | 710 | | | | 2,515 | | | | 1,505 | | | | 23,604 | | | | 7,956 | | | | (2,467 | ) | Interest rate swap | | | (75 | ) | | | (1,110 | ) | | | (6,988 | ) | | Derivatives | | | | (22,256 | ) | | | (4,710 | ) | | | 2,117 | | Other than temporary impairment losses | | | (2,606 | ) | | | (6,733 | ) | | | (7,335 | ) | | | (760 | ) | | | (1,897 | ) | | | (456 | ) | | | | | | | | | | | | Net realized investment gains (losses) | | $ | 1,576 | | | $ | 21,721 | | | $ | (3,374 | ) | | $ | (14,662 | ) | | $ | 35,342 | | | $ | (16,907 | ) | | | | | �� | | | | | | |
See Note 4 of the notes to the consolidated financial statements in Item 8 of Part II of this report for an analysis of total investment return on apre-tax basis for the years ended December 31, 2017, 2016,2020, 2019, and 2015.2018. Corporate and Other Operating Expenses Corporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees, management fees & advisory fees, salaries and benefits for holding company personnel, development costs for new products, and taxes incurred which are not directly related to operations. Corporate and other operating expenses were $25.7$42.0 million, $17.3$18.9 million, and $24.4$29.8 million during the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. The increase in 20172020 as compared to 20162019 is primarily due to incurring a $11.0$10.0 million in advisory fees related to the redomestication as well as an increase in legal and professional fees due to the redomestication. See Note 15 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information on the redomestication fee. The reduction in 2019 as compared to 2018 is primarily due to incurring an advisory fee related to the redemption and other services performed, whereas, 2016 included cost incurred in connection with there-domestication in 2016Reorganization transaction of $4.2 million. The decrease in 2016 as compared to 2015 is primarily due to 2015 including costs incurred in connection with the American Reliable acquisition of $8.3 million; whereas, 2016 included costs incurred in connection with the redomestication of $4.2 million.$12.5 million during 2018. Interest Expense Interest expense was $16.9$15.8 million, $8.9$20.0 million, and $4.9$19.7 million during the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. The increasereduction in 20172020 as compared to 20162019 is primarily due to a reduction in the Company’s $130 million debt offeringFed Funds effective interest rate in March, 2017.2020 as well as the redemption of the 2045 Notes and repayment of the margin borrowing facility in August, 2020. The increase in 20162019 as compared to 20152018 is primarily due to increased borrowings on the Company’s $100 million debt offering in August 2015 offset by a reduction in interest expense on margin borrowing facility due to decreased borrowings.Margin Borrowing Facility. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of this report for details on the Company’s debt. Income Tax Benefit/Expense The income tax benefit was $0.5$8.1 million for the year ended December 31, 20172020 compared with income tax benefitexpense of $2.3$11.7 million for the year ended December 31, 2016.2019. The decreaseincrease in income tax benefit was primarily due to higher pre-tax loss for the Company’s U.S. subsidiaries for 2020as compared to 2019 and the change in tax status which is the income tax benefit is primarily due to incurring a provisionalrecognized on net insurance liabilities that were redomiciled from Bermuda at 0% tax expense of $17.5 million relatedrate to the reduction in the deferredUnited States at a 21% tax asset as a result of the TCJA enacted on December 22, 2017 which lowered the U.S. tax rate from 35% to 21% offset by a $18.4 million tax benefit primarily due to an increase in losses incurred in the Company’s U.S. operations for 2017 compared to 2016.rate. The income tax benefitexpense was $2.3$11.7 million for the year ended December 31, 20162019 compared with income tax benefit of $8.7$19.2 million for the year ended December 31, 2015.2018. The decreaseincrease in the income tax benefitexpense is primarily due to capital gains andan increase in pretax income in the gain on the sale of United National Specialty Insurance Company during the year ended December 31, 2016.U.S. 63
See Note 10 of the notes to the consolidated financial statements in Item 8 of Part II of this report for a comparison of income tax between periods. Net Income (Loss) The factors described above resulted in a net loss of $9.6$21.0 million, net income of $49.9$70.0 million, and a net incomeloss of $41.5$56.7 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. Liquidity and Capital Resources Sources and Uses of Funds Global Indemnity Group, LLC is a holding company. Its principal asset is its ownership of the shares of its direct and indirect subsidiaries, including those of its U.S. insurance companies: United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company, Penn-Patriot Insurance Company, and American Reliable Insurance Company; and its Reinsurance Operations: Company. Global Indemnity Reinsurance. The principal sources of cash that Global Indemnity requires to meet itsGroup, LLC’s short term and long term liquidity needs includinginclude but are not limited to the payment of corporate expenses, debt service payments, dividend payments to shareholders, and share repurchases,repurchases. In order to meet their short term and long term needs, Global Indemnity Group, LLC’s principal sources of cash includes dividends from subsidiaries, other permitted disbursements from its direct and indirect subsidiaries, reimbursement for equity awards granted to employees and intercompany borrowings. The principal sources of funds at these direct and indirect subsidiaries include underwriting operations, investment income, and proceeds from sales and redemptions of investments.investments, capital contributions, intercompany borrowings, and dividends from subsidiaries. Funds are used principally by these operating subsidiaries to pay claims and operating expenses, to make debt payments, fund margin requirements on interest rate swap agreements, to purchase investments, and to make dividend / distribution payments. In addition, the Company periodically reviews opportunities related to business acquisitions and as a result, liquidity may be needed in the future.
On March 23, 2017, the Company issued 7.875% Subordinated Notes due in 2047 in the aggregateGBLI Holdings, LLC is a holding company which is a wholly-owned subsidiary of Penn-Patriot Insurance Company. GBLI Holdings, LLC’s principal amount of $130.0 million through an underwritten public offering. See Note 12asset is its ownership of the notes to consolidated financial statements in Item 8 of Part II of this report for additional information on this debt issuance.
On December 29, 2017, Global Indemnity acquired 3,397,031shares of its A ordinary shares for approximately $83.0 million in the aggregate (approximately $24.44 per share) from former investors in vehicles managed by Fox Paine &direct and indirect subsidiaries which include United National Insurance Company, LLC. TheDiamond State Insurance Company, sold $99.0 million of securitiesPenn-America Insurance Company, Penn-Star Insurance Company, and American Reliable Insurance Company. GBLI Holdings, LLC is dependent on dividends from its consolidated investment portfolio during December, 2017subsidiaries to provide funding for the redemption and othermeet its debt obligations as well as corporate expense obligations.
During the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend program. Although subject to the absolute discretion of the Board of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability of declaring a quarterly dividend, the Company currently anticipates an initial dividend rate of $0.25 per share per quarter ($1.00 per share per year). As of December 31, 2017, there are currently 14,206,742 shares issued and outstanding.
As of December 31, 2017, the Company also had future funding commitments of $57.7 million related to investments. The timing of commitments related to investments is uncertain.
The future liquidity of both Global Indemnity and GBLI Holdings, LLC is dependent on the ability of its subsidiaries to pay dividends. Global Indemnity’s U.S.Indemnity and GBLI Holdings, LLC’s insurance companies are restricted by statute as to the amount of dividends that they may pay without the prior approval of regulatory authorities. The dividend limitations imposed by state laws are based on the statutory financial results of each insurance company within the Insurance Operations that are determined by using statutory accounting practices that differ in various respects from accounting principles used in financial statements prepared in conformity with GAAP. See “Regulation — “Regulation—Statutory Accounting Principles.” Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes, reserve calculation assumptions and surplus notes. Under IndianaVirginia law, Diamond StatePenn-Patriot Insurance Company may not pay any dividend or make any distribution of cash or other property, the fair market value of which, together with that of any other dividends or distributions made within the preceding 12 consecutive months ending on the date on which the proposed dividend or distribution is scheduled to be made, exceeds the greaterlesser of either (1) 10% of its surplus as of the 31st day of December of the last preceding year, or (2) its net income, not including net realized capital gains, for the 12 month period ending on the 31st day of December of the last preceding year, not including pro rata distributions of any class of its securities, unless the commissioner approves the proposed payment or fails to disapprove such payment within 30 days after receiving notice of such payment. An additional limitation is that Indiana does not permit a domestic insurer to declare or pay a dividend except out of unassigned surplus unless otherwise approved by the commissioner beforeIn determining whether the dividend is paid.must be approved, undistributed net income from the second and third preceding years, not including net realized capital gains, may be carried forward. 64
Under Pennsylvania law, United National Insurance Company, Penn-America Insurance Company, and Penn-Star Insurance Company may not pay any dividend or make any distribution that, together with other dividends or distributions made within the preceding 12 consecutive months, exceeds the greater of (1) 10% of its surplus as shown on its last annual statement on file with the commissioner or (2) its net income for the period covered by such statement, not including pro rata distributions of any class of its own securities, unless the commissioner has received notice from the insurer of the declaration of the dividend and the commissioner approves the proposed payment or fails to disapprove such payment within 30 days after receiving notice of such payment. An additional limitation is that Pennsylvania does not permit a domestic insurer to declare or pay a dividend except out of unassigned funds (surplus) unless otherwise approved by the commissioner before the dividend is paid. Furthermore, no dividend or other distribution may be declared or paid by a Pennsylvania insurance company that would reduce its total capital and surplus to an amount that is less than the amount required by the Insurance Department for the kind or kinds of business that it is authorized to transact. Pennsylvania law allows loans to affiliates up to 10% of statutory surplus without prior regulatory approval. Under VirginiaIndiana law, Penn-PatriotDiamond State Insurance Company may not pay any dividend or make any distribution of cash or other property, the fair market value of which, together with that of any other dividends or distributions made within the preceding 12 consecutive months ending on the date on which the proposed dividend or distribution is scheduled to be made, exceeds the lessergreater of either (1) 10% of its surplus as of the 31st day of December of the last preceding year, or (2) its net income not including net realized capital gains, for the 12 month period ending on the 31st day of December of the last preceding year, not including pro rata distributions of any class of its securities, unless the commissioner approves the proposed payment or fails to disapprove such payment within 30 days after receiving notice of such payment. In determining whetherAn additional limitation is that Indiana does not permit a domestic insurer to declare or pay a dividend except out of unassigned surplus unless otherwise approved by the commissioner before the dividend must be approved, undistributed net income from the second and third preceding years, not including net realized capital gains, may be carried forward.is paid. Under Arizona law, American Reliable Insurance Company may not pay any dividend or make any distribution of cash or other property, the fair market value of which, together with that of any other dividends or distributions made within the preceding 12 months exceeds the lesser of either (1) 10% of its surplus as of the 31st day of December of the last preceding year, or (2) its net income for the 12 month period ending on the 31st day of December of the last preceding year, not including pro rata distributions of any class of its securities, unless the commissioner approves the proposed payment or fails to disapprove such payment within 30 days after receiving notice of such payment. In 2020, the U.S. insurance companies did not declare or pay a dividend. See Note 1920 of the notes to consolidated financial statements in Item 8 of Part II of this report for the dividends declared and paid by Global Indemnity’s U.S. insurance companies in 2017 and the maximum amount of distributions that U.S. insurance companies could pay as dividends in 2018.2021. Global Indemnity Reinsurance iswas prohibited, without the approval of the BMA,Bermuda Monetary Authority (“BMA”), from reducing by 15% or more its total statutory capital or 25% or more of its total statutory capital and surplus as set out in its previous year’s statutory financial statements, and any application for such approval must include such information as the BMA may require. Based uponIn June, 2020, the total statutory capital plus the statutory surplus as set out in its 2017 statutory financial statements that will be filed in 2018, the Company believes Global Indemnity Reinsurance could pay a dividendBoard of up to $227.1 million without requesting BMA approval. For 2018, the Company believes that Global Indemnity Reinsurance, including distributions it could receive from its subsidiaries, should have sufficient liquidity and solvency to pay dividends. In 2017,Directors of Global Indemnity Reinsurance declared and paid a dividend of $120.0$226 million to its parent Global Indemnity. Of this amount, $100.0 million was paid tocompany, Global Indemnity in December, 2017. As of December 31, 2017, accrued dividends were $20.0 million.Limited. On August 26, 2020, Global Indemnity Reinsurance merged into Penn-Patriot Insurance Company.
Surplus Levels Global Indemnity’s U.S. insurance companies are required by law to maintain a certain minimum level of policyholders’policyholders' surplus on a statutory basis. Policyholders’Policyholders' surplus is calculated by subtracting total liabilities from total assets. The NAIC has risk-based capital standards that are designed to identify property and casualty insurers that may be inadequately capitalized based on the inherent risks of each insurer’sinsurer's assets and liabilities and mix of net premiums written.written premiums. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action. Based on the standards currently adopted, the policyholders’ surplus of each of the U.S. insurance companies is in excess of the prescribed minimum company action level risk-based capital requirements. Sources of operating funds consist primarily of net written premiums written and investment income. Funds are used primarily to pay claims and operating expenses and to purchase investments. As a result of the new dividend / distribution policy, funds may also be used in the future to pay dividendsdistributions to shareholders of Global Indemnity Limited.the Company. The Company’s reconciliation of net income (loss) to net cash provided fromby (used for) operations is generally influenced by the following: | • | the fact that the Company collect premiums, net of commission, in advance of losses paid; |
| • | the timing of the Company’s settlements with its reinsurers; and |
65
the timing of the Company’s settlements with its reinsurers; and
| • | the timing of the Company’s loss payments. |
Net cash provided by (used for) operating activities in 2017, 2016,2020, 2019, and 20152018 was ($23.7)$32.7 million, ($24.4)$32.4 million and $3.8$42.1 million, respectively. In 2017,2020, the increase in operating cash flows of approximately $0.7$0.3 million from the prior year was primarily a net result of the following items: | | | | 2017 | | | 2016 | | | Change | | | 2020 | | | 2019 | | | Change | | Net premiums collected | | $ | 422,075 | | | $ | 480,799 | | | $ | (58,724 | ) | | $ | 552,692 | | | $ | 531,637 | | | $ | 21,055 | | Net losses paid | | | (266,238 | ) | | | (321,188 | ) | | | 54,950 | | | | (308,341 | ) | | | (298,788 | ) | | | (9,553 | ) | Underwriting and corporate expenses | | | (202,055 | ) | | | (217,845 | ) | | | 15,790 | | | | (241,906 | ) | | | (229,645 | ) | | | (12,261 | ) | Net investment income | | | 37,186 | | | | 37,915 | | | | (729 | ) | | | 36,002 | | | | 48,964 | | | | (12,962 | ) | Net federal income taxes recovered (paid) | | | (114 | ) | | | 4,694 | | | | (4,808 | ) | | | 10,825 | | | | (81 | ) | | | 10,906 | | Recovery of loss indemnification | | | | — | | | | — | | | | — | | Interest paid | | | (14,504 | ) | | | (8,771 | ) | | | (5,733 | ) | | | (16,602 | ) | | | (19,711 | ) | | | 3,109 | | | | | | | | | | | | | Net cash provided by (used for) operating activities | | $ | (23,650 | ) | | $ | (24,396 | ) | | $ | 746 | | | | | | | | | | | | | | Net cash provided by operating activities | | | $ | 32,670 | | | $ | 32,376 | | | $ | 294 | |
In 2016,2019, the decrease in operating cash flows of approximately $28.1$9.7 million from the prior year was primarily a net result of the following items: | | | | 2016 | | | 2015 | | | Change | | | 2019 | | | 2018 | | | Change | | Net premiums collected | | $ | 480,799 | | | $ | 527,123 | | | $ | (46,324 | ) | | $ | 531,637 | | | $ | 476,885 | | | $ | 54,752 | | Net losses paid | | | (321,188 | ) | | | (336,316 | ) | | | 15,128 | | | | (298,788 | ) | | | (298,616 | ) | | | (172 | ) | Underwriting and corporate expenses | | | (217,845 | ) | | | (229,738 | ) | | | 11,893 | | | | (229,645 | ) | | | (218,429 | ) | | | (11,216 | ) | Net investment income | | | 37,915 | | | | 46,709 | | | | (8,794 | ) | | | 48,964 | | | | 57,430 | | | | (8,466 | ) | Net federal income taxes recovered (paid) | | | 4,694 | | | | (102 | ) | | | 4,796 | | | Net federal income taxes paid | | | | (81 | ) | | | (859 | ) | | | 778 | | Recovery of loss indemnification (1) | | | | — | | | | 45,045 | | | | (45,045 | ) | Interest paid | | | (8,771 | ) | | | (3,926 | ) | | | (4,845 | ) | | | (19,711 | ) | | | (19,387 | ) | | | (324 | ) | | | | | | | | | | | | Net cash provided by (used for) operating activities | | $ | (24,396 | ) | | $ | 3,750 | | | $ | (28,146 | ) | | | | | | | | | | | | | Net cash provided by operating activities | | | $ | 32,376 | | | $ | 42,069 | | | $ | (9,693 | ) |
(1) | Excludes a $3.5 million payment related to a purchase price adjustment for American Reliable in 2018. This payment is included in the net cash used in investing activities on the Company’s Consolidated Statement of Cash Flows in 2018. The recovery on loss indemnification, net of the purchase price adjustment, is $41.5 million in 2018. For additional information on the loss indemnification, please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report. |
See the consolidated statements of cash flows in the financial statements in Item 8 of Part II of this report for details concerning the Company’s investing and financing activities. Liquidity Currently, the Company believes each company in its Insurance Operations and Reinsurance Operations maintains sufficient liquidity to pay claims through cash generated by operations and liquid investments. The holding companies also maintain sufficient liquidity to meet their obligations. The Company monitors its investment portfolios to assure liability and investment durations are closely matched. Prospectively, as fixed income investments mature and new cash is obtained, the cash available to invest will be invested in accordance with the Company’s investment policy. The Company’s investment policy allows the Company to invest in taxable andtax-exempt fixed income investments as well as publicly traded and private equity investments. With respect to bonds, the Company’s credit exposure limit for each issuer varies with the issuer’s credit quality. The allocation between taxable andtax-exempt bonds is determined based on market conditions and tax considerations. The fixed income portfolio currently has a duration of 3.23 years which allows4.2 years. As of December 31, 2020, the Company also had future funding commitments of $31.2 million related to defensively position itself during the current low interest rate environment.investments. The timing of commitments related to investments is uncertain. 66
The Company has access to various capital sources including dividends from insurance subsidiaries, invested assets in itsnon-U.S. subsidiaries, and access to the debt and equity capital markets. The Company believes it has sufficient liquidity to meet its capital needs. See Note 1920 of the notes to the consolidated financial statements in Item 8 of Part II of this report for a discussion of the Company’s dividend capacity. However, the Company’s future capital requirements depend on many factors, including the amount of premium it writes, the amount of loss reserves by lines of business, and catastrophe exposure. To the extent that the Company needs to raise additional funds, any equity or debt financing for this purpose, if available at all, may be on terms that are not favorable to the Company. If the Company cannot obtain adequate capital, its business, results of operations and financial condition could be adversely affected. On December 29, 2017, COVID-19
The Company’s liquidity could be negatively impacted by the cancellation, delays, or non-payment of premiums related to the ongoing COVID-19 pandemic. There is risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within the Company’s Commercial Specialty and Farm, Ranch & Stable policies, or other conditions included in policies that would otherwise preclude coverage which would negatively impact liquidity. In addition, the liquidity of the Company’s investment portfolio could be negatively impacted by disruption experienced in global financial markets. Management is taking actions it considers prudent to minimize the impact on the Company’s liquidity. However, given the ongoing uncertainty surrounding the duration, magnitude and geographic reach of COVID-19, the Company is regularly evaluating the impact of COVID-19 on its liquidity. Dividends / Distributions Global Indemnity acquired 3,397,031 of its A ordinary shares for approximately $83.0 million in the aggregate (approximately $24.44 per share) from former investors in vehicles managed by Fox Paine & Company, LLC. The Company sold $99.0 million of securities from its consolidated investment portfolio during December, 2017 to provide funding for the redemption and other obligations. During the fourth quarter of 2017, Global Indemnity announced the adoption ofhas adopted a dividend / distribution program. Although subject to the absolute discretion of the Board of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability of declaring a quarterly dividend, the Companydistribution, Global Indemnity Group, LLC currently anticipates an initial dividenda distribution rate of $0.25 per share per quarter ($1.00 per share per year). As of December 31, 2017,2020, there are currently 14,206,74214,397,088 shares issued and outstanding.
OnDuring 2020, the Board of Directors approved a dividend payment of $0.25 per common share to all shareholders of record on the close of business on March 24, 2020 and June 23, 2017,2020 and approved a distribution payment of $0.25 per common share to all shareholders of record on the Company issued 7.875% Subordinated Notes due in 2047 inclose of business on September 25, 2020 and December 24, 2020. Dividends / distributions paid were $14.3 million during the year ended December 31, 2020. In addition, distributions of $0.1 million were paid to Global Indemnity Group, LLC’s preferred shareholders during the year ended December 31, 2020.
During 2019, the Board of Directors approved a dividend payment of $0.25 per common share to all shareholders of record on the close of business on March 22, 2019, June 21, 2019, September 26, 2019, and December 24, 2019. Dividends paid were $14.2 million during the year ended December 31, 2019. Redemption of Debt In August 2020, GBLI Holdings and Global Indemnity Limited redeemed the entire outstanding $100 million aggregate principal amount of $130.0 million through an underwritten public offering. See Note 12the 7.75% Subordinated Notes due 2045. Repayment of Margin Borrowing Facility The Company repaid all of the notes to consolidated financial statementsoutstanding debt on the margin borrowing facility in Item 8 of Part II of this report for additional information on this debt issuance.August, 2020. Property Catastrophe Quota Share
Effective April 15, 2017, the Company entered into an agreement to cede 50% of its property catastrophe losses for all single occurrences over $3 million up to a loss of $40 million. This treaty has an aggregate limit of $60 million and will expire on June 1, 2018.
As a result of entering into this treaty, the Company did not renew the $20 million in excess of $20 million layer of its property catastrophe treaty on June 1, 2017.
Stop Loss Agreement, Quota Share Arrangements and Intercompany Pooling Arrangement
Global Indemnity’s U.S. insurance companies, excluding Personal Lines, and Global Indemnity Reinsurance participated in a stop loss agreement that provided protection to the U.S. insurance companies, excluding Personal Lines, in a loss corridor from 70% to 90% subject to certain restrictions. This agreement was terminated on a prospective basis on January 1, 2016.
During 2015,For 2017, the Company’s U.S. insurance companies participated in quota share reinsurance agreements with Global Indemnity Reinsurance whereby 50%40% of the net retained business of the U.S. insurance companies was ceded to Global Indemnity Reinsurance. Effective January 1, 2016, the cession percentage was lowered to 40% from 50%. These agreements exclude named storms. As a result of the enactment of the TCJA, effective January 1, 2018, premiums being ceded under the quota share arrangement maycould potentially be subject to a 10% BEAT tax. As a result, Global Indemnity Reinsurance and the Company’s U.S. insurance companies have agreed to terminateterminated the quota share arrangement effective January 1, 2018. Regulatory approval is still pending.
67
Global Indemnity Reinsurance is an unauthorized reinsurer. As a result, any losses and unearned premiums that arewere ceded to Global Indemnity Reinsurance by the U.S. insurance companies prior to the termination of the quota share arrangement must be collateralized. To satisfy this requirement, Global Indemnity Reinsurance has set up custodial trust accounts on behalf of the U.S. insurance companies.companies. These custodial trust accounts were terminated in 2020 due to the 2018 termination of the quota share arrangement. Global Indemnity Reinsurance also has established trust accounts to collateralize exposure it has to certain third party ceding companies. As a result of the redomestication, Penn-Patriot Insurance Company now holds these trust accounts. The Company invests the funds in securities that have durations that closely match the expected duration of the liabilities assumed. The Company believes that Global Indemnity ReinsurancePenn-Patriot Insurance Company will have sufficient liquidity to pay claims prospectively. Global Indemnity’s U.S. insurance companies participate in an intercompany pooling arrangement whereby premiums, losses, and expenses are shared pro rata amongst the U.S. insurance companies. Capital Resources As a result
In connection with the Company’s redomestication to the United States, actions were taken to simplify the Company’s organizational structure. Various intercompany capital contributions and distributions took place between many of the changes in the worldwide tax environment, severalCompany’s subsidiaries. Several of the intercompany financing structures are expected to be restructured. On January 18, 2006, U.A.I. (Luxembourg) Investment S.à.r.l. loaned $6.0 million to United America Indemnity, Ltd. The loanCompany’s subsidiaries merged into new or existing companies. This included, but was used to pay operating expenses that arise in the normal course of business. The loan is a demand loan and bears interest at 4.38%. Duenot limited to, the liquidationmerger of United America Indemnity, Ltd. in 2016, this loan was assumed by Global Indemnity Limited. At December 31, 2017, there was $1.0 million outstanding on this loanReinsurance into Penn-Patriot Insurance Company (“Penn-Patriot”) with accrued interestPenn-Patriot surviving as well as the amalgamation of $1.9 million. Global Indemnity Limited is dependent on its subsidiaries to pay its dividends and operating expenses.
with a newly formed company, New Cayco. The surviving company, New Cayco, then merged into Global Indemnity Group, LLC, a newly formed parent company, with Global Indemnity Group, LLC surviving as the ultimate parent company of the Global Indemnity group of companies. In February, 2010, the lineaddition, $541.4 million of creditintercompany debt between Global Indemnity Limited and Global Indemnity Reinsurance and United America Indemnity, Limited was converted tocancelled. Through anon-interest bearing note payable for series of transactions, the full amount of principal and accrued interest to date totaling $53.0 million. In May, 2014, United America Indemnity, Ltd. repaid $20Company also settled $402.3 million of the outstanding balance due under this note. In November, 2016, this note was assumed bynotes between Global Indemnity Limited. As of December 31, 2017, there was $33.0 million outstanding on the note payable. U.A.I. (Luxembourg) Investment S.à.r.l. holds two promissory notes in the amounts of $175.0 millionHoldings (U.K.) Limited and $110.0 million and three loans in the amount of $125.0 million, $100.0 million, and $120.0 million from Global Indemnity Group, Inc.Financial (U.K.) Limited in 2020. The $175.0cancellation and settlement of these debt arrangements had no impact to the consolidated results of the Company.
Intercompany Loan On June 16, 2020, GBLI Holdings, LLC entered into a loan agreement with Global Indemnity Reinsurance. Under the terms of the loan agreement, GBLI Holdings, LLC agreed to lend $40.0 million to Global Indemnity Reinsurance by transferring cash and $110.0 million notes bear/ or securities to Global Indemnity Reinsurance. This loan bore interest at a rate of 6.64%0.18% and 6.20%, respectively, and maturewas due on June 16, 2023. This loan was fully repaid at December 31, 2020. On August 28, 2020, Global Indemnity Investments, Inc. entered into a promissory note with Global Indemnity Group, LLC for the principal amount of $11.3 million. This note was issued in 2018 and 2020, respectively.conjunction with Global Indemnity Investment Inc.’s purchase of limited liability partnership interests from Global Indemnity Group, LLC. The $125.0 million, $100.0 million, and $120.0 million loansnote bears interest at 5.78%, 8.06%,a rate of 1.47% and 8.15%, respectively, and matures in 2024, 2045, and 2047, respectively. Interestis due on these agreements is paid annually. AtAugust 28, 2030. The outstanding balance on the note was $11.3 million at December 31, 2017, accrued interest on these notes and loans was $19.6 million. Other than its investment portfolio, Global Indemnity Group, Inc. has no income producing operations. The ability of Global Indemnity Group, Inc. to generate cash to repay the notes and loan is dependent on dividends that it receives from its subsidiaries or using other assets it holds.2020. Intercompany Dividends In November, 2011, U.A.I. (Luxembourg) Investment S.à.r.l. issued a $100.0 million demand line of credit to Global Indemnity (Cayman) Ltd. which bears interest at 1.2%. The proceeds of the line were loaned from Global Indemnity (Cayman) Ltd. to Global Indemnity plc, bearing interest at 1.2%, to fund purchases of the Company’s A ordinary shares as part of the $100.0 million share repurchase program announced in September, 2011. In August, 2012, the demand line of credit was increased to $125.0 million to fund additional purchases under the Company’s $25.0 million share repurchase authorization. In September, 2015, U.A.I. (Luxembourg) Investment S.à.r.l. increased the demand line of credit that it previously issued to Global Indemnity (Cayman) Limited from $125.0 million to $225.0 million. In 2016, the amounts owed by Global Indemnity plc were assigned to Global Indemnity Limited. On May 5, 2017, Global Indemnity (Cayman) Limited was merged into Global Indemnity Limited. As a result, the loan between Global Indemnity (Cayman) Limited and Global Indemnity Limited was expunged and Global Indemnity Limited assumed the loan payable to U.A.I. (Luxembourg) Investment S.à.r.l. As of December 31, 2017, Global Indemnity Limited had $181.5 million outstanding on the line of credit with U.A.I. (Luxembourg) Investment S.à.r.l., with accrued interest of $9.1 million. In November, 2012, American Insurance Service, Inc. (“AIS”) issued a $35.0 million loan toJune, 2020, Global Indemnity Reinsurance bearing interest at the six month London Interbank Offered Rate (“LIBOR”) plus 3.5%. The proceedsdeclared and paid a dividend of $226.0 million to its parent, Global Indemnity Limited.
All of the loan were used to fund trust accountsintercompany transactions discussed above eliminate in the normal course of business. Effective October 31, 2013, American Insurance Service, Inc. (“AIS”) assigned all of its rights, obligations, duties,consolidation and liabilities under the note to Global Indemnity Group, Inc. As of December 31, 2017, there was $5.0 million outstandinghave no impact on the note payable, with accrued interest of $0.2 million payable to AIS and $1.3 million payable to Global Indemnity Group, Inc.consolidating financial statements. 68
Margin Borrowing Facility As of December 31, 2017,2020, the Company had available a margin borrowing facility. AtThe Company did not have any amounts outstanding on the margin borrowing facility as of December 31, 2017,2020. The amount outstanding on the Company’s margin borrowing facility was $73.6 million as of December 31, 2019. The borrowing rate for this facility was tied to the Fed Funds Effective rate and was approximately 1.6%. At0.8% and 1.9% at December 31, 2016, the borrowing rate for this facility was tied to LIBOR2020 and was approximately 1.6%.2019, respectively. This facility is due on demand. The borrowings are subject to maintenance margin, which is a minimum account balance that must be maintained. A decline in market conditions could require an additional deposit of collateral. As ofThe Company did not have any securities that were deposited as collateral at December 31, 2017, approximately $88.02020. Approximately $88.2 million in securities were deposited as collateral to support borrowings.borrowings as of December 31, 2019. The amount borrowed against the margin account may fluctuate as routine investment transactions, such as dividends received, investment income received, maturities and pay-downs, impact cash balances. The margin facility contains customary events of default, including, without limitation, insolvency, failure to make required payments, failure to comply with any representations or warranties, failure to adequately assure future performance, and failure of a guarantor to perform under its guarantee. The amount outstanding on the Company’s margin borrowing facility was $72.2 million and $66.6$73.6 million as of December 31, 2017 and 2016, respectively. On May 12, 2014, Global Indemnity Group, Inc. entered into an agreement to loan $200 million to Global Indemnity (Cayman) Limited. In December, 2014, Global Indemnity (Cayman) Limited repaid $125.0 million of the outstanding principal. On May 5, 2017, Global Indemnity (Cayman) Limited was merged into Global Indemnity Limited. In 2017, this note was refinanced at the Applicable Federal Rate of 1.11%. As of December 31, 2017, Global Indemnity Limited owed $75.0 million under this loan agreement with accrued interest of $1.4 million.Derivative Instruments
The Company entered into two $100 million derivative instruments.instruments related to interest rate swaps. Due to fluctuations in interest rates, the Company received $1.5paid $20.5 million and paid $1.0$7.7 million in connection with these derivative instruments for the years ended December 31, 20172020 and 2016,2019, respectively. During
Co-obligor Financial Information The Company is providing the first quarterfollowing information in compliance with Rule 13-01 of 2017,Regulation S-X, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” with respect to the Company’s 7.875% Subordinated Notes due in 2047 (“2047 Notes”). See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information on the 2047 Notes, the supplemental indenture whereby Global Indemnity madeGroup, LLC assumes the obligation under the 2047 Notes, and the co-obligor transaction whereby GBLI Holdings, LLC becomes a capital contribution inco-obligor on the amount of $96.0 million to its subsidiary,2047 Notes. The following tables present summarized financial information for Global Indemnity (Gibraltar) Limited. ThroughGroup, LLC (Parent co-obligor) and GBLI Holdings, LLC (Subsidiary co-obligor) on a seriescombined basis after transactions and balances within the combined entities have been eliminated. Parent and Subsidiary Co-obligors The following table presents the summarized balance sheet information as of additional capital contributions and repaymentDecember 31, 2020. | | | | | | (Dollars in thousands) | | | | | | Intercompany note receivable | | $ | 11,283 | | | Intercompany receivables | | | 57 | | | Investments | | | 250,863 | | | Total assets | | | 871,225 | | | Intercompany payables | | | 5,515 | | | Total liabilities | | | 152,908 | | |
The following table presents the summarized statement of certain intercompany balances, U.A.I. (Luxembourg) IV S.à.r.l. wasoperations information for the ultimate recipient of this capital contribution in the amount of $93.5 million.year ended December 31, 2020. | | | | | | (Dollars in thousands) | | | | | | Total revenue | | $ | (36,456 | ) | | Intercompany interest income | | | 754 | | | Intercompany interest expense | | | — | | | Income (loss) before income taxes | | | (40,532 | ) | | Net income (loss) | | | (29,320 | ) | |
69
Contractual Obligations The Company has commitments in the form of operating leases, commitments to fund limited liability investments, subordinated notes, and unpaid losses and loss expense obligations. As of December 31, 2017,2020, contractual obligations related to Global Indemnity’s commitments, including any principal and interest payments, were as follows: | | | | | | Payment Due by Period | | | | | | | Payment Due by Period | | | (Dollars in thousands) | | Total | | Less than 1
year | | 1 – 3 years | | 3 – 5 years | | More than
5 years | | | Total | | | Less than 1 year | | | 1 – 3 years | | | 3 – 5 years | | | More than 5 years | | Operating leases (1) | | $ | 5,466 | | | $ | 3,147 | | | $ | 2,319 | | | $ | — | | | $ | — | | | $ | 25,773 | | | $ | 2,883 | | | $ | 5,546 | | | $ | 5,687 | | | $ | 11,657 | | Commitments to fund limited liability investments (2) | | 57,714 | | | 57,714 | | | | — | | | | — | | | | — | | | | 31,214 | | | | 31,214 | | | | — | | | | — | | | | — | | Subordinated notes due 2045 (3) | | 315,063 | | | 7,750 | | | 15,500 | | | 15,500 | | | 276,313 | | | Subordinated notes due 2047 (4) | | 432,006 | | | 10,238 | | | 20,475 | | | 20,475 | | | 380,818 | | | Unpaid losses and loss adjustment expenses obligations (5) | | 634,664 | | | 281,791 | | | 219,593 | | | 74,256 | | | 59,024 | | | | | | | | | | | | | | | | | | | | Subordinated notes due 2047 (3) | | | | 401,294 | | | | 10,238 | | | | 20,475 | | | | 20,475 | | | | 350,106 | | Unpaid losses and loss adjustment expenses obligations (4) | | | | 662,811 | | | | 283,683 | | | | 220,716 | | | | 89,480 | | | | 68,932 | | Total | | $ | 1,444,913 | | | $ | 360,640 | | | $ | 257,887 | | | $ | 110,231 | | | $ | 716,155 | | | $ | 1,121,092 | | | $ | 328,018 | | | $ | 246,737 | | | $ | 115,642 | | | $ | 430,695 | | | | | | | | | | | | | | | | | | |
(1) | The Company leases office space and equipment as part of its normal operations. The amounts shown above represent future commitments under such operating leases. |
(2) | Represents future funding commitment of the Company’s participation in three separate limited partnership investments. See Note 1016 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information on these commitments. |
(3) | Represents the Subordinated Notes due in 2045 in the aggregate principal amount of $100.0 million through an underwritten public offering. The notes bear interest at an annual rate equal to 7.75% payable quarterly. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information on the 2045 Subordinated Notes. |
(4) | Represents the Subordinated Notes due in 2047 in the aggregate principal amount of $130.0 million through an underwritten public offering. The notes bear interest at an annual rate equal to 7.875% payable quarterly. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information on the 2047 Subordinated Notes. |
(5)(4) | These amounts represent the gross future amounts needed to pay losses and related loss adjustment expenses and do not reflect amounts that are expected to be recovered from the Company’s reinsurers. See discussion in “Liability for Unpaid Losses and Loss Adjustment Expenses” for more details. |
Off Balance Sheet Arrangements The Company has no off balance sheet arrangements. Inflation Property and casualty insurance premiums are established before the Company knows the amount of losses and loss adjustment expenses or the extent to which inflation may affect such amounts. The Company attempts to anticipate the potential impact of inflation in establishing its reserves. Future increases in inflation could result in future increases in interest rates, which in turn are likely to result in a decline in the market value of the investment portfolio and resulting in unrealized losses and reductions in shareholders’shareholders' equity. Cautionary Note Regarding Forward-Looking Statements Some of the statements under “Business,” “Management’s“Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report may include forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934, as amended, that reflect the Company’s current views with respect to future events and financial performance. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “plan,” “seek,” “intend,”"believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or “anticipate”"anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives, expectations or consequences of identified transactions or natural disasters, and statements about the future performance, operations, products and services of the companies. The Company’s business and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. See “Risk Factors” in Item 1A of Part I of this report for risks, uncertainties and other factors that could cause actual results and experience to differ from those projected. 70
The forward-looking statements contained in this report are primarily based on the Company’s current expectations and projections about future events and trends that it believes may affect the Company’s business, financial condition, results of operations, prospects, business strategy and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in the section captioned “Risk Factors” and elsewhere in this report. These risks are not exhaustive. Other sections of this report include additional factors that could adversely impact the Company’s business and financial performance. Moreover, the Company operates in a very competitive environment. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. The Company cannot provide assurance that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. In addition, statements that “the Company believes” and similar statements reflect the Company’s beliefs and opinions on the relevant subject. These statements are based upon information available to the Company as of the date of this report, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and these statements should not be read to indicate that the Company have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. This report and the documents that are referenced in this report and have filed as exhibits to this report should be read with the understanding that actual future results, levels of activity, performance and achievements may be materially different from what the Company expects. The Company qualifies all of its forward-looking statements by these cautionary statements. The Company’s forward-looking statements speak only as of the date of this report or as of the date they were made. The Company undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, credit risk, illiquidity, foreign exchange rates and commodity prices. The Company’s consolidated balance sheetsheets includes the estimated fair values of assets that are subject to market risk. The Company’s primary market risks are interest rate risk and credit risks associated with investments in fixed maturities, equity price risk associated with investments in equity securities, and foreign exchange risk associated with premium received that is denominated in foreign currencies. Each of these risks is discussed in more detail below. The Company has no commodity risk. Interest Rate Risk The Company’s primary market risk exposure is to changes in interest rates. The Company’s fixed income investments are exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, the market value of the Company’s fixed income investments fall, and the converse is also true. The Company seeks to manage interest rate risk through an active portfolio management strategy that involves the selection, by the Company’s managers, of investments with appropriate characteristics, such as duration, yield, currency, and liquidity that are tailored to the anticipated cash outflow characteristics of the Company’s liabilities. The Company’s strategy for managing interest rate risk also includes maintaining a high quality bond portfolio with a relatively short duration to reduce the effect of interest rate changes on book value. A significant portion of the Company’s investment portfolio matures each year, allowing for reinvestment at current market rates. The Company also holds interest rate swaps that are inversely correlated with the fixed income portfolio which helps to partially mitigate and manage interest rate risk. 71
As of December 31, 2017,2020, assuming identical shifts in interest rates for securities of all maturities, the table below illustrates the sensitivity of market value in Global Indemnity’s bonds to selected hypothetical changes in basis point increases and decreases: | | (Dollars in thousands) | (Dollars in thousands) | | | Change in Market Value | | (Dollars in thousands) | | | Change in Market Value | | Basis Point Change | | Market Value | | | $ | | | % | | | Market Value | | | | | | | % | | (200) | | $ | 1,317,538 | | | $ | 76,101 | | | | 6.1 | % | | $ | 1,258,960 | | | $ | 67,774 | | | | 5.7 | % | (100) | | | 1,279,357 | | | | 37,920 | | | | 3.1 | % | | | 1,235,864 | | | | 44,678 | | | | 3.8 | % | No change | | | 1,241,437 | | | | — | | | | 0 | % | | | 1,191,186 | | | | — | | | | — | | 100 | | | 1,204,561 | | | | (36,876 | ) | | | (3.0 | %) | | | 1,140,901 | | | | (50,285 | ) | | | (4.2 | %) | 200 | | | 1,168,582 | | | | (72,855 | ) | | | (5.9 | %) | | | 1,090,777 | | | | (100,409 | ) | | | (8.4 | %) |
The Company’s interest rate swaps are also exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these financial instruments. As interest rates decline, the market value of the Company’s interest rate swaps fall, and the converse is also true. Since the Company has designated the interest rate swaps asnon-hedge instruments, the changes in the fair value is recognized as net realized investment gains / losses in the consolidated statements of operations. Therefore, changes in interest rates will have a direct impact to the Company’s results of operations. In addition, on a daily basis, a margin requirement is calculated. If interest rates decline, the Company is required to pay a margin call equal to the change in the fair market value of the interest rate swap. When interest rates rise, the counterparty is required to pay to the Company a margin call equal to the change in fair market value of the interest rate swap.swaps. As of December 31, 2017,2020, the table below illustrates the sensitivity of market value of the Company’s interest rate swaps as well as the impact on the consolidated statements of operation to selected hypothetical changes in basis point increases and decreases: | | (Dollars in thousands) | (Dollars in thousands) | | (Dollars in thousands) | | Basis Point Change | | Market Value | | | Change in Market
Value and Impact to
Consolidated
Statements of
Operations | | | Market Value | | | Change in Market Value and Impact to Consolidated Statements of Operations | | (200) | | $ | (32,108 | ) | | $ | (24,140 | ) | | $ | (29,242 | ) | | $ | (12,812 | ) | (100) | | | (19,645 | ) | | | (11,677 | ) | | | (22,717 | ) | | | (6,287 | ) | No change | | | (7,968 | ) | | | — | | | | (16,430 | ) | | | — | | 100 | | | 2,973 | | | | 10,941 | | | | (10,373 | ) | | | 6,057 | | 200 | | | 13,225 | | | | 21,193 | | | | (4,537 | ) | | | 11,893 | |
Credit Risk The Company’s investment policy requires that its investments in debt instruments are of high credit quality issuers and limit the amount of credit exposure to any one issuer based upon the rating of the security. As of December 31, 2017,2020, the Company had approximately $29.6$49.5 million worth of investment exposure to subprime andAlt-A investments. As of December 31, 2017,2020, approximately $29.2$34.1 million of those investments have been rated BBB+BBB- to AAA by Standard & Poor’s and $0.4$15.4 million were rated below investment grade. As of December 31, 2016,2019, the Company had approximately $25.7$41.3 million worth of investment exposure to subprime andAlt-A investments. As of December 31, 2016,2019, approximately $25.2$31.1 million of those investments have been rated BBB+BBB- to AAA by Standard & Poor’s and $0.5$10.2 million were rated below investment grade. There werewas no impairments recognizedcredit loss recorded on these investments during the years ended December 31, 20172020 or 2016.2019. In addition, the Company has credit risk exposure to its general agencies and reinsurers. The Company seeks to mitigate and control its risks to producers by typically requiring its general agencies to render payments within no more than 45 days after the month in which a policy is effective and including provisions within the Company’s general agency contracts that allow it to terminate a general agency’sagency's authority in the event ofnon-payment. With respect to its credit exposure to reinsurers, the Company seeks to mitigate and control its risk by ceding business to only those reinsurers having adequate financial strength and sufficient capital to fund their obligation. In addition, the Company seeks to mitigate credit risk to reinsurers through the use of trusts and letters of credit for collateral. 72
Equity Price Risk In 2017,Starting in December 2020, the strategy for the Company’s equity portfolio followedwas to invest in companies with stable dividends. The strategy also generates long-term capital appreciation through a large cap value approach. This investment style placed primary emphasis on selecting the best relative values from those issues having a projected normalized price-earnings ratio at a discount to thecombination of market multiple.
The Company compares the results ofupside participation and downside protection. At December 31, 2020, the Company’s equity portfolioinvestment related to a customized benchmark which is the S&P 500 Value excluding financials. To protect against equity price risk, the sector exposures within the Company’s equity portfolio closely correlate to the sector exposures within the custom benchmark index. In 2017, the Company’sthis strategy totaled $60.4 million and consisted of common stock portfolio returned a total return of 15.0%, not including investment advisor fees, compared to the benchmark gain of 13.3%.stocks.
The carrying values of investments subject to equity price risk are based on quoted market prices as of the balance sheet dates. Market prices are subject to fluctuation and thus the amount realized in the subsequent sale of an investment may differ from the reported market value. Fluctuation in the market price of an equity security results from perceived changes in the underlying economic makeup of a stock, the price of alternative investments and overall market conditions. The Company attempts to mitigate its unsystemic risk, which is the risk that is associated with holding a particular security, by holding a large number of securities in that market. At year end, no security represented more than 5.2%2.4% of the market value of the equity portfolio. The Company continues to have systemic risk, which is the risk inherent in the general market due to broad macroeconomic factors that affect all companies in the market. As of December 31, 2017,2020, the table below summarizes the Company’s equity price risk and reflects the effect of a hypothetical 10% and 20% increase or decrease in market prices. The selected hypothetical changes do not indicate what could be the potential best or worst scenarios. | | (Dollars in thousands) | (Dollars in thousands) | | (Dollars in thousands) | | Hypothetical Price Change | | Estimated Fair Value
after Hypothetical
Change in Prices | | | Hypothetical Percentage
Increase (Decrease) in
Shareholders’ Equity (1) | | | Estimated Fair Value after Hypothetical Change in Prices | | | Hypothetical Percentage Increase (Decrease) in Shareholders’ Equity | | (20%) | | $ | 112,183 | | | | (2.5 | %) | | $ | 48,303 | | | (1.7%) | | (10%) | | | 126,206 | | | | (1.3 | %) | | | 54,341 | | | (0.8%) | | No change | | | 140,229 | | | | — | | | | 60,379 | | | — | | 10% | | | 154,252 | | | | 1.3 | % | | | 66,417 | | | 0.8% | | 20% | | | 168,274 | | | | 2.5 | % | | | 72,455 | | | 1.7% | |
Foreign Currency Exchange Risk The Company has foreign currency exchange risk associated with a portion of the business previously written at Global Indemnity Reinsurance, as well as a small portion of expenses related to corporate overhead in its Ireland and Luxembourg offices.office. The Company also maintains investments in foreign denominated securities and cash accounts in foreign currencies in order to pay expenses in foreign countries. Atperiod-end, the Companyre-measures thosenon-U.S. currency financial assets to their current U.S. dollar equivalent. Financial liabilities, if any, are generally adjusted within the reserving process. However, for known losses on claims to be paid in foreign currencies, the Companyre-measures the liabilities to their current U.S. dollar equivalent each period end. 73
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAGLOBAL INDEMNITY LIMITEDGROUP, LLC Index to Financial Statements Index to Financial Statement Schedules
Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Global Indemnity LimitedGroup, LLC Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Global Indemnity LimitedGroup, LLC (the Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income shareholders’(loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes and the financial statement schedules listed in the Index at Item 1515(a)(2) (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 9, 2018,12, 2021, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| | | | | Valuation of Unpaid Losses and Loss Adjustment Expenses | Description of the Matter | | At December 31, 2020, the Company’s liability for unpaid losses and loss adjustment expenses was $663 million, of which a significant portion represents incurred but not reported reserves. As described in Note 3 of the consolidated financial statements, the liability for unpaid losses and loss adjustment expenses represents the Company’s best estimate of future amounts needed to pay losses and related settlement expenses with respect to events insured by the Company. The difference between the estimated ultimate loss and loss adjustment expenses and the case incurred loss (paid loss plus case reserve) is considered to be incurred but not reported. There is significant uncertainty inherent in determining management’s best estimate of the ultimate loss and loss adjustment expenses, requiring the use of informed actuarially based estimates and management’s judgment. In particular, the Company’s long-tail reserve categories (such as general liability, construction defect and environmental exposures) are influenced by factors that are subject to significant variation over a long period of time or have high potential severities within the selection and weighting of actuarial methods and assumptions. Assumptions fundamental to the reserving process include claims frequency and severity as well as the review of historical payment and claim reporting patterns. Auditing management’s best estimate of the liability for unpaid losses and loss adjustment expenses was complex and involved the use of our actuarial specialists due to the significant estimation uncertainty associated with evaluating management’s methods and assumptions in determining the Company’s recorded loss and loss adjustment reserves. | How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the process for estimating loss and loss adjustment expense reserves. This included, among others, the review and approval processes management has in place for the methods and assumptions used in estimating the loss and loss adjustment expense reserves. To test the Company’s estimate of loss and loss adjustment expense reserves, our audit procedures included among others, the assistance of our actuarial specialists to evaluate the assumptions used in the actuarial methods, by comparing the significant assumptions, including severity, frequency, payment patterns and expected loss ratios to the Company’s historical experience. In addition, we evaluated the selection and the weighting of actuarial methods used by management with those methods used in prior periods and those used in the industry. We developed a range of reasonable reserve estimates which included performing independent projections for a sample of lines of business and compared the range of reserve estimates to the Company’s recorded reserves. We also performed a review of historical results of the development of the loss and loss adjustment expense reserves related to prior years. |
/s/ Ernst & Young LLP We have served as the Company’s auditor since 2015. Philadelphia, PAPennsylvania March 9, 2018
GLOBAL INDEMNITY LIMITEDGROUP, LLC Consolidated Balance Sheets (In thousands, except share amounts) | | | | December 31,
2017 | | December 31,
2016 | | | ASSETS | | | | | | December 31, 2020 | | | December 31, 2019 | | Fixed maturities: | | | | | | | | | | | | | Available for sale, at fair value (amortized cost: $1,243,144 and $1,241,339) | | $ | 1,241,437 | | | $ | 1,240,031 | | | Equity securities: | | | | | | Available for sale, at fair value (cost: $124,915 and $119,515) | | | 140,229 | | | 120,557 | | | Available for sale, at fair value (amortized cost: $1,149,009 and $1,231,568; net of allowance for expected credit losses of: 2020 - $0) | | | $ | 1,191,186 | | | $ | 1,253,159 | | Equity securities, at fair value | | | | 98,990 | | | | 263,104 | | Other invested assets | | | 77,820 | | | 66,121 | | | | 97,018 | | | | 47,279 | | | | | | | | | | Total investments | | | 1,459,486 | | | 1,426,709 | | | | 1,387,194 | | | | 1,563,542 | | Cash and cash equivalents | | | 74,414 | | | 75,110 | | | | 67,359 | | | | 44,271 | | Premiums receivable, net | | | 84,386 | | | 92,094 | | | Reinsurance receivables, net | | | 105,060 | | | 143,774 | | | Premiums receivable, net of allowance for expected credit losses of $2,900 at December 31, 2020 | | | | 109,431 | | | | 118,035 | | Reinsurance receivables, net of allowance for expected credit losses of $8,992 at December 31, 2020 | | | | 88,708 | | | | 83,938 | | Funds held by ceding insurers | | | 45,300 | | | 13,114 | | | | 45,480 | | | | 48,580 | | Federal income taxes receivable | | | 10,332 | | | | — | | | | 0 | | | | 10,989 | | Deferred federal income taxes | | | 26,196 | | | 40,957 | | | | 34,265 | | | | 31,077 | | Deferred acquisition costs | | | 61,647 | | | 57,901 | | | | 65,195 | | | | 70,677 | | Intangible assets | | | 22,549 | | | 23,079 | | | | 20,962 | | | | 21,491 | | Goodwill | | | 6,521 | | | 6,521 | | | | 6,521 | | | | 6,521 | | Prepaid reinsurance premiums | | | 28,851 | | | 42,583 | | | | 12,881 | | | | 16,716 | | Receivable for securities sold | | | 1,543 | | | | — | | | Other assets | | | 75,384 | | | 51,104 | | | | 66,912 | | | | 60,048 | | | | | | | | | | Total assets | | $ | 2,001,669 | | | $ | 1,972,946 | | | $ | 1,904,908 | | | $ | 2,075,885 | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Unpaid losses and loss adjustment expenses | | $ | 634,664 | | | $ | 651,042 | | | $ | 662,811 | | | $ | 630,181 | | Unearned premiums | | | 285,397 | | | 286,984 | | | | 291,495 | | | | 314,861 | | Federal income taxes payable | | | — | | | 219 | | | Ceded balances payable | | | 10,851 | | | 14,675 | | | | 8,943 | | | | 20,404 | | Payable for securities purchased | | | — | | | 3,717 | | | | 4,667 | | | | 850 | | Contingent commissions | | | 7,984 | | | 9,454 | | | | 10,832 | | | | 11,928 | | Debt | | | 294,713 | | | 163,143 | | | | 126,288 | | | | 296,640 | | Other liabilities | | | 49,666 | | | 45,761 | | | | 81,548 | | | | 74,212 | | | | | | | | | | Total liabilities | | | 1,283,275 | | | $ | 1,174,995 | | | | 1,186,584 | | | | 1,349,076 | | | | | | | | | | Commitments and contingencies (Note 15) | | | — | | | | — | | | Commitments and contingencies (Note 16) | | | | — | | | | — | | Shareholders’ equity: | | | | | | | | | | | | | Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A ordinary shares issued: 10,102,927 and 13,436,548, respectively; A ordinary shares outstanding: 10,073,376 and 13,436,548, respectively; B ordinary shares issued and outstanding: 4,133,366 and 4,133,366, respectively | | | 2 | | | 2 | | | Series A cumulative fixed rate preferred shares, $1,000 par value; 100,000,000 shares authorized, shares issued and outstanding: 4,000 and 0 shares, respectively, liquidation preference: $1,000 per share and $0, respectively | | | | 4,000 | | | | 0 | | Common shares, par value: no par at December 31, 2020 and $0.0001 at December 31, 2019, 900,000,000 common shares authorized; class A common shares issued: 10,263,722 and 10,282,277 respectively; class A common shares outstanding: 10,263,722 and 10,167,056, respectively; class B common shares issued and outstanding: 4,133,366 and 4,133,366, respectively | | | | 0 | | | | 2 | | Additionalpaid-in capital | | | 434,730 | | | 430,283 | | | | 445,051 | | | | 442,403 | | Accumulated other comprehensive income, net of taxes | | | 8,983 | | | (618 | ) | | | 34,308 | | | | 17,609 | | Retained earnings | | | 275,838 | | | 368,284 | | | | 234,965 | | | | 270,768 | | A ordinary shares in treasury, at cost: 29,551 and 0 shares, respectively | | | (1,159 | ) | | | — | | | | | | | | | | | Class A common shares in treasury, at cost: 0 and 115,221 shares, respectively | | | | 0 | | | | (3,973 | ) | Total shareholders’ equity | | | 718,394 | | | 797,951 | | | | 718,324 | | | | 726,809 | | | | | | | | | | Total liabilities and shareholders’ equity | | $ | 2,001,669 | | | $ | 1,972,946 | | | $ | 1,904,908 | | | $ | 2,075,885 | | | | | | | | | |
See accompanying notes to consolidated financial statements.
GLOBAL INDEMNITY LIMITEDGROUP, LLC Consolidated Statements of Operations (In thousands, except shares and per share data) | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Revenues: | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 516,334 | | | $ | 565,845 | | | $ | 590,233 | | | | | | | | | | | | | | Net premiums written | | $ | 450,180 | | | $ | 470,940 | | | $ | 501,244 | | | | | | | | | | | | | | Net premiums earned | | $ | 438,034 | | | $ | 468,465 | | | $ | 504,143 | | | Gross written premiums | | | $ | 606,603 | | | $ | 636,861 | | | $ | 547,897 | | Net written premiums | | | $ | 548,167 | | | $ | 562,089 | | | $ | 472,547 | | Net earned premiums | | | $ | 567,699 | | | $ | 525,262 | | | $ | 467,775 | | Net investment income | | | 39,323 | | | 33,983 | | | 34,609 | | | | 28,392 | | | | 42,052 | | | | 46,342 | | Net realized investment gains (losses): | | | | | | | | Other than temporary impairment losses on investments | | | (2,606 | ) | | (6,733 | ) | | (7,335 | ) | | Other net realized investment gains | | | 4,182 | | | 28,454 | | | 3,961 | | | | | | | | | | | | | | Total net realized investment gains (losses) | | | 1,576 | | | 21,721 | | | (3,374 | ) | | Net realized investment gains (losses) | | | | (14,662 | ) | | | 35,342 | | | | (16,907 | ) | Other income | | | 6,582 | | | 10,345 | | | 3,400 | | | | 2,118 | | | | 1,816 | | | | 1,728 | | | | | | | | | | | | | Total revenues | | | 485,515 | | | 534,514 | | | 538,778 | | | | 583,547 | | | | 604,472 | | | | 498,938 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 269,212 | | | 264,003 | | | 275,368 | | | | 336,201 | | | | 275,402 | | | | 334,625 | | Acquisition costs and other underwriting expenses | | | 183,733 | | | 196,650 | | | 201,303 | | | | 215,607 | | | | 208,403 | | | | 190,778 | | Corporate and other operating expenses | | | 25,714 | | | 17,338 | | | 24,448 | | | | 41,998 | | | | 18,888 | | | | 29,766 | | Interest expense | | | 16,906 | | | 8,905 | | | 4,913 | | | | 15,792 | | | | 20,022 | | | | 19,694 | | | | | | | | | | | | | Loss on extinguishment of debt | | | | 3,060 | | | | 0 | | | | 0 | | Income (loss) before income taxes | | | (10,050 | ) | | 47,618 | | | 32,746 | | | | (29,111 | ) | | | 81,757 | | | | (75,925 | ) | Income tax benefit | | | (499 | ) | | (2,250 | ) | | (8,723 | ) | | | | | | | | | | | | | Income tax expense (benefit) | | | | (8,105 | ) | | | 11,742 | | | | (19,229 | ) | Net income (loss) | | $ | (9,551 | ) | | $ | 49,868 | | | $ | 41,469 | | | | (21,006 | ) | | | 70,015 | | | | (56,696 | ) | | | | | | | | | | | | Less: preferred stock distributions | | | | 152 | | | | 0 | | | | 0 | | Net income (loss) available to common shareholders | | | $ | (21,158 | ) | | $ | 70,015 | | | $ | (56,696 | ) | Per share data: | | | | | | | | | | | | | | | | | | | Net income (loss) (1) | | | | | | | | Net income (loss) available to common shareholders (1) | | | | | | | | | | | | | | Basic | | $ | (0.55 | ) | | $ | 2.89 | | | $ | 1.71 | | | $ | (1.48 | ) | | $ | 4.93 | | | $ | (4.02 | ) | | | | | | | | | | | | Diluted | | $ | (0.55 | ) | | $ | 2.84 | | | $ | 1.69 | | | $ | (1.48 | ) | | $ | 4.88 | | | $ | (4.02 | ) | | | | | | | | | | | | Weighted-average number of shares outstanding | | | | | | | | | | | | | | | | | | | Basic | | | 17,308,663 | | | 17,246,717 | | | 24,253,657 | | | | 14,291,265 | | | | 14,191,756 | | | | 14,088,883 | | | | | | | | | | | | | Diluted | | | 17,308,663 | | | 17,547,061 | | | 24,505,851 | | | | 14,291,265 | | | | 14,334,706 | | | | 14,088,883 | | | | | | | | | | | | | Cash dividends/distributions declared per common share | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
(1) | For the yearyears ended December 31, 2017, “diluted” loss2020 and 2018, “weighted average shares outstanding - basic” was used to calculate “diluted earnings per share is the same as “basic” loss per share since there wasshare” due to a net loss for the period. |
See accompanying notes to consolidated financial statements.
GLOBAL INDEMNITY LIMITEDGROUP, LLC Consolidated Statements of Comprehensive Income (Loss) (In thousands) | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Net income (loss) | | $ | (9,551 | ) | | $ | 49,868 | | | $ | 41,469 | | | $ | (21,006 | ) | | $ | 70,015 | | | $ | (56,696 | ) | | | | | | | | | | | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | | | | Unrealized holding gains (losses) | | | 9,677 | | | 10,058 | | | (17,457 | ) | | | 33,334 | | | | 43,980 | | | | (20,748 | ) | Portion of other than temporary impairment losses recognized in other comprehensive income (loss) | | | (3 | ) | | (3 | ) | | (4 | ) | | | 0 | | | | (5 | ) | | | (3 | ) | Reclassification adjustment for gains included in net income | | | (848 | ) | | (14,809 | ) | | (1,985 | ) | | Unrealized foreign currency translation gains | | | 775 | | | 58 | | | 140 | | | | | | | | | | | | | | Reclassification adjustment for gains included in net income (loss) | | | | (17,794 | ) | | | (5,437 | ) | | | 2,450 | | Unrealized foreign currency translation gains (losses) | | | | 1,159 | | | | 302 | | | | (1,885 | ) | Other comprehensive income (loss), net of tax | | | 9,601 | | | (4,696 | ) | | (19,306 | ) | | | 16,699 | | | | 38,840 | | | | (20,186 | ) | | | | | | | | | | | | Comprehensive income, net of tax | | $ | 50 | | | $ | 45,172 | | | $ | 22,163 | | | | �� | | | | | | | | | | Comprehensive income (loss), net of tax | | | $ | (4,307 | ) | | $ | 108,855 | | | $ | (76,882 | ) |
See accompanying notes to consolidated financial statements.
GLOBAL INDEMNITY LIMITEDGROUP, LLC Consolidated Statements of Changes in Shareholders’ Equity (In thousands, except share amounts) | | | | | | | | Years Ended December 31, | | | | | Years Ended December 31, | | | 2020 | | | 2019 | | | 2018 | | | | | 2017 | | 2016 | | 2015 | | | Number of A ordinary shares issued: | | | | | | | | Number of Series A Cumulative Fixed Rate Preferred Shares | | | | | | | | | | | | | | Preferred shares issued | | | | 4,000 | | | | 0 | | | | 0 | | Number at end of period | | | | 4,000 | | | | 0 | | | | 0 | | Number of class A common shares issued: | | | | | | | | | | | | | | Number at beginning of period | | 13,436,548 | | | 16,424,546 | | | 16,331,577 | | | | 10,282,277 | | | | 10,171,954 | | | | 10,102,927 | | Ordinary shares issued under share incentive plans | | 2,204 | | | 115,711 | | | 121,812 | | | Ordinary shares issued to directors | | 27,121 | | | 35,185 | | | 36,321 | | | B ordinary shares converted to A ordinary shares | | | — | | | | — | | | 7,928,004 | | | Ordinary shares redeemed | | (3,397,031 | ) | | | — | | | (8,260,870 | ) | | Adjustment for shares redeemed indirectly owned by subsidiary | | 34,085 | | | | | | | Ordinary shares issued in connection with American Reliable acquisition | | | — | | | | — | | | 267,702 | | | Common shares issued / (forfeited) under share incentive plans | | | | (6,576 | ) | | | 43,404 | | | | 37,381 | | Common shares issued to directors | | | | 108,521 | | | | 66,919 | | | | 31,646 | | Reduction in treasury shares due to redomestication | | | — | | | (3,138,894 | ) | | | — | | | | (120,500 | ) | | | 0 | | | | 0 | | | | | | | | | | | | | Number at end of period | | 10,102,927 | | | 13,436,548 | | | 16,424,546 | | | | 10,263,722 | | | | 10,282,277 | | | | 10,171,954 | | | | | | | | | | | | | Number of B ordinary shares issued: | | | | | | | | Number of class B common shares issued: | | | | | | | | | | | | | | Number at beginning and end of period | | 4,133,366 | | | 4,133,366 | | | 12,061,370 | | | | 4,133,366 | | | | 4,133,366 | | | | 4,133,366 | | B Ordinary shares converted to A ordinary shares | | | — | | | | — | | | (7,928,004 | ) | | | | | | | | | | | | | Number at end of period | | 4,133,366 | | | 4,133,366 | | | 4,133,366 | | | | | | | | | | | | | | Par value of A ordinary shares: | | | | | | | | Par value of Series A Cumulative Fixed Rate Preferred Shares: | | | | | | | | | | | | | | Preferred shares issued | | | $ | 4,000 | | | $ | 0 | | | $ | 0 | | Balance at end of period | | | $ | 4,000 | | | $ | 0 | | | $ | 0 | | Par value of class A common shares: | | | | | | | | | | | | | | Balance at beginning of period | | $ | 1 | | | $ | 2 | | | $ | 2 | | | $ | 1 | | | $ | 1 | | | $ | 1 | | Reduction in treasury shares due to redomestication | | | — | | | (1 | ) | | | — | | | | | | | | | | | | | | Reduction in par due to redomestication | | | | (1 | ) | | | 0 | | | | 0 | | Balance at end of period | | $ | 1 | | | $ | 1 | | | $ | 2 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | | | | | | | | | | | | Par value of B ordinary shares: | | | | | | | | Balance at beginning and end of period | | $ | 1 | | | $ | 1 | | | $ | 1 | | | | | | | | | | | | | | Par value of class B common shares: | | | | | | | | | | | | | | Balance at beginning of period | | | $ | 1 | | | $ | 1 | | | $ | 1 | | Reduction in par due to redomestication | | | | (1 | ) | | | 0 | | | | 0 | | Balance at end of period | | | $ | 0 | | | $ | 1 | | | $ | 1 | | Additionalpaid-in capital: | | | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | 430,283 | | | $ | 529,872 | | | $ | 519,590 | | | $ | 442,403 | | | $ | 438,182 | | | $ | 434,730 | | Reduction in treasury shares due to redomestication | | | — | | | (103,248 | ) | | | — | | | | (4,126 | ) | | | 0 | | | | 0 | | Adjustment for shares redeemed indirectly owned by subsidiary | | 706 | | | | | | | Share compensation plans | | 3,741 | | | 3,532 | | | 10,272 | | | | 6,774 | | | | 4,221 | | | | 3,452 | | Tax benefit on share-based compensation expense | | | — | | | 127 | | | 10 | | | | | | | | | | | | | | Balance at end of period | | $ | 434,730 | | | $ | 430,283 | | | $ | 529,872 | | | $ | 445,051 | | | $ | 442,403 | | | $ | 438,182 | | | | | | | | | | | | | Accumulated other comprehensive income, net of deferred income tax: | | | | | | | | Accumulated other comprehensive income (loss), net of deferred income tax: | | | | | | | | | | | | | | Balance at beginning of period | | $ | (618 | ) | | $ | 4,078 | | | $ | 23,384 | | | $ | 17,609 | | | $ | (21,231 | ) | | $ | 8,983 | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | Change in unrealized holding gains (losses) | | 8,829 | | | (4,751 | ) | | (19,436 | ) | | | 15,540 | | | | 38,543 | | | | (18,298 | ) | Change in other than temporary impairment losses recognized in other comprehensive income (loss) | | (3 | ) | | (3 | ) | | (10 | ) | | | 0 | | | | (5 | ) | | | (3 | ) | Unrealized foreign currency translation gains | | 775 | | | 58 | | | 140 | | | | | | | | | | | | | | Unrealized foreign currency translation gains (losses) | | | | 1,159 | | | | 302 | | | | (1,885 | ) | Other comprehensive income (loss) | | 9,601 | | | (4,696 | ) | | (19,306 | ) | | | 16,699 | | | | 38,840 | | | | (20,186 | ) | | | | | | | | | | | | Cumulative effect adjustment resulting from adoption of new accounting guidance | | | | 0 | | | | 0 | | | | (10,028 | ) | Balance at end of period | | $ | 8,983 | | | $ | (618 | ) | | $ | 4,078 | | | $ | 34,308 | | | $ | 17,609 | | | $ | (21,231 | ) | | | | | | | | | | | | Retained earnings: | | | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | 368,284 | | | $ | 318,416 | | | $ | 466,717 | | | $ | 270,768 | | | $ | 215,132 | | | $ | 275,838 | | Ordinary shares redeemed | | (83,015 | ) | | | — | | | (189,770 | ) | | Adjustment for gain on shares redeemed indirectly owned by subsidiary | | 120 | | | | | | | Cumulative effect adjustment resulting from adoption of new accounting guidance | | | | 0 | | | | (5 | ) | | | 10,198 | | Net income (loss) | | (9,551 | ) | | 49,868 | | | 41,469 | | | | (21,006 | ) | | | 70,015 | | | | (56,696 | ) | | | | | | | | | | | | Preferred share distributions | | | | (152 | ) | | | 0 | | | | 0 | | Dividends / distributions to shareholders | | | | (14,645 | ) | | | (14,374 | ) | | | (14,208 | ) | Balance at end of period | | $ | 275,838 | | | $ | 368,284 | | | $ | 318,416 | | | $ | 234,965 | | | $ | 270,768 | | | $ | 215,132 | | | | | | | | | | | | | Number of treasury shares: | | | | | | | | | | | | | | | | | | | Number at beginning of period | | | — | | | 3,110,795 | | | 3,064,815 | | | | 115,221 | | | | 76,642 | | | | 29,551 | | A ordinary shares purchased | | 29,551 | | | 28,099 | | | 11,895 | | | Elimination of shares indirectly owned by subsidiary | | | — | | | | — | | | 34,085 | | | Class A common shares purchased | | | | 5,120 | | | | 27,028 | | | | 45,233 | | Retirement of treasury shares | | | | 159 | | | | 11,551 | | | | 1,858 | | Reduction in treasury shares due to redomestication | | | — | | | (3,138,894 | ) | | | — | | | | (120,500 | ) | | | 0 | | | | 0 | | | | | | | | | | | | | Number at end of period | | 29,551 | | | | — | | | 3,110,795 | | | | 0 | | | | 115,221 | | | | 76,642 | | | | | | | | | | | | | Treasury shares, at cost: | | | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | — | | | $ | (102,443 | ) | | $ | (101,404 | ) | | $ | (3,973 | ) | | $ | (3,026 | ) | | $ | (1,159 | ) | A ordinary shares purchased, at cost | | (1,159 | ) | | (805 | ) | | (333 | ) | | Elimination of shares indirectly owned by subsidiary | | | — | | | | — | | | (706 | ) | | Class A common shares purchased, at cost | | | | (153 | ) | | | (947 | ) | | | (1,813 | ) | Reduction in treasury shares due to redomestication | | | — | | | 103,248 | | | | — | | | | 4,126 | | | | 0 | | | | 0 | | | | | | | | | | | | | Retirement of shares | | | | 0 | | | | 0 | | | | (54 | ) | Balance at end of period | | $ | (1,159 | ) | | $ | — | | | $ | (102,443 | ) | | $ | 0 | | | $ | (3,973 | ) | | $ | (3,026 | ) | | | | | | | | | | | | Total shareholders’ equity | | $ | 718,394 | | | $ | 797,951 | | | $ | 749,926 | | | $ | 718,324 | | | $ | 726,809 | | | $ | 629,059 | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
GLOBAL INDEMNITY LIMITEDGROUP, LLC
Consolidated Statements of Cash Flows (In thousands) | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | (9,551 | ) | | $ | 49,868 | | | $ | 41,469 | | | $ | (21,006 | ) | | $ | 70,015 | | | $ | (56,696 | ) | Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | | | | | | | | Amortization of the value of business acquired | | | — | | | | — | | | 25,500 | | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | Amortization and depreciation | | | 6,505 | | | 6,312 | | | 5,284 | | | | 7,027 | | | | 7,103 | | | | 7,019 | | Amortization of debt issuance costs | | | 232 | | | 123 | | | 47 | | | | 217 | | | | 264 | | | | 264 | | Restricted stock and stock option expense | | | 3,741 | | | 3,531 | | | 10,271 | | | | 6,774 | | | | 4,221 | | | | 3,452 | | Deferred federal income taxes | | | (1,018 | ) | | (2,727 | ) | | (7,201 | ) | | | (8,268 | ) | | | 11,783 | | | | (19,554 | ) | Amortization of bond premium and discount, net | | | 7,899 | | | 9,828 | | | 13,643 | | | | 6,957 | | | | 4,887 | | | | 5,925 | | Net realized investment (gains) losses | | | (1,576 | ) | | (21,721 | ) | | 3,374 | | | | 14,662 | | | | (35,342 | ) | | | 16,907 | | Equity in the earnings of equity method limited liability investments | | | (4,741 | ) | | (5,190 | ) | | (2,533 | ) | | Gain on the disposition of subsidiary | | | — | | | (6,857 | ) | | | — | | | Loss on extinguishment of debt | | | | 3,060 | | | | 0 | | | | 0 | | Loss from equity method investments, net of distributions | | | | 6,346 | | | | 0 | | | | 0 | | Changes in: | | | | | | | | | | | | | | | | | | | Premiums receivable, net | | | 7,708 | | | (2,849 | ) | | 25,325 | | | | 8,604 | | | | (30,356 | ) | | | (3,293 | ) | Reinsurance receivables, net | | | 38,714 | | | (28,180 | ) | | 23,966 | | | | (4,770 | ) | | | 30,480 | | | | (9,358 | ) | Funds held by ceding insurers | | | (31,635 | ) | | 2,923 | | | 9,147 | | | | 4,294 | | | | 928 | | | | (5,791 | ) | Unpaid losses and loss adjustment expenses | | | (16,378 | ) | | (29,005 | ) | | (84,914 | ) | | | 32,630 | | | | (49,850 | ) | | | 45,367 | | Unearned premiums | | | (1,587 | ) | | 699 | | | (6,764 | ) | | | (23,366 | ) | | | 32,949 | | | | (3,485 | ) | Ceded balances payable | | | (3,824 | ) | | 10,086 | | | (11,430 | ) | | | (11,461 | ) | | | 5,410 | | | | 4,143 | | Other assets and liabilities, net | | | (27,061 | ) | | (15,065 | ) | | (6,070 | ) | | Other assets and liabilities | | | | (8,240 | ) | | | (16,162 | ) | | | 46,823 | | Contingent commissions | | | (1,470 | ) | | (1,615 | ) | | (6,264 | ) | | | (1,096 | ) | | | 1,292 | | | | 2,652 | | Federal income tax receivable/payable | | | 406 | | | 5,047 | | | (1,689 | ) | | | 10,989 | | | | (123 | ) | | | (534 | ) | Deferred acquisition costs, net | | | (3,746 | ) | | (1,384 | ) | | (31,279 | ) | | Deferred acquisition costs | | | | 5,482 | | | | (9,001 | ) | | | (29 | ) | Prepaid reinsurance premiums | | | 13,732 | | | 1,780 | | | 3,868 | | | | 3,835 | | | | 3,878 | | | | 8,257 | | | | | | | | | | | | | Net cash provided by (used for) operating activities | | | (23,650 | ) | | (24,396 | ) | | 3,750 | | | | | | | | | | | | | | Net cash provided by operating activities | | | | 32,670 | | | | 32,376 | | | | 42,069 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | Cash release from escrow for business acquisition | | | — | | | | — | | | 113,696 | | | Acquisition of business, net of cash acquired | | | — | | | | — | | | (92,336 | ) | | Proceeds from sale of fixed maturities | | | 918,439 | | | 381,389 | | | 647,404 | | | | 791,554 | | | | 977,321 | | | | 293,348 | | Proceeds from sale of equity securities | | | 32,218 | | | 111,156 | | | 39,723 | | | | 604,772 | | | | 260,891 | | | | 35,639 | | Proceeds from sale of preferred stock | | | — | | | | — | | | 1,540 | | | Proceeds from maturity of fixed maturities | | | 145,475 | | | 86,009 | | | 157,845 | | | | 119,326 | | | | 180,546 | | | | 55,182 | | Proceeds from limited partnership distribution | | | 17,040 | | | 9,450 | | | 5,959 | | | Proceeds from disposition of subsidiary, net of cash and cash equivalents disposed of $1,269 | | | — | | | 16,922 | | | | — | | | Amount received (paid) in connection with derivatives | | | 1,464 | | | (1,010 | ) | | (6,604 | ) | | Proceeds from other invested assets | | | | 4,211 | | | | 16,757 | | | | 43,377 | | Amounts received (paid) in connection with derivatives | | | | (20,456 | ) | | | (7,654 | ) | | | 4,392 | | Purchases of fixed maturities | | | (1,078,199 | ) | | (437,690 | ) | | (627,983 | ) | | | (808,618 | ) | | | (1,129,567 | ) | | | (370,536 | ) | Purchases of equity securities | | | (36,647 | ) | | (109,940 | ) | | (38,451 | ) | | | (455,907 | ) | | | (365,255 | ) | | | (36,258 | ) | Purchases of other invested assets | | | (24,000 | ) | | (14,125 | ) | | (3,550 | ) | | | (60,297 | ) | | | (13,283 | ) | | | (16,309 | ) | | | | | | | | | | | | Acquisition of business | | | | 0 | | | | 0 | | | | (3,515 | ) | Net cash provided by (used for) investing activities | | | (24,210 | ) | | 42,161 | | | 197,243 | | | | 174,585 | | | | (80,244 | ) | | | 5,320 | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | Net borrowings (repayments) under margin borrowing facility | | | 5,584 | | | (9,000 | ) | | (99,027 | ) | | | (73,629 | ) | | | 7,811 | | | | (6,412 | ) | Redemption of ordinary shares | | | (83,015 | ) | | | — | | | (189,770 | ) | | Proceeds from issuance of subordinated notes | | | 130,000 | | | | — | | | 100,000 | | | Debt issuance cost | | | (4,246 | ) | | (14 | ) | | (3,659 | ) | | Purchases of A ordinary shares | | | (1,159 | ) | | (805 | ) | | (333 | ) | | Tax benefit on share-based compensation expense | | | — | | | 127 | | | 10 | | | | | | | | | | | | | | Net cash provided by (used for) financing activities | | | 47,164 | | | (9,692 | ) | | (192,779 | ) | | | | | | | | | | | | | Dividends paid to common shareholders | | | | (14,252 | ) | | | (14,222 | ) | | | (14,027 | ) | Distributions paid to preferred shareholders | | | | (133 | ) | | | 0 | | | | 0 | | Issuance of series A cumulative fixed rate preferred shares | | | | 4,000 | | | | 0 | | | | 0 | | Purchases of class A common shares | | | | (153 | ) | | | (947 | ) | | | (1,867 | ) | Redemption of subordinated notes | | | | (100,000 | ) | | | 0 | | | | 0 | | Net cash used for financing activities | | | | (184,167 | ) | | | (7,358 | ) | | | (22,306 | ) | Net change in cash and cash equivalents | | | (696 | ) | | 8,073 | | | 8,214 | | | | 23,088 | | | | (55,226 | ) | | | 25,083 | | Cash and cash equivalents at beginning of period | | | 75,110 | | | 67,037 | | | 58,823 | | | | 44,271 | | | | 99,497 | | | | 74,414 | | | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 74,414 | | | $ | 75,110 | | | $ | 67,037 | | | $ | 67,359 | | | $ | 44,271 | | | $ | 99,497 | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
1. | Principles of Consolidation and Basis of Presentation |
1. Principles of Consolidation and Basis of Presentation
Global Indemnity LimitedGroup, LLC (“Global Indemnity” or “the Company”), incorporateda Delaware limited liability company formed on February 9, 2016, is domiciledJune 23, 2020, replaced Global Indemnity Limited, incorporated in the Cayman Islands. On November 7, 2016, Global Indemnity replaced Global Indemnity plcIslands as an exempted company with limited liability, as the ultimate parent company of the Global Indemnity group of companies as a result of a redomestication transaction. The Company’stransaction completed on August 28, 2020. This transaction resulted in the redomestication of the Company and its Bermuda subsidiary, Global Indemnity Reinsurance Company, Ltd. (“Global Indemnity Reinsurance”), to the United States. Global Indemnity Group, LLC’s class A ordinarycommon shares are publicly traded on the NASDAQ Global Select Market under the ticker symbol GBLI. Global Indemnity Group, LLC’s predecessors have been publicly traded since 2003. See Note 2 below for detailsadditional information regarding the redomestication. During the first quarter of 2019, the Company re-evaluated its Personal Lines segment and determined that Personal Lines should be bifurcated into 2 reportable segments: Specialty Property and Farm, Ranch & Stable. This is the result of changing how Specialty Property and Farm, Ranch & Stable are managed and reported. Specialty Property is managed out of the Company’s Scottsdale, Arizona office; whereas, Farm, Ranch & Stable is managed out of the Company’s Omaha, Nebraska office. In connectionthe past, Farm, Ranch & Stable reported to the Scottsdale, Arizona office and now it reports directly to the Company’s main headquarters in Bala Cynwyd, Pennsylvania. Results for Specialty Property and Farm, Ranch & Stable are separately measured, resources are separately allocated to each of these lines, and employees in each line are now being rewarded based on each line’s separate results. Accordingly, the Company now reports Specialty Property and Farm, Ranch & Stable as 2 separate reportable segments. In addition, the Company has changed the name of its Commercial Lines segment to Commercial Specialty to better align with its key product offerings. The segment results for the redomestication, Global Indemnity plc was convertedyear ended December 31, 2018 have been revised to a private unlimited company and was placed into liquidation. The liquidation was finalized in 2017.reflect these changes. See Note 21 for additional information regarding segments. The Company manages its business through three4 business segments: Commercial Lines, Personal Lines,Specialty, Specialty Property, Farm, Ranch & Stable, and Reinsurance Operations. The Company’s Commercial LinesSpecialty segment offers specialty property and casualty insurance products in the excess and surplus lines marketplace. The Company manages its Commercial LinesSpecialty by differentiating them into four4 product classifications: 1) Penn-America, which markets property and general liability products to small commercial businesses through a select network of wholesale general agents with specific binding authority; 2) United National, which markets insurance products for targeted insured segments, including specialty products, such as property, general liability, and professional lines through program administrators with specific binding authority; 3)Diamond State, which markets property, casualty, and professional lines products, which are developed by the Company’s underwriting department by individuals with expertise in those lines of business, through wholesale brokers and also markets through program administrators having specific binding authority; and 4) Vacant Express, which primarily insures dwellings which are currently vacant, undergoing renovation, or are under construction and is distributedmarketed through aggregators, brokers, and retail agents. These product classifications comprise the Company’s Commercial LinesSpecialty business segment and are not considered individual business segments because each product has similar economic characteristics, distribution, and coverage. The Company’s Personal LinesSpecialty Property segment offers specialty personal lines property and agricultural coveragecasualty insurance products through general and specialty agents with specific binding authority on an admitted basis.authority. The Company’s Farm, Ranch & Stable segment provides specialized property and casualty coverage including Commercial Farm Auto and Excess/Umbrella Coverage for the agriculture industry as well as specialized insurance products for the equine mortality and equine major medical industry. These insurance products are sold through wholesalers and retail agents, with a selected number having specific binding authority. Collectively, the Company’s U.S. insurance subsidiaries are licensed in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The Commercial Specialty, Specialty Property, and Farm, Ranch & Stable segments comprise the Company’s ReinsuranceInsurance Operations consist solely of the operations of its Bermuda-based wholly-owned subsidiary, Global Indemnity Reinsurance. Global Indemnity Reinsurance is a treaty reinsurer of specialty property and casualty insurance and reinsurance companies.(“Insurance Operations”). The Company’s Reinsurance Operations segment provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies. During Prior to the 1st quarter of 2017,redomestication transactions, the Companyre-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions of business will be managed, operated and reported by including them in the other segment. As a result, the compositionCompany’s Reinsurance Operations consisted solely of the Company’s reportable segments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included asoperations of its Bermuda-based wholly-owned subsidiary, Global Indemnity Reinsurance. As part of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs written by American Reliableredomestication transactions, Global Indemnity Reinsurance was merged with and into Penn-Patriot Insurance Company (“American Reliable”("Penn-Patriot"), which was previously included withinwith Penn-Patriot surviving, resulting in the Personal Lines segment, is now aggregated withinassumption of Global Indemnity Reinsurance's business by the Commercial Lines segment. Accordingly, the segment results for 2016 and 2015 have been revised to reflect these changes. See Note 20 for additional information regarding segments.Global Indemnity group of companies’ existing U.S. insurance company subsidiaries.
The consolidated financial statements have been prepared in conformity with United States of America generally accepted accounting principles (“GAAP”), which differs in certain respects from those principles followed in reports to insurance regulatory authorities. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Global Indemnity and its wholly ownedwholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
2. Redomestication
On June 20, 2016, the Company’s Board of Directors unanimously approved a plan for the Company to redomicile from Ireland toAt 12:01 a.m., Eastern Time, on August 28, 2020 (the "Effective Time"), Global Indemnity Limited, incorporated in the Cayman Islands. On September 14, 2016,Islands as an exempted company with limited liability, completed a scheme of arrangement and amalgamation under Sections 86 and 87 of the Company held a special meetingCayman Islands Companies Law (2020 Revision) (the "Scheme of Arrangement") that effected certain transactions (the "Redomestication") that resulted in the shareholders of Global Indemnity Limited becoming the holders of itsall of the issued and outstanding common shares of Global Indemnity Group, LLC.
As a result, any references to class A common shares or class B common shares after the Effective Time refer to Global Indemnity Group, LLC class A common shares or class B common shares and any references to class A common shares or class B common shares prior to the Effective Time refers to Global Indemnity Limited A ordinary shares andor B ordinary sharesshares. The Redomestication was approved by Global Indemnity Limited’s shareholders at a special meeting and an extraordinary general meeting held on August 25, 2020, convened by Order of its shareholders. All resolutions required to effectuate the redomesticationGrand Court of the Cayman Islands dated July 22, 2020. The terms and conditions of the issuance of the securities in connection with the Redomestication were approvedsanctioned by the requisite shareholder vote. On October 21, 2016, the HighGrand Court of Ireland sanctioned Global Indemnity plc’s schemethe Cayman Islands pursuant to an Order granted on August 26, 2020 after a hearing upon the fairness of arrangement related to the redomestication from Ireland to Cayman Islands. The redomestication transaction was completed on November 7, 2016such terms and as a result,conditions at which all holders of Global Indemnity Limited ordinary shares had a Cayman Islands exempted company, replaced right to appear and of which adequate notice had been given. Following completion of the Scheme of Arrangement, Global Indemnity plcGroup, LLC survived as the ultimate holdingparent company of the Global Indemnity group of companies. In connection Additionally, as part of the Redomestication transactions, Global Indemnity Reinsurance Company was merged with and into Penn-Patriot, with Penn-Patriot surviving, resulting in the redomestication to the Cayman Islands, each A ordinary shareassumption of Global Indemnity plc was cancelled and replaced with one A ordinary share ofReinsurance’s business by the Global Indemnity Limitedgroup of companies’ existing U.S. insurance company subsidiaries (the "GI Bermuda Transaction" and, each B ordinary share oftogether with the Redomestication and the other transactions described in Global Indemnity plc was cancelledLimited's Definitive Proxy Statement on Schedule 14A filed with the Securities and replaced with one B ordinary share of Global Indemnity Limited. TheExchange Commission on July 23, 2020 (the "Redomestication Proxy Statement"), the "Transactions").
Prior to the Redomestication, the Global Indemnity Limited A ordinary shares tradewere listed on the NASDAQ Global Select Market (“NASDAQ”("Nasdaq") under the ticker symbol GBLI,"GBLI" and registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). At the Effective Time, Global Indemnity Group, LLC’s class A common shares were deemed to be registered under Section 12(b) of the Exchange Act pursuant to Rule 12g-3(a) under the Exchange Act. The issuance of the class A common shares by Global Indemnity Group, LLC in the Redomestication was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 3(a)(10) of the Securities Act. The Company’s class A common shares began trading on Nasdaq under the symbol "GBLI," the same symbol under which the Global Indemnity plc’s ALimited ordinary shares previously traded, at the commencement of trading on Nasdaq on August 28, 2020. On August 27, 2020, Global Indemnity Group, LLC issued 4,000 series A cumulative fixed rate preferred interests. Following the Effective Time, all of the issued and outstanding series A fixed rate preferred interests were previously listed.unaffected by the Scheme of Arrangement. See Note 14 for additional information regarding the issuance of these preferred interests. The issuance of series A preferred interests was made pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act. The series A preferred interests are not convertible into or exchangeable for any other securities or property of Global Indemnity Group, LLC. 3. Summary of Significant Accounting Policies
3. | Summary of Significant Accounting Policies |
Investments The Company’s investments in fixed maturities, and equity securitieswhich are classified as available for sale, and equity securities are carried at their fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of the Company’s available for sale portfolio, excluding interests in limited liability companiesCompany's fixed maturities and limited partnerships,equity securities are determined on the basis of quoted market prices where available. If quoted market prices are not available, the Company uses third party pricing services to assist in determining fair value. In many instances, these services examine the pricing of similar instruments to estimate fair value. The Company purchases bonds with the expectation of holding them to their maturity; however, changes to the portfolio are sometimes required to assure it is appropriately matched to liabilities. In addition, changes in financial market conditions and tax considerations may cause the Company to sell an investment before it matures. The difference between amortized cost and fair value of the Company’s available for sale investments,fixed maturity portfolio, net of the effect of deferred income taxes, is reflected in accumulated other comprehensive income in shareholders’ equity and, accordingly, has no effect on net income (loss) other than for the credit loss component of impairments deemedand losses recognized as a result of the intent to be other than temporary.sell. Equity securities are measured at fair value with the changes in fair value recognized in net income (loss).
For investments in limited liability companiespartnerships and limited partnershipsliability companies where the ownership interest is less than 3%, the Company carries these investments at fair value, and the change in the difference between cost and the fair value of the partnershipthese interests, net of the effect of deferred income taxes, is reflected in accumulated other comprehensive income in shareholders’shareholders' equity and, accordingly, has no effect on net income other than for impairments deemed to be other than temporary.(loss). The Company uses the equity method to account for an investments in limited liability companiespartnerships and limited partnershipsliability companies where its ownership interest exceeds 3%. The equity method of accounting for an investment in a limited partnership and limited liability company or limited partnership requires that its cost basis be updated to account for the income or loss earned on the investment. The income or loss associated with the limited partnerships and limited liability companies or limited partnerships is reflected in the consolidated statements of operations, and the adjusted cost basis approximates fair value. The Company’s investments in other invested assets were valued at $77.8$97.0 million and $66.1$47.3 million as of December 31, 20172020 and 2016,2019, respectively. These amounts relate to investments in limited liability companiespartnerships and limited partnerships. The Company does not have access to daily valuations, therefore; the estimated fair value of the limited liability companies and limited partnerships are based on net assetwhose carrying value as a practical expedient for the limited liability companies and limited partnerships.approximates fair value. Net realized gains and losses on investments are determined based on thefirst-in,first-out method. The Company implemented new accounting guidance on January 1, 2020 related to the measurement of expected credit losses on financial instruments. For available for sale debt securities, credit losses are still measured similar to the old guidance; however, the new guidance requires that credit losses be presented as an allowance rather than as a write-down of the amortized cost basis of the impaired security and allows for the reversal of credit losses in the current period net income (loss). Any impairments related to factors other than credit losses and the intent to sell continue to be recorded through other comprehensive income, net of taxes. The Company regularly performs various analytical valuation procedures with respect to its investments, including reviewing each fixed maturityavailable for sale debt security in an unrealized loss position to assess whether the securitydecline in fair value below amortized cost basis has a credit loss. Specifically, the Company considers credit rating, market price, and issuer specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which the Company determines thatresulted from a credit loss is likely are subjected to further analysis through discounted cash flow testing to estimate theor other factors. In assessing whether a credit loss exists, the Company compares the present value of the cash flows expected to be recognizedcollected from the security to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for expected credit losses is recorded. Subsequent changes in earnings, if any. The specific methodologies and significant assumptions used by asset classthe allowances are discussed below. Upon identificationrecorded in the period of such securities and periodically thereafter, a detailed review is performedchange as either credit loss expense or reversal of credit loss expense. Any impairments related to determine whether the decline is consideredfactors other than temporary. This review includes an analysis of several factors, including but not limited to, the credit ratings and cash flows of the securitieslosses and the magnitude and lengthintent to sell are recorded through other comprehensive income, net of time that the fair value of such securities is below cost.taxes. For fixed maturities, the factors considered in reaching the conclusion that a decline below cost is other than temporarycredit loss exists include, among others, whether: | (1) | the extent to which the fair value is less than the amortized cost basis; |
| (2) | the issuer is in financial distress; |
| (2)(3) | the investment is secured; |
| (3)(4) | a significant credit rating action occurred; |
| (4)(5) | scheduled interest payments were delayed or missed; |
| (5)(6) | changes in laws or regulations have affected an issuer or industry; |
| (6)(7) | the investment has an unrealized loss and was identified by the Company’s investment manager as an investment to be sold before recovery or maturity; and |
| (7)(8) | the investment failed cash flow projection testing to determine if anticipated principal and interest payments will be realized.realized; and |
| (9) | changes in US Treasury rates and/or credit spreads since original purchase to identify whether the unrealized loss is simply due to interest rate movement. |
According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met, the Company must recognize an other than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a securityany allowance for expected credit losses is other than temporary. If the impairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amount representing the credit losswritten off and the amount relatedamortized cost basis is written down to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net presentfair value of the projected future cash flows discountedfixed maturity security with any incremental impairment reported in earnings. That new amortized cost basis shall not be adjusted for subsequent recoveries in fair value. The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of the available for sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the effective interest rate implicit intime the debt security prior to impairment. The credit loss componentissuer of the bond defaults or is expected to default on payment. The Company made an accounting policy election to present the accrued interest receivable balance with other than temporary impairment is recorded through earnings, whereasassets on the amount relating to factors other than credit losses is recorded in other comprehensive income, netCompany’s consolidated statements of taxes.financial position.
For equity securities, management carefully reviews all securities with unrealized losses to determine if a security should be impaired and further focuses on securities that have either:
| (1) | persisted with unrealized losses for more than twelve consecutive months or |
| (2) | the value of the investment has been 20% or more below cost for six continuous months or more. |
The amount of any write-down, including those that are deemed to be other than temporary, is included in earnings as a realized loss in the period in which the impairment arose.
For an analysis of other than temporary losses that were recorded for the years ended December 31, 2017, 2016, and 2015, please see Note 5 below.
Variable Interest Entities A Variable Interest Entity (“VIE”) refers to an investment in which an investor holds a controlling interest that is not based on the majority of voting rights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest in the entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participate in a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significant management influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do not consolidate the VIE in their financial results. The Company has variable interests in three4 VIEs for which it is not the primary beneficiary. These investments are accounted for under the equity method of accounting as their ownership interest exceeds 3% of their respective investments. Cash and Cash Equivalents For the purpose of the statements of cash flows, the Company considers all liquid instruments with an original maturity of three months or less to be cash equivalents. The Company has a cash management program that provides for the investment of excess cash balances primarily in short-term money market instruments. Generally, bank balances exceed federally insured limits. The carrying amount of cash and cash equivalents approximates fair value. At December 31, 20172020 and 2016,2019, the Company had approximately $67.1$58.0 million and $52.0$35.8 million, respectively, of cash and cash equivalents that was invested in a diversified portfolio of high quality short-term debt securities. Valuation of Premium Receivable The Company evaluates the collectability of premium receivable based on a combination of factors. In instances in which the Company is aware of a specific circumstance where a party may be unable to meet its financial obligations to the Company, a specific allowance for bad debtsexpected credit losses against amounts due is recorded to reduce the net receivable to the amount reasonably believed by management to be collectible. For all remaining balances, allowances are recognized for bad debtsthe allowance is based onupon the Company’s ongoing review of key aspects of amounts outstanding, including but not limited to, length of time the receivables are past due.collection periods, direct placement with collection agencies, solvency of insured or agent, terminated agents, and other relevant factors. The allowance for bad debtsexpected credit losses was $2.2$2.9 million and $1.9$2.8 million as of December 31, 20172020 and 2016,2019, respectively. Goodwill and Intangible Assets The Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of goodwill for impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the carrying amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. The amount of the impairment loss would be equal to the excess carrying value of the goodwill over the implied fair value of the reporting unit goodwill. Based on the qualitative assessment performed, therethere was no0 impairment of goodwill as of December 31, 2017.2020. Impairment of intangible assets with an indefinite useful life is tested at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of indefinite lived intangible assets for impairment using both qualitative and quantitative factors. Impairment of indefinite lived intangible assets is recognized only if the carrying amount of the intangible assets exceeds the fair value of said assets. The amount of the impairment loss would be equal to the excess carrying value of the assets over the fair value of said assets. Based on the qualitative assessment performed, therethere were no0 impairments of indefinite lived intangible assets as of December 31, 2017.2020. Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of definite lived intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the difference between the carrying amount and the estimated fair value of the asset. As of December 31, 2017,2020, there were no0 triggering events that occurred during the year that would result in an impairment of definite lived intangible assets. See Note 87 for additional information on goodwill and intangible assets. Reinsurance In the normal course of business, the Company seeks to reduce the loss that may arise from events that cause unfavorable underwriting results by reinsuring certain levels of risk from various areas of exposure with reinsurers. Amounts receivable from reinsurers are estimated in a manner consistent with the reinsured policy and the reinsurance contract.
The Company regularly reviews the collectability of reinsurance receivables. An allowance for uncollectible reinsurance receivable is recognized based onupon the Company’s ongoing review of key aspects of amounts outstanding, including but not limited to, length of collection periods, disputes, applicable coverage defenses, insolvent reinsurers, financial strength of thesolvent reinsurers based on AM Best Ratings and the length of time any balances are past due.other relevant factors. Any changes in the allowance resulting from this review are included in net losses and loss adjustment expenses on the consolidated statements of operations during the period in which the determination is made. The allowance for uncollectible reinsuranceexpected credit losses was $8.0$9.0 millionas of December 31, 20172020 and 2016.2019. The applicable accounting guidance requires that the reinsurer must assume significant insurance risk under the reinsured portions of the underlying insurance contracts and that there must be a reasonably possible chance that the reinsurer may realize a significant loss from the transaction. The Company has evaluated its reinsurance contracts and concluded that each contract qualifies for reinsurance accounting treatment pursuant to this guidance. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. The deferred tax asset balance is analyzed regularly by management. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of carryforward periods, and tax planning strategies and/or actions. Management believes that it is more likely than not that the results of future operations can generate sufficient taxable income to realize the remaining deferred income tax assets, and accordingly, the Company has not established any valuation allowances. Deferred Acquisition Costs The costs of acquiring new and renewal insurance and reinsurance contracts include commissions, premium taxes and certain other costs that are directly related to the successful acquisition of new and renewal insurance and reinsurance contracts. The excess of the Company’s costs of acquiring new and renewal insurance and reinsurance contracts over the related ceding commissions earned from reinsurers is capitalized as deferred acquisition costs and amortized over the period in which the related premiums are earned. The amortization of deferred acquisition costs for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 was $109.0$140.9 million, $114.3$132.3 million, and $86.2$118.0 million, respectively. Premium Deficiency A premium deficiency is recognized if the sum of expected loss and loss adjustment expenses and unamortized acquisition costs exceeds related unearned premium after consideration of investment income. This evaluation is done at a distribution and product line level in Insurance Operations and at a treaty level in Reinsurance Operations. Any future expected loss on the related unearned premium is recorded first by impairing the unamortized acquisition costs on the related unearned premium followed by an increase to loss and loss adjustment expense reserves on additional expected loss in excess of unamortized acquisition costs. For the years ended December 31, 2017, 2016, and 2015, the total premium deficiency charges were $0.3 million, $0.3 million, and $0.2 million, respectively, comprised solely of reductions to unamortized deferred acquisition costs within the commercial automobile lines in the Commercial Lines Segment. Based on the Company’s analysis, the Company expensed acquisition cost as incurred for the remainder of 2017, 2016 and 2015 for the commercial automobile lines in the Commercial Lines Segment. As the charges were a reduction of unamortized deferred acquisition costs in each respective period, no NaN premium deficiency reserve existed as of December 31, 20172020 or 2016.2019.
Derivative Instruments The Company uses derivative instruments to manage its exposure to cash flow variability from interest rate risk.risk and limit exposure to severe equity market changes. The derivative instruments are carried on the balance sheet at fair value and included in other assets and other liabilities. Changes in the fair value of the derivative instruments and the periodic net interest settlements under the derivatives instruments are recognized as net realized investment gains (losses) on the consolidated statements of operations. Margin Borrowing Facility The carrying amounts reported in the balance sheet represent the outstanding borrowings. The outstanding borrowings are due on demand; therefore, the cash receipts and cash payments related to the margin borrowing facility are shown net in the consolidated statements of cash flows. Subordinated Notes The carrying amounts reported in the balance sheet represent the outstanding balances, net of deferred issuance cost. See Note 12 for details.
Unpaid Losses and Loss Adjustment Expenses The liability for unpaid losses and loss adjustment expenses represents the Company’s best estimate of future amounts needed to pay losses and related settlement expenses with respect to events insured by the Company. This liability is based upon the accumulation of individual case estimates for losses reported prior to the close of the accounting period with respect to direct business, estimates received from ceding companies with respect to assumed reinsurance, and estimates of unreported losses. The process of establishing the liability for unpaid losses and loss adjustment is complex, requiring the use of informed actuarially based estimates and management’s judgment. In some cases, significant periods of time, up to several years or more, may elapse between the occurrence of an insured loss and the reporting of that loss to the Company. To establish this liability, the Company regularly reviews and updates the methods of making such estimates and establishing the resulting liabilities. Any resulting adjustments are recorded in consolidated statements of operations during the period in which the determination is made. Retirement of Treasury Stock Upon the formal retirement of treasury stock, the CompanyGlobal Indemnity Group, LLC offsets the par value of the treasury stock that is being retired against Ordinary Sharescommon shares and reflects any excess of cost over par value as a deduction from AdditionalPaid-in Capital. Share Redemptions When shares are redeemed, the CompanyGlobal Indemnity Group, LLC offsets the par value of the redeemed shares against Ordinary Sharescommon shares and reflects any excess of cost over par value as a deduction from Retained Earnings. Premiums Premiums are recognized as revenue ratably over the term of the respective policies and treaties. Unearned premiums are computed on a pro rata basis to the day of expiration. Mandatory reinstatement premiums assessed on reinsurance policies are earned in the period of the loss event that gave rise to the reinstatement premiums. Contingent Commissions Certain professional general agencies of the Insurance Operations are paid special incentives, referred to as contingent commissions, when results of business produced by these agencies are more favorable than predetermined thresholds. Similarly, in some circumstances, companies that cede business to the Reinsurance Operations are paid profit commissions based on the profitability of the ceded portfolio. These commissions are charged to other underwriting expenses when incurred. Share-Based Compensation The Company accounts for stock options and other equity based compensation using the modified prospective application of the fair value-based method permitted by the appropriate accounting guidance. See Note 1617 for details. Earnings per Share Basic earnings per share have been calculated by dividing net income (loss) available to common shareholders by the weighted-average ordinarycommon shares outstanding. In periods of net income, diluted earnings per share have been calculated by dividing net income available to common shareholders by the sum of the weighted-average ordinarycommon shares outstanding and the weighted-average common share equivalents outstanding, which include options and other equity awards. In periods of net loss, diluted earnings per share is the same as basic earnings per share. See Note 1819 for details. Foreign Currency TheAt times, the Company maintains investments and cash accounts in foreign currencies related to the operations of its business. Atperiod-end, the Companyre-measuresnon-U.S. re-measures non-U.S. currency financial assets to their current U.S. dollar equivalent. The resulting gain or loss for foreign denominated fixed maturity investments, if any, is reflected in accumulated other comprehensive income in shareholders’ equity; whereas, the gain or loss on foreign denominated cash accounts and equity securities is reflected in income during the period. Financial liabilities, if any, are generally adjusted within the reserving process. However, for known losses on claims to be paid in foreign currencies, the Companyre-measures the liabilities to their current U.S. dollar equivalent each period end with the resulting gain or loss reflected in income during the period. Net transaction gains and losses, primarily comprised ofre-measurement of known losses on claims to be paid in foreign currencies, were a gainof $2.1$0.1 million, a gain of $0.3 million, and $0.4a loss of $2.9 million for the years ended December 31, 20172020, 2019, and 2015, respectively, and2018, respectively.
Leases The Company determines if an arrangement is a loss $0.7 million forlease at inception. Leases with a term of 12 months or less are not recorded on the year ended December 31, 2016. Other Income
On September 30, 2016, Diamond State Insurance Company sold all the outstanding shares of capital stock of one of its wholly owned subsidiaries, United National Specialty Insurance Company, to an unrelated party. Diamond State Insurance Company received aone-time payment of $18.7 million and recognized a pretax gain of $6.9 million which is reflectedconsolidated balance sheets. Lease right-of-use assets (“ROU”) are included in other income in 2016. This transaction did not have an impactassets on the consolidated balance sheets and lease liabilities are included in other liabilities on the consolidated balance sheets.
Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company’s ongoing business operations. Subsequent toleases do not provide an implicit rate; therefore, the sale,Company uses its incremental borrowing rate at the commencement date in determining the present value of future payments. The ROU asset is calculated using the initial lease liability amount, plus any business previously written by United National Specialty Insurancelease payments made at or before the commencement date, minus any lease incentives received, plus any initial direct costs incurred. Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. The Company’s lease agreements may contain both lease and non-lease components which are accounted separately. The Company is being written by other companies withinelected the Company’s U.S. Insurance Operations.practical expedient on not separating lease components from non-lease components for its equipment leases. In addition, otherOther Income
Other income is primarily comprised of fee income on policies issued, commission income, accrued interest on the anticipated indemnification of unpaid loss and loss adjustment expense reserve, and foreign exchange gains and losses. 4. Acquisition
OnThe Company implemented new accounting guidance on January 1, 2015, Global Indemnity Group, Inc.,2020 related to the measurement of expected credit losses on financial instruments. For financial assets held at amortized cost basis, the new guidance requires a subsidiaryforward-looking methodology for in-scope financial assets that reflects expected credit losses and requires consideration of a broader range of information for credit loss estimates, including historical experience, current economic conditions and supportable forecasts that affect the collectability of the Company, acquired 100%financial assets. For available for sale debt securities, credit losses are still measured similar to the old guidance; however, the new guidance requires that credit losses be presented as an allowance rather than as a write-down of the voting equityamortized cost basis of the impaired security and allows for the reversal of credit losses in the current period net income (loss). Any impairments related to factors other than credit losses or the intent to sell continue to be recorded through other comprehensive income, net of taxes.
The Company elected the practical expedient to exclude accrued interest of American Reliable from American Bankers Insurance Group, Inc. by paying $113.7 million in cash and assuming $283.9 million of customary insurance related liabilities, obligations, and mandates. Perboth the American Reliable Share Purchase Agreement (“SPA”), the ultimate purchase price is subject to (i) accounting procedures that were performed in 2015 to determine GAAP bookfair value and (ii) indemnificationthe amortized cost basis of the available for sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on future developmentpayment. The Company made an accounting policy election to present the accrued interest receivable balance with other assets on recorded lossthe Company’s consolidated statements of financial position. Accrued interest receivable was $5.7 million and loss adjustment expenses$7.0 million as of December 31, 2014. In accordance with the SPA, on the third calendar year following the calendar year of the closing, if loss2020 and loss adjustment expenses for accident years 2014 and prior are lower than recorded unpaid loss and loss adjustment expenses as of December 31, 2014, Global Indemnity Group, Inc. will pay the variance to American Bankers Group, Inc. Conversely, if loss and loss adjustment expenses for accident years 2014 and prior exceed recorded unpaid loss and loss adjustment expenses as of December 31, 2014, American Bankers Group, Inc. will pay the variance to Global Indemnity Group, Inc. In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., any variance paid related to the loss indemnification will be subject to interest of 5% compounded semi-annually. The Company’s purchase price, based on available financial information at the date of acquisition, was $99.8 million. The results of American Reliable’s operations have been included in the Company’s consolidated financial statements since the date of the acquisition on January 1, 2015.
The purchase of American Reliable expanded Global Indemnity’s product offerings. American Reliable is a specialty company that distributes personal lines products written on an admitted basis that are unusual and harder to place. It complements Global Indemnity’s existing U.S. Insurance Operations that primarily distribute commercial lines products on an excess and surplus lines basis.
American Reliable is domiciled in Arizona and as such is subject to its state insurance department regulations.
For the year ended December 31, 2015, American Reliable had total revenues of $259.0 million andpre-tax loss of $4.2 million. These amounts are included in the Company’s results of operations for the year ended December 31, 2015.
The Company has finalized its process of valuing the assets acquired and liabilities assumed. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition.
| | | | | | (Dollars in thousands) | | | | ASSETS: | | | | | Investments | | $ | 226,458 | | Cash and cash equivalents | | | 21,360 | | Premiums receivables, net | | | 26,102 | | Accounts receivable | | | 11,311 | | Reinsurance receivables | | | 13,842 | | Prepaid reinsurance premiums | | | 43,506 | | Intangible assets | | | 32,000 | | Deferred federal income taxes | | | 915 | | Other assets | | | 6,473 | | | | | | | Total assets | | | 381,967 | | | | | | | LIABILITIES: | | | | | Unearned premiums | | | 172,234 | | Unpaid losses and loss adjustment expenses | | | 89,489 | | Reinsurance balances payable | | | 13,219 | | Contingent commissions | | | 3,903 | | Other liabilities | | | 5,026 | | | | | | | Total liabilities | | | 283,871 | | | | | | | Estimated fair value of net assets acquired | | | 98,096 | | Purchase price | | | 99,797 | | | | | | | Goodwill | | $ | 1,701 | | | | | | |
The transaction was accounted for using the purchase method of accounting. The assets and liabilities acquired by the Company were adjusted to estimated fair value. The $1.7 million excess of cash and acquisition cost over the estimated fair value of assets acquired was recognized as goodwill. Under the purchase method of accounting, goodwill is not amortized but is tested for impairment at least annually.
Goodwill of $1.7 million, arising from the acquisition, consists largely of the synergies and economies of scales expected from combining the operations of Global Indemnity and American Reliable. The Company has assigned goodwill of $1.7 million to the Personal Lines segment. There is no tax goodwill.
An identification and valuation of intangible assets was performed that resulted in the recognition of intangible assets of $32.0 million with values assigned as follows:
| | | | | | | | | (Dollars in thousands) Description | | Useful Life | | | Amount | | State insurance licenses | | | Indefinite | | | $ | 5,000 | | Value of business acquired | | | < 1 year | | | | 25,500 | | Agent relationships | | | 10 years | | | | 900 | | Trade name | | | 7 years | | | | 600 | | | | | | | | | | | | | | | | | $ | 32,000 | | | | | | | | | | |
Intangible assets arising from the acquisition are deductible for income tax purposes over 15 years.
The following table presents details of the Company’s intangible assets arising from the American Reliable acquisition as of December 31, 2015:
| | | | | | | | | | | | | | | | | (Dollars in thousands) Description | | Useful Life | | | Cost | | | Accumulated
Amortization | | | Net
Value | | State insurance licenses | | | Indefinite | | | $ | 5,000 | | | $ | — | | | $ | 5,000 | | Value of business acquired | | | < 1 year | | | | 25,500 | | | | 25,500 | | | | 0 | | Agent relationships | | | 10 years | | | | 900 | | | | 90 | | | | 810 | | Trade name | | | 7 years | | | | 600 | | | | 86 | | | | 514 | | | | | | | | | | | | | | | | | | | | | | | | | $ | 32,000 | | | $ | 25,676 | | | $ | 6,324 | | | | | | | | | | | | | | | | | | |
Amortization related to the Company’s definite lived intangible assets resulting from American Reliable acquisition was $25.7 million for the year ended December 31, 2015.
As of December 31, 2015, the Company expected that amortization expense for the next five years related to the American Reliable acquisition will be as follows:
| | | | | | (Dollars in thousands) | | | | 2016 | | $ | 176 | | 2017 | | | 176 | | 2018 | | | 176 | | 2019 | | | 176 | | 2020 | | | 176 | |
As of December 31, 2015, the fair value, gross contractual amounts due, and contractual cash flows not expected to be collected of acquired receivables were as follows:
| | | | | | | | | | | | | | (Dollars in thousands) | | Fair Value | | | Gross
Contractual
Amounts Due | | | Contractual
cash flows not
expected to be
collected | | Premium receivables | | $ | 26,102 | | | $ | 26,896 | | | $ | 794 | | Accounts receivable | | | 11,311 | | | | 11,311 | | | | — | | Reinsurance receivables | | | 13,842 | | | | 13,842 | | | | — | |
In connection with the acquisition, the Company agreed to pay to Fox Paine & Company an investment banking fee of 3% of the amount paid plus the additional capital required to operate American Reliable on a standalone basis and a $1.5 million investment advisory fee, which in the aggregate, totaled $6.5 million. This amount was included in corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the year ended December 31, 2015. As payment for these fees, 267,702 A ordinary shares of Global Indemnity were issued under the Global Indemnity plc Share Incentive Plan in May, 2015. These shares were registered but cannot be sold until the earlier of five years or a change of control. See Note 16 for additional information on the Company’s share incentive plan, including the Global Indemnity plc Share Incentive Plan.
Additional costs, mainly professional fees, of $5.1 million were incurred in connection with the acquisition of American Reliable. Of this amount, $1.8 million and $3.3 million was recorded as corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the years ended December 31, 2015 and 2014,2019, respectively.
During the year ended December 31, 2015, the Company paid approximately $1.6 million in employee compensation related costs, which were related to periods prior to the Acquisition. These costs were accrued by American Reliable and were included in the fair value of net assets acquired by Global Indemnity Group, Inc. on January 1, 2015.
5. Investments
The amortized cost and estimated fair value of investmentsthe Company’s fixed maturities securities were as follows as of December 31, 20172020 and 2016:2019: | | (Dollars in thousands) | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | Estimated
Fair Value | | | Other than
temporary
impairments
recognized in
AOCI (1) | | | Amortized Cost | | | Allowance for Expected Credit Losses | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Estimated Fair Value | | As of December 31, 2017 | | | | | | | | | | | | As of December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 105,311 | | | $ | 562 | | | $ | (1,193 | ) | | $ | 104,680 | | | $ | — | | | $ | 195,444 | | | $ | 0 | | | $ | 3,125 | | | $ | (1,089 | ) | | $ | 197,480 | | Obligations of states and political subdivisions | | | 94,947 | | | | 441 | | | | (274 | ) | | 95,114 | | | | — | | | | 58,140 | | | | 0 | | | | 3,170 | | | | (67 | ) | | | 61,243 | | Mortgage-backed securities | | | 150,237 | | | | 404 | | | | (1,291 | ) | | 149,350 | | | | — | | | | 351,453 | | | | 0 | | | | 7,876 | | | | (551 | ) | | | 358,778 | | Asset-backed securities | | | 203,827 | | | | 267 | | | | (393 | ) | | 203,701 | | | | (1 | ) | | | 116,349 | | | | 0 | | | | 1,890 | | | | (646 | ) | | | 117,593 | | Commercial mortgage-backed securities | | | 140,761 | | | | 101 | | | | (1,067 | ) | | 139,795 | | | | — | | | | 105,509 | | | | 0 | | | | 6,094 | | | | (644 | ) | | | 110,959 | | Corporate bonds | | | 422,486 | | | | 2,295 | | | | (1,391 | ) | | 423,390 | | | | — | | | | 223,387 | | | | 0 | | | | 17,703 | | | | (373 | ) | | | 240,717 | | Foreign corporate bonds | | | 125,575 | | | | 377 | | | | (545 | ) | | 125,407 | | | | — | | | | 98,727 | | | | 0 | | | | 5,716 | | | | (27 | ) | | | 104,416 | | | | | | | | | | | | | | | | | | | Total fixed maturities | | | 1,243,144 | | | | 4,447 | | | | (6,154 | ) | | 1,241,437 | | | | (1 | ) | | $ | 1,149,009 | | | $ | 0 | | | $ | 45,574 | | | $ | (3,397 | ) | | $ | 1,191,186 | | Common stock | | | 124,915 | | | | 18,574 | | | | (3,260 | ) | | 140,229 | | | | — | | | Other invested assets | | | 77,820 | | | | — | | | | — | | | 77,820 | | | | — | | | | | | | | | | | | | | | | | | | | Total | | $ | 1,445,879 | | | $ | 23,021 | | | $ | (9,414 | ) | | $ | 1,459,486 | | | $ | (1 | ) | | | | | | | | | | | | | | | | | | |
(1) | Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”). |
| | (Dollars in thousands) | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | Estimated
Fair Value | | | Other than
temporary
impairments
recognized in
AOCI (1) | | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Estimated Fair Value | | As of December 31, 2016 | | | | | | | | | | | | As of December 31, 2019 | | | | | | | | | | | | | | | | | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 71,517 | | | $ | 763 | | | $ | (233 | ) | | $ | 72,047 | | | $ | — | | | $ | 153,906 | | | $ | 3,580 | | | $ | (797 | ) | | $ | 156,689 | | Obligations of states and political subdivisions | | | 155,402 | | | | 1,423 | | | | (379 | ) | | 156,446 | | | | — | | | | 63,256 | | | | 853 | | | | (271 | ) | | | 63,838 | | Mortgage-backed securities | | | 88,131 | | | | 895 | | | | (558 | ) | | 88,468 | | | | — | | | | 325,448 | | | | 3,177 | | | | (251 | ) | | | 328,374 | | Asset-backed securities | | | 233,890 | | | | 684 | | | | (583 | ) | | 233,991 | | | | (4 | ) | | | 168,020 | | | | 937 | | | | (420 | ) | | | 168,537 | | Commercial mortgage-backed securities | | | 184,821 | | | | 118 | | | | (1,747 | ) | | 183,192 | | | | — | | | | 183,944 | | | | 4,369 | | | | (209 | ) | | | 188,104 | | Corporate bonds | | | 381,209 | | | | 1,666 | | | | (2,848 | ) | | 380,027 | | | | — | | | | 239,860 | | | | 8,478 | | | | (79 | ) | | | 248,259 | | Foreign corporate bonds | | | 126,369 | | | | 164 | | | | (673 | ) | | 125,860 | | | | — | | | | 97,134 | | | | 2,247 | | | | (23 | ) | | | 99,358 | | | | | | | | | | | | | | | | | | | Total fixed maturities | | | 1,241,339 | | | | 5,713 | | | | (7,021 | ) | | 1,240,031 | | | | (4 | ) | | $ | 1,231,568 | | | $ | 23,641 | | | $ | (2,050 | ) | | $ | 1,253,159 | | Common stock | | | 119,515 | | | | 3,445 | | | | (2,403 | ) | | 120,557 | | | | — | | | Other invested assets | | | 66,121 | | | | — | | | | — | | | 66,121 | | | | — | | | | | | | | | | | | | | | | | | | | Total | | $ | 1,426,975 | | | $ | 9,158 | | | $ | (9,424 | ) | | $ | 1,426,709 | | | $ | (4 | ) | | | | | | | | | | | | | | | | | | |
(1) | Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”). |
As of December 31, 2020 and 2019, the Company’s investments in equity securities consist of the following: | | December 31, | | (Dollars in thousands) | | 2020 | | | 2019 | | Common stock | | $ | 60,379 | | | $ | 135,329 | | Preferred stock | | | 11,683 | | | | 11,656 | | Index funds that invest in fixed maturities | | | 26,928 | | | | 54,648 | | Index funds that invest in common stock | | | 0 | | | | 61,471 | | Total | | $ | 98,990 | | | $ | 263,104 | |
As of December 31, 2020 and 2019, the Company held Fannie Mae mortgage pools that totaled as much as 3.9% and 4.2% of shareholders’ equity, respectively. Excluding the Fannie Mae pools, U.S. treasuries, and agency bonds, index funds, and limited liability companies and limited partnerships, the Company did not hold any debt or equity investments in a single issuer that was in excess of 5%2% and 3% of shareholders’shareholders' equity at December 31, 20172020 and 2016.2019, respectively. The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at December 31, 2017,2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. | | (Dollars in thousands) | | Amortized
Cost | | | Estimated
Fair Value | | | Amortized Cost | | | Estimated Fair Value | | Due in one year or less | | $ | 70,222 | | | $ | 70,165 | | | $ | 45,055 | | | $ | 45,346 | | Due in one year through five years | | | 435,122 | | | | 434,078 | | | | 204,299 | | | | 214,737 | | Due in five years through ten years | | | 235,233 | | | | 236,552 | | | | 238,966 | | | | 250,462 | | Due in ten years through fifteen years | | | 2,187 | | | | 2,205 | | | | 23,682 | | | | 25,349 | | Due after fifteen years | | | 5,555 | | | | 5,591 | | | | 63,696 | | | | 67,962 | | Mortgage-backed securities | | | 150,237 | | | | 149,350 | | | | 351,453 | | | | 358,778 | | Asset-backed securities | | | 203,827 | | | | 203,701 | | | | 116,349 | | | | 117,593 | | Commercial mortgage-backed securities | | | 140,761 | | | | 139,795 | | | | 105,509 | | | | 110,959 | | | | | | | | | | Total | | $ | 1,243,144 | | | $ | 1,241,437 | | | $ | 1,149,009 | | | $ | 1,191,186 | | | | | | | | | |
The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses that are not deemed to have credit losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2020. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 6. | | Less than 12 months | | | 12 months or longer | | | Total | | (Dollars in thousands) | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 81,999 | | | $ | (1,089 | ) | | $ | 0 | | | $ | 0 | | | $ | 81,999 | | | $ | (1,089 | ) | Obligations of states and political subdivisions | | | 2,588 | | | | (67 | ) | | | 0 | | | | 0 | | | | 2,588 | | | | (67 | ) | Mortgage-backed securities | | | 57,350 | | | | (551 | ) | | | 4 | | | | 0 | | | | 57,354 | | | | (551 | ) | Asset-backed securities | | | 22,268 | | | | (389 | ) | | | 13,354 | | | | (257 | ) | | | 35,622 | | | | (646 | ) | Commercial mortgage-backed securities | | | 10,294 | | | | (526 | ) | | | 1,154 | | | | (118 | ) | | | 11,448 | | | | (644 | ) | Corporate bonds | | | 7,783 | | | | (373 | ) | | | 0 | | | | 0 | | | | 7,783 | | | | (373 | ) | Foreign corporate bonds | | | 885 | | | | (27 | ) | | | 0 | | | | 0 | | | | 885 | | | | (27 | ) | Total fixed maturities | | $ | 183,167 | | | $ | (3,022 | ) | | $ | 14,512 | | | $ | (375 | ) | | $ | 197,679 | | | $ | (3,397 | ) |
The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2017:2019. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 6. | | | | Less than 12 months | | 12 months or longer (1) | | Total | | | Less than 12 months | | | 12 months or longer | | | Total | | | (Dollars in thousands) | | Fair Value | | | Gross
Unrealized
Losses | | Fair Value | | | Gross
Unrealized
Losses | | Fair Value | | | Gross
Unrealized
Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 79,403 | | | $ | (962 | ) | | $ | 17,469 | | | $ | (231 | ) | | $ | 96,872 | | | $ | (1,193 | ) | | $ | 35,633 | | | $ | (797 | ) | | $ | — | | | $ | — | | | $ | 35,633 | | | $ | (797 | ) | Obligations of states and political subdivisions | | | 34,537 | | | | (149 | ) | | 12,060 | | | | (125 | ) | | 46,597 | | | | (274 | ) | | | 27,180 | | | | (271 | ) | | | — | | | | — | | | | 27,180 | | | | (271 | ) | Mortgage-backed securities | | | 127,991 | | | | (1,247 | ) | | 1,866 | | | | (44 | ) | | 129,857 | | | | (1,291 | ) | | | 93,579 | | | | (244 | ) | | | 902 | | | | (7 | ) | | | 94,481 | | | | (251 | ) | Asset-backed securities | | | 97,817 | | | | (371 | ) | | 6,423 | | | | (22 | ) | | 104,240 | | | | (393 | ) | | | 43,402 | | | | (167 | ) | | | 16,152 | | | | (253 | ) | | | 59,554 | | | | (420 | ) | Commercial mortgage-backed securities | | | 83,051 | | | | (523 | ) | | 27,976 | | | | (544 | ) | | 111,027 | | | | (1,067 | ) | | | 25,698 | | | | (196 | ) | | | 1,945 | | | | (13 | ) | | | 27,643 | | | | (209 | ) | Corporate bonds | | | 147,064 | | | | (754 | ) | | 53,024 | | | | (637 | ) | | 200,088 | | | | (1,391 | ) | | | 19,407 | | | | (79 | ) | | | — | | | | — | | | | 19,407 | | | | (79 | ) | Foreign corporate bonds | | | 53,320 | | | | (305 | ) | | 20,582 | | | | (240 | ) | | 73,902 | | | | (545 | ) | | | 4,822 | | | | (20 | ) | | | 2,035 | | | | (3 | ) | | | 6,857 | | | | (23 | ) | | | | | | | | | | | | | | | | | | | | | Total fixed maturities | | | 623,183 | | | | (4,311 | ) | | 139,400 | | | | (1,843 | ) | | 762,583 | | | | (6,154 | ) | | $ | 249,721 | | | $ | (1,774 | ) | | $ | 21,034 | | | $ | (276 | ) | | $ | 270,755 | | | $ | (2,050 | ) | Common stock | | | 32,759 | | | | (3,260 | ) | | | — | | | | — | | | 32,759 | | | | (3,260 | ) | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 655,942 | | | $ | (7,571 | ) | | $ | 139,400 | | | $ | (1,843 | ) | | $ | 795,342 | | | $ | (9,414 | ) | | | | | | | | | | | | | | | | | | | | | |
(1) | Fixed maturities in a gross unrealized loss position for twelve months or longerSubject to the risks and uncertainties in evaluating the potential impairment of a security’s value, the impairment evaluation conducted by the Company as of December 31, 2020 concluded the unrealized losses discussed above are primarily comprised ofnon-credit losses on investment grade securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery. The Company has analyzed these securities and has determined that they are not other than temporarily impaired. |
The following table contains an analysis of the Company’s securities with gross unrealized losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2016:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Less than 12 months | | | 12 months or longer (1) | | | Total | | | (Dollars in thousands) | | Fair Value | | | Gross
Unrealized
Losses | | | Fair Value | | | Gross
Unrealized
Losses | | | Fair Value | | | Gross
Unrealized
Losses | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 39,570 | | | $ | (233 | ) | | $ | — | | | $ | — | | | $ | 39,570 | | | $ | (233 | ) | Obligations of states and political subdivisions | | | 46,861 | | | | (369 | ) | | | 670 | | | | (10 | ) | | | 47,531 | | | | (379 | ) | Mortgage-backed securities | | | 52,780 | | | | (541 | ) | | | 298 | | | | (17 | ) | | | 53,078 | | | | (558 | ) | Asset-backed securities | | | 62,737 | | | | (493 | ) | | | 23,937 | | | | (90 | ) | | | 86,674 | | | | (583 | ) | Commercial mortgage-backed securities | | | 94,366 | | | | (1,090 | ) | | | 69,747 | | | | (657 | ) | | | 164,113 | | | | (1,747 | ) | Corporate bonds | | | 171,621 | | | | (2,731 | ) | | | 9,218 | | | | (117 | ) | | | 180,839 | | | | (2,848 | ) | Foreign corporate bonds | | | 76,036 | | | | (673 | ) | | | — | | | | — | | | | 76,036 | | | | (673 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total fixed maturities | | | 543,971 | | | | (6,130 | ) | | | 103,870 | | | | (891 | ) | | | 647,841 | | | | (7,021 | ) | Common stock | | | 57,439 | | | | (2,403 | ) | | | — | | | | — | | | | 57,439 | | | | (2,403 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 601,410 | | | $ | (8,533 | ) | | $ | 103,870 | | | $ | (891 | ) | | $ | 705,280 | | | $ | (9,424 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised ofnon-credit losses on investment grade securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery. The Company has analyzed these securities and has determined that they are not other than temporarily impaired. |
Subject to the risks and uncertainties in evaluating the potential impairment of a security’s value, the impairment evaluation conducted by the Company as of December 31, 2017 concluded the unrealized losses discussed above are not other than temporary impairments. The impairment evaluation process is discussed in the “Investment” section of Note 3 (“Summary of Significant Accounting Policies”).
The following is a description, by asset type, of the methodology and significant inputs that the Company used to measure the amount of credit loss recognized in earnings, if any:
U.S. treasury and agency obligations — – As of December 31, 2017,2020, gross unrealized losses related to U.S. treasury and agency obligations were $1.193$1.089 million. Of this amount, $0.231 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater and rated AA+. Macroeconomicother factors, macroeconomic and market analysis is conducted in evaluating these securities. Consideration is given to the interest rate environment, duration and yield curve management of the portfolio, sector allocation and security selection. Based on the analysis performed, the Company did not recognize a credit loss on U.S. treasury and agency obligations during the period.
Obligations of states and political subdivisions— – As of December 31, 2017,2020, gross unrealized losses related to obligations of states and political subdivisions were $0.274$0.067 million. Of this amount, $0.125 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater and are rated investment grade or better. Allother factors, elements that may influence the performance of the municipal bond market are considered in evaluating these securities. The aforementioned factors includesecurities such as investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. The analysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform extensivein-house fundamental analysis on each issuer, regardless of their rating by the major agencies. Based on the analysis performed, the Company did not recognize a credit loss on obligations of states and political subdivisions during the period.
Mortgage-backed securities (“MBS”)— – As of December 31, 2017,2020, gross unrealized losses related to mortgage-backed securities were $1.291$0.551 million. Of this amount, $0.044 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater. 95.5% of the unrealized losses for twelve months or greater are related to securities rated AA+ or better. Mortgage-backedother factors, mortgage-backed securities are modeled to project principal losses under downside, base, and upside scenarios for the economy and home prices. The primary assumption that drives the security and loan level modeling is the Home Price Index (“HPI”) projection. These forecasts incorporate not just national macro-economic trends, but also regional impacts to arrive at the most granular and accurate projections. These assumptions are incorporated into the model as a basis to generate delinquency probabilities, default curves, loss severity curves, and voluntary prepayment curves at the loan level within each deal. The model utilizesHPI-adjusted current LTV, payment history, loan terms, loan modification history, and borrower characteristics as inputs to generate expected cash flows and principal loss for each bond under various scenarios. Based on the analysis performed, the Company did not recognize a credit loss on mortgage-backed securities during the period.
Asset backed securities (“ABS”)— - As of December 31, 2017,2020, gross unrealized losses related to asset backed securities were $0.393$0.646 million. Of this amount, $0.022 million have been in an unrealized loss position for twelve months or greater and are rated AA or better. The weighted average credit enhancement for the Company’s asset backed portfolio is 23.4.33.6. This represents the percentage of pool losses that can occur before an asset backed security will incur its first dollar of principal losses. EveryTo assess whether the decline in fair value below amortized cost has resulted from a credit loss or other factors, every ABS transaction is analyzed on a stand-alone basis. This analysis involves a thorough review of the collateral, prepayment, and structural risk in each transaction. Additionally, the analysis includes anin-depth credit analysis of the originator and servicer of the collateral. The analysis projects an expected loss for a deal given a set of assumptions specific to the asset type. These assumptions are used to calculate at what level of losses the deal will incur its first dollar of principal loss. The major assumptions used to calculate this ratio are loss severities, recovery lags, and no advances on principal and interest. Based on the analysis performed, the Company did not recognize a credit loss on asset backed securities during the period. Commercial mortgage-backed securities (“CMBS”)— - As of December 31, 2017,2020, gross unrealized losses related to the CMBS portfolio were $1.067$0.644 million. Of this amount, $0.544 million have been in an unrealized loss position for twelve months or greater and are rated AA+ or better. The weighted average credit enhancement for the Company’s CMBS portfolio is 24.7.39.5. This represents the percentage of pool losses that can occur before a mortgage-backed security will incur its first dollar of principal loss. ForTo assess whether the Company’s CMBS portfolio,decline in fair value below amortized cost has resulted from a credit loss or other factors, a loan level analysis is utilized where every underlying CMBS loan isre-underwritten based on a set of assumptions reflecting expectations for the future path of the economy. Each loan is analyzed over time using a series of tests to determine if a credit event will occur during the life of the loan. Inherent in this process are several economic scenarios and their corresponding rent/vacancy and capital market states. The five primary credit events that frame the analysis include loan modifications, term default, balloon default, extension, and ability to pay off at balloon. The resulting output is the expected loss adjusted cash flows for each bond under the base case and distressed scenarios. Based on the analysis performed, the Company did not recognize a credit loss on commercial mortgage-backed securities during the period. Corporate bonds— - As of December 31, 2017,2020, gross unrealized losses related to corporate bonds were $1.391$0.373 million. Of this amount, $0.637 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater and are rated investment grade or better. Theother factors, analysis for this asset class includes maintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default. Based on the analysis performed, the Company did not recognize a credit loss on corporate bonds during the period. Foreign bonds— – As of December 31, 2017,2020, gross unrealized losses related to foreign bonds were $0.545$0.027 million. Of this amount, $0.240 million have beenTo assess whether the decline in an unrealizedfair value below amortized cost has resulted from a credit loss position for twelve months or greater and are rated investment grade or better. For this asset class,other factors, detailed financial models are maintained that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default. Common stock— As of December 31, 2017, gross unrealized losses related to common stock were $3.260 million. All unrealized losses have been in an unrealized loss position for less than twelve months. To determine if an other than temporary impairment of an equity security has occurred, Based on the analysis performed, the Company considers, among other things,did not recognize a credit loss on foreign bonds during the severity and duration of the decline in fair value of the equity security. period.
The Company also examines other factors to determine if the equity security could recoverhas evaluated its value in a reasonable period of time.investment portfolio and has determined that an allowance for credit losses on its investments is not required. The Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for the years ended December 31, 2017, 2016,2020, 2019 and 2015:2018 and are related to securities in an unrealized loss position where the Company had an intent to sell the securities: | | | | | | | | | | | | | | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | Fixed maturities: | | | | | | | | | | | | | OTTI losses, gross | | $ | (31 | ) | | $ | (259 | ) | | $ | (24 | ) | Portion of loss recognized in other comprehensive income(pre-tax) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | Net impairment losses on fixed maturities recognized in earnings | | | (31 | ) | | | (259 | ) | | | (24 | ) | Equity securities | | | (2,575 | ) | | | (6,474 | ) | | | (7,311 | ) | | | | | | | | | | | | | | Total | | $ | (2,606 | ) | | $ | (6,733 | ) | | $ | (7,335 | ) | | | | | | | | | | | | | |
| | Years Ended December 31, | | (Dollars in thousands) | | 2020 | | | 2019 | | | 2018 | | Fixed maturities: | | | | | | | | | | | | | OTTI losses, gross | | $ | 0 | | | $ | (1,897 | ) | | $ | (456 | ) | Impairment related to intent to sell | | | (760 | ) | | | 0 | | | | 0 | | Total | | $ | (760 | ) | | $ | (1,897 | ) | | $ | (456 | ) |
The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company as of December 31, 2017, 2016,2019 and 20152018 for which a portion of the OTTI loss was recognized in other comprehensive income. | | | | Years Ended
December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | Balance at beginning of period | | $ | 31 | | | $ | 31 | | | $ | 50 | | | $ | 13 | | | $ | 13 | | Additions where no OTTI was previously recorded | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | Additions where an OTTI was previously recorded | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | Reductions for securities for which the company intends to sell or more likely than not will be required to sell before recovery | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | Reductions reflecting increases in expected cash flows to be collected | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | Reductions for securities sold during the period | | | (18 | ) | | | — | | | | (19 | ) | | | (13 | ) | | | 0 | | | | | | | | | | | | | Balance at end of period | | $ | 13 | | | $ | 31 | | | $ | 31 | | | $ | 0 | | | $ | 13 | | | | | | | | | | | | |
Accumulated Other Comprehensive Income, Net of Tax Accumulated other comprehensive income, net of tax, as of December 31, 20172020 and 20162019 was as follows: | | | | December 31, | | | December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2020 | | | 2019 | | Net unrealized gains (losses) from: | | | | | | Net unrealized gains (losses) from: | | | | | | | | | | Fixed maturities | | $ | (1,707 | ) | | $ | (1,308 | ) | | $ | 42,177 | | | $ | 21,591 | | Common stock | | | 15,314 | | | | 1,042 | | | Foreign currency fluctuations | | | 551 | | | | — | | | | 161 | | | | (1,032 | ) | Deferred taxes | | | (5,175 | ) | | | (352 | ) | | | (8,030 | ) | | | (2,950 | ) | | | | | | | | | Accumulated other comprehensive income, net of tax | | $ | 8,983 | | | $ | (618 | ) | | $ | 34,308 | | | $ | 17,609 | | | | | | | | | |
The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the years ended December 31, 20172020 and 2016:2019: | | | | | | | | | | | | | Year Ended December 31, 2017 (Dollars in thousands) | | Unrealized Gains
and Losses on
Available for
Sale Securities,
Net of Tax | | | Foreign Currency
Items, Net of Tax | | | Accumulated Other
Comprehensive
Income, Net of Tax | | Beginning balance | | $ | (554 | ) | | $ | (64 | ) | | $ | (618 | ) | Other comprehensive income (loss) before reclassification | | | 9,455 | | | | 994 | | | | 10,449 | | Amounts reclassified from accumulated other comprehensive income (loss) | | | (629 | ) | | | (219 | ) | | | (848 | ) | | | | | | | | | | | | | | Other comprehensive income (loss) | | | 8,826 | | | | 775 | | | | 9,601 | | | | | | | | | | | | | | | Ending balance | | $ | 8,272 | | | $ | 711 | | | $ | 8,983 | | | | | | | | | | | | | | |
Year Ended December 31, 2020 (Dollars in thousands) | | Unrealized Gains and Losses on Available for Sale Securities | | | Foreign Currency Items | | | Accumulated Other Comprehensive Income | | Beginning balance, net of tax | | $ | 18,641 | | | $ | (1,032 | ) | | $ | 17,609 | | Other comprehensive income (loss) before reclassification, before tax | | | 43,430 | | | | 1,193 | | | | 44,623 | | Amounts reclassified from accumulated other comprehensive income (loss), before tax | | | (22,844 | ) | | | 0 | | | | (22,844 | ) | Other comprehensive income (loss), before tax | | | 20,586 | | | | 1,193 | | | | 21,779 | | Income tax benefit (expense) | | | (5,046 | ) | | | (34 | ) | | | (5,080 | ) | Ending balance, net of tax | | $ | 34,181 | | | $ | 127 | | | $ | 34,308 | |
| | | | | | | | | | | | | Year Ended December 31, 2016 (Dollars in thousands) | | Unrealized Gains
and Losses on
Available for
Sale Securities,
Net of Tax | | | Foreign Currency
Items, Net of Tax | | | Accumulated Other
Comprehensive
Income, Net of Tax | | Beginning balance | | $ | 4,200 | | | $ | (122 | ) | | $ | 4,078 | | Other comprehensive income (loss) before reclassification | | | 10,374 | | | | (261 | ) | | | 10,113 | | Amounts reclassified from accumulated other comprehensive income (loss) | | | (15,128 | ) | | | 319 | | | | (14,809 | ) | | | | | | | | | | | | | | Other comprehensive income (loss) | | | (4,754 | ) | | | 58 | | | | (4,696 | ) | | | | | | | | | | | | | | Ending balance | | $ | (554 | ) | | $ | (64 | ) | | $ | (618 | ) | | | | | | | | | | | | | |
Year Ended December 31, 2019 (Dollars in thousands) | | Unrealized Gains and Losses on Available for Sale Securities | | | Foreign Currency Items | | | Accumulated Other Comprehensive Income | | Beginning balance, net of tax | | $ | (19,897 | ) | | $ | (1,334 | ) | | $ | (21,231 | ) | Other comprehensive income (loss) before reclassification, before tax | | | 50,325 | | | | 302 | | | | 50,627 | | Amounts reclassified from accumulated other comprehensive income (loss), before tax | | | (6,059 | ) | | | 0 | | | | (6,059 | ) | Other comprehensive income (loss), before tax | | | 44,266 | | | | 302 | | | | 44,568 | | Income tax benefit (expense) | | | (5,728 | ) | | | 0 | | | | (5,728 | ) | Ending balance, net of tax | | $ | 18,641 | | | $ | (1,032 | ) | | $ | 17,609 | |
The reclassifications out of accumulated other comprehensive income for the years ended December 31, 20172020 and 20162019 were as follows: (Dollars in thousands) | | | | | Amounts Reclassified from Accumulated Other Comprehensive Income | | | | | | | | | | | | Years Ended December 31, | | | (Dollars in thousands) | | | | Amounts Reclassified
from Accumulated
Other Comprehensive
Income Years Ended
December 31, | | | Details about Accumulated Other Comprehensive Income Components | | Affected Line Item in the Consolidated
Statements of Operations | | 2017 | | 2016 | | | Affected Line Item in the Consolidated Statements of Operations | | 2020 | | | 2019 | | Unrealized gains and losses on available for sale securities | | Other net realized investment (gains) | | $ | (3,921 | ) | | $ | (30,055 | ) | | Other net realized investment (gains) losses | | $ | (23,604 | ) | | $ | (7,956 | ) | | | Other than temporary impairment losses on investments | | | 2,606 | | | 6,733 | | | | | | | | | | | | | | | Total before tax | | | (1,315 | ) | | (23,322 | ) | | | | Income tax expense | | | 686 | | | 8,194 | | | Other than temporary impairment losses on investments | | | 760 | | | | 1,897 | | | | | | | | | | | | Total before tax | | | (22,844 | ) | | | (6,059 | ) | | | Unrealized gains and losses on available for sale securities, net of tax | | | (629 | ) | | (15,128 | ) | | Income tax expense (benefit) | | | 5,050 | | | | 622 | | | | | | | | | | | | Unrealized gains and losses on available for sale securities, net of tax | | | (17,794 | ) | | | (5,437 | ) | Foreign currency items | | Other net realized investment (gains) losses | | | (336 | ) | | 491 | | | Other net realized investment (gains) losses | | | 0 | | | | 0 | | | | Income tax expense (benefit) | | | 117 | | | (172 | ) | | Income tax expense | | | 0 | | | | 0 | | | | | | | | | | | | Foreign currency items, net of tax | | | 0 | | | | 0 | | | | Foreign currency items, net of tax | | | (219 | ) | | 319 | | | | | | | | | | | | | Total reclassifications | | Total reclassifications, net of tax | | $ | (848 | ) | | $ | (14,809 | ) | | Total reclassifications, net of tax | | $ | (17,794 | ) | | $ | (5,437 | ) | | | | | | | | | | |
Net Realized Investment Gains (Losses) The components of net realized investment gains (losses) for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 were as follows: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Fixed maturities: | | | | | | | | | | | | | | | | | | | Gross realized gains | | $ | 4,066 | | | $ | 2,947 | | | $ | 3,565 | | | $ | 28,381 | | | $ | 9,675 | | | $ | 354 | | Gross realized losses | | | (3,387 | ) | | | (691 | ) | | | (2,180 | ) | | | (5,537 | ) | | | (3,616 | ) | | | (3,277 | ) | | | | | | | | | | | | Net realized gains | | | 679 | | | | 2,256 | | | | 1,385 | | | | | | | | | | | | | | Common stock: | | | | | | | | Net realized gains (losses) | | | | 22,844 | | | | 6,059 | | | | (2,923 | ) | Equity Securities: | | | | | | | | | | | | | | Gross realized gains | | | 4,178 | | | | 28,785 | | | | 10,379 | | | | 16,997 | | | | 40,730 | | | | 6,491 | | Gross realized losses | | | (3,206 | ) | | | (8,210 | ) | | | (8,246 | ) | | | (32,247 | ) | | | (6,737 | ) | | | (22,592 | ) | | | | | | | | | | | | Net realized gains | | | 972 | | | | 20,575 | | | | 2,133 | | | | | | | | | | | | | | Preferred stock: | | | | | | | | Gross realized gains | | | — | | | | — | | | | 96 | | | Gross realized losses | | | — | | | | — | | | | — | | | | | | | | | | | | | | Net realized gains | | | — | | | | — | | | | 96 | | | | | | | | | | | | | | Net realized gains (losses) | | | | (15,250 | ) | | | 33,993 | | | | (16,101 | ) | Derivatives: | | | | | | | | | | | | | | | | | | | Gross realized gains | | | 3,555 | | | | 3,733 | | | | — | | | | 19,460 | | | | 3,518 | | | | 3,906 | | Gross realized losses | | | (3,630 | ) | | | (4,843 | ) | | | (6,988 | ) | | | (41,716 | ) | | | (8,228 | ) | | | (1,789 | ) | | | | | | | | | | | | Net realized gains (losses) (1) | | | (75 | ) | | | (1,110 | ) | | | (6,988 | ) | | | (22,256 | ) | | | (4,710 | ) | | | 2,117 | | | | | | | | | | | | | Total net realized investment gains (losses) | | $ | 1,576 | | | $ | 21,721 | | | $ | (3,374 | ) | | $ | (14,662 | ) | | $ | 35,342 | | | $ | (16,907 | ) | | | | | | | | | | | |
(1) | Includes $3.6 million, $4.8 million, and $5.4 million of periodic net interest settlements related to the derivatives of $4.5million, $1.2 million, and $1.9 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. |
The following table shows the calculation of the portion of realized gains and losses related to equity securities held as of December 31, 2020, 2019, and 2018: | | Years Ended December 31, | | (Dollars in thousands) | | 2020 | | | 2019 | | | 2018 | | Net gains and (losses) recognized during the period on equity securities | | $ | (15,250 | ) | | $ | 33,993 | | | $ | (16,101 | ) | Less: net gains (losses) recognized during the period on equity securities sold during the period | | | (103 | ) | | | 10,846 | | | | 5,921 | | Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date | | $ | (15,147 | ) | | $ | 23,147 | | | $ | (22,022 | ) |
The proceeds from sales and redemptions of available for sale and equity securities resulting in net realized investment gains (losses) for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 were as follows: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Fixed maturities | | $ | 918,439 | | | $ | 381,389 | | | $ | 647,404 | | | $ | 791,554 | | | $ | 977,321 | | | $ | 293,348 | | Equity securities | | | 32,218 | | | | 111,156 | | | | 39,723 | | | | 604,772 | | | | 260,891 | | | | 35,639 | | Preferred stock | | | — | | | | — | | | | 1,540 | | |
Net Investment Income The sources of net investment income for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 were as follows: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Fixed maturities | | $ | 33,020 | | | $ | 30,337 | | | $ | 32,091 | | | $ | 31,987 | | | $ | 36,673 | | | $ | 37,085 | | Equity securities | | | 3,595 | | | | 3,302 | | | | 3,125 | | | | 4,944 | | | | 7,006 | | | | 4,037 | | Cash and cash equivalents | | | 894 | | | | 217 | | | | 82 | | | | 784 | | | | 1,510 | | | | 1,177 | | Other invested assets | | | 4,741 | | | | 5,295 | | | | 2,620 | | | | (6,228 | ) | | | 78 | | | | 6,879 | | | | | | | | | | | | | Total investment income | | | 42,250 | | | | 39,151 | | | | 37,918 | | | | 31,487 | | | | 45,267 | | | | 49,178 | | Investment expense (1) | | | (2,927 | ) | | | (5,168 | ) | | | (3,309 | ) | | | | | | | | | | | | | Investment expense | | | | (3,095 | ) | | | (3,215 | ) | | | (2,836 | ) | Net investment income | | $ | 39,323 | | | $ | 33,983 | | | $ | 34,609 | | | $ | 28,392 | | | $ | 42,052 | | | $ | 46,342 | | | | | | | | | | | | |
(1) | Investment expense for the year ended December 31, 2016 includes $1.5 million in upfront fees necessary to enter into a new investment. See Note 15 for additional information on the Company’s $40 million commitment related to this investment. |
As of December 31, 2020 and 2019, the Company did 0t own any fixed maturity securities that were non-income producing for the preceding twelve months. The Company’s total investment return on apre-tax basis for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 were as follows: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Net investment income | | $ | 39,323 | | | $ | 33,983 | | | $ | 34,609 | | | $ | 28,392 | | | $ | 42,052 | | | $ | 46,342 | | | | | | | | | | | | | Net realized investment gains (losses) | | | 1,576 | | | 21,721 | | | (3,374 | ) | | | (14,662 | ) | | | 35,342 | | | | (16,907 | ) | Change in unrealized holding gains and losses | | | 14,424 | | | (8,240 | ) | | (25,673 | ) | | | 21,779 | | | | 44,568 | | | | (22,853 | ) | | | | | | | | | | | | Net realized and unrealized investment returns | | | 16,000 | | | 13,481 | | | (29,047 | ) | | | 7,117 | | | | 79,910 | | | | (39,760 | ) | | | | | | | | | | | | Total investment return | | $ | 55,323 | | | $ | 47,464 | | | $ | 5,562 | | | $ | 35,509 | | | $ | 121,962 | | | $ | 6,582 | | | | | | | | | | | | | Total investment return % | | | 3.5 | % | | 3.1 | % | | 0.3 | % | | | 2.3 | % | | | 7.8 | % | | | 0.4 | % | | | | | | | | | | | | Average investment portfolio | | $ | 1,597,487 | | | $ | 1,507,184 | | | $ | 1,752,785 | | | $ | 1,528,425 | | | $ | 1,558,565 | | | $ | 1,522,805 | | | | | | | | | | | | |
Insurance Enhanced Asset-Backed andand. Credit Securities As of December 31, 2017,2020, the Company held insurance enhanced asset-backed, commercial mortgage-backed, and credit securitiesbonds with a market value of approximately $33.9 million. Approximately $1.6$37.3 million, of these securities weretax-free municipal bonds, which represented approximately 0.1%2.6% of the Company’s total cash and invested assets, net of payable/receivable for securities purchased and sold. These securities had an average rating of “AA.” None of these bonds arepre-refunded with U.S. treasury securities, nor would they have carried a lower credit rating had they not been insured.
A summary of the Company’s insurance enhanced municipal bonds that are backed by financial guarantors, including thepre-refunded bonds that are escrowed in U.S. government obligations, as of December 31, 2017, is as follows:
| | | | | | | | | | | | | | | | | (Dollars in thousands) Financial Guarantor | | Total | | | Pre-refunded
Securities | | | Government
Guaranteed
Securities | | | Exposure Net
of Pre-refunded
& Government
Guaranteed
Securities | | Municipal Bond Insurance Association | | $ | 1,157 | | | $ | — | | | $ | — | | | $ | 1,157 | | Gov’t National Housing Association | | | 425 | | | | — | | | | 425 | | | | — | | | | | | | | | | | | | | | | | | | Total backed by financial guarantors | | | 1,582 | | | | — | | | | 425 | | | | 1,157 | | Other credit enhanced municipal bonds | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | | 1,582 | | | | — | | | | 425 | | | | 1,157 | | | | | | | | | | | | | | | | | | |
In addition to thetax-free municipal bonds, the Company held $32.3 million of insurance enhanced bonds, which represented approximately 2.1% of the Company’s total invested assets, net of receivable/payable for securities purchased and sold. The insurance enhanced bonds are comprised of $21.8$15.2 million of taxable municipal bonds, $10.4$14.3 million of commercial mortgage-backed securities, and $0.1$7.8 million of asset-backed securities.collateralized mortgage obligations. The financial guarantors of the Company’s $32.3$37.3 million of insurance enhanced asset-backed, commercial-mortgage-backed, and taxable municipal securities, and collateralized mortgage obligations include Municipal Bond Insurance Association ($6.43.1 million), Assured Guaranty Corporation ($15.59.9 million), and Federal Home Loan Mortgage Corporation ($10.422.1 million), and Ambac Financial Group ($2.2 million).
The Company had no direct investments in the entities that have provided financial guarantees or other credit support to any security held by the Company at December 31, 2017.2020. Bonds Held on Deposit Certain cash balances, cash equivalents, equity securities, and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral, pursuant to borrowing arrangements, or were held in trust pursuant to intercompany reinsurance agreements. The fair values were as follows as of December 31, 20172020 and 2016:2019: | | | | Estimated Fair Value | | | Estimated Fair Value | | | (Dollars in thousands) | | December 31,
2017 | | | December 31,
2016 | | | December 31, 2020 | | | December 31, 2019 | | On deposit with governmental authorities | | $ | 26,852 | | | $ | 29,079 | | | $ | 26,966 | | | $ | 26,431 | | Intercompany trusts held for the benefit of U.S. policyholders | | | 328,494 | | | | 351,002 | | | | 0 | | | | 179,116 | | Held in trust pursuant to third party requirements | | | 94,098 | | | | 88,178 | | | | 100,234 | | | | 133,122 | | Letter of credit held for third party requirements | | | 3,944 | | | | 4,871 | | | | 3,970 | | | | 1,458 | | Securities held as collateral for borrowing arrangements (1) | | | 88,040 | | | | 85,939 | | | | | | | | | | | Securities held as collateral | | | | 494 | | | | 91,229 | | Total | | $ | 541,428 | | | $ | 559,069 | | | $ | 131,664 | | | $ | 431,356 | | | | | | | | | |
(1) | Amount required to collateralize margin borrowing facility. |
Variable Interest Entities A Variable Interest Entity (VIE)(“VIE”) refers to an investment in which an investor holds a controlling interest that is not based on the majority of voting rights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest in the entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participate in a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significant management influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do not consolidate the VIE in their financial results. The Company has variable interests in three4 VIE’s for which it is not the primary beneficiary. These investments are accounted for under the equity method of accounting as their ownership interest exceeds 3% of their respective investments. The faircarrying value of one of the Company’s VIE’s, which invests in distressed securities and assets, was $26.3$10.8 million and $32.9$13.5 million as of December 31, 20172020 and 2016,2019, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $40.5$25.0 million and $48.6$27.7 million at December 31, 20172020 and 2016,2019, respectively. The faircarrying value of a second VIE that provides financing for middle market companies,also invests in distressed securities and assets was $33.8$15.7 million and $33.2$24.0 million atas of December 31, 20172020 and 2016,2019, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $43.8$32.7 million and $42.3$41.0 million at December 31, 20172020 and 2016,2019, respectively. During the 2nd quarterThe carrying value of 2017, the Company invested in a new limited partnershipthird VIE that also invests in distressed securitiesREIT qualifying assets was $10.5 million and assets and is considered a VIE. The Company’s investment in this partnership has a fair value of $17.8$9.8 million as of December 31, 2017.2020 and 2019, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $51.3$10.5 million and $10.3 million at December 31, 2017.2020 and 2019, respectively. During the 4th quarter, the Company made a $60.0 million investment in a fourth VIE that invests in a broad portfolio of non-investment grade loans. As of December 31, 2020, the carry value and maximum exposure to loss from this VIE were $60.0 million. The Company’s investment in VIEs is included in other invested assets on the consolidated balance sheetsheets with changes in faircarrying value recorded in the consolidated statements of operations. 6. Derivative Instruments
Interest rate swapsDerivatives are used by the Company primarily to reduce risks from changes in interest rates. Under the terms of therates and limit exposure to severe equity market changes. The Company has interest rate swaps the Company agrees with another partyterms to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount. In 2019, the Company began to utilize exchange-traded futures contracts, which give the holder the right and obligation to participate in market movements at a future date, to allow the Company to react faster to market conditions. The Company posts collateral and settles variation margin in cash on a daily basis equal to the amount of the futures contracts’ change in value scaled by a multiplier.
The Company accounts for the interest rate swaps and futures asnon-hedge instruments and recognizes the fair value of the interest rate swaps in other assets or other liabilities on the consolidated balance sheets with the changes in fair value recognized as net realized investment gains or losses in the consolidated statements of operations. The Company is ultimately responsible for the valuation of the interest rate swaps. To aid in determining the estimated fair value of the interest rate swaps, the Company relies on the forward interest rate curve and information obtained from a third party financial institution. The following table summarizes information on the location and the gross amount of the derivatives’ fair valuederivatives on the consolidated balance sheets as of December 31, 20172020 and 2016:2019: | | (Dollars in thousands) | | | | | December 31, 2017 | | December 31, 2016 | | | | | December 31, 2020 | | | December 31, 2019 | | Derivatives Not Designated as Hedging Instruments under ASC 815 | | Balance Sheet
Location | | | Notional
Amount | | | Fair Value | | Notional
Amount | | | Fair Value | | | Balance Sheet Location | | Notional Amount | | | Fair Value | | | Notional Amount | | | Fair Value | | Interest rate swap agreements | | | Other liabilities | | | $ | 200,000 | | | $ | (7,968 | ) | | $ | 200,000 | | | $ | (11,524 | ) | | Other assets/liabilities | | $ | 213,022 | | | $ | (16,430 | ) | | $ | 200,000 | | | $ | (10,275 | ) | Futures contracts on bonds (1) | | | Other assets/liabilities | | | 28,996 | | | | 0 | | | | 16,894 | | | | 0 | | Futures contracts on equities (1) | | | Other assets/liabilities | | | 0 | | | | 0 | | | | 57,816 | | | | 0 | | Total (2) | | | | | $ | 242,018 | | | $ | (16,430 | ) | | $ | 274,710 | | | $ | (10,275 | ) |
(1) | Futures are settled daily such that their fair value is not reflected in the consolidated statements of financial position |
(2) | The derivatives are held by GBLI Holdings, LLC and are guaranteed by Global Indemnity Group, LLC |
The following table summarizes the net gains (losses) included in the consolidated statements of operations for changes in the fair value of the derivatives and the periodic net interest settlements under the derivatives for the years ended December 31, 2017, 2016,2020, 2019, and 2015:2018: | | | | | | Years Ended December 31, | | | Consolidated Statements of | | Years Ended December 31, | | | (Dollars in thousands) | | Consolidated Statements of
Operations Line | | 2017 | | | 2016 | | | 2015 | | | Operations Line | | 2020 | | | 2019 | | | 2018 | | Interest rate swap agreements | | Net realized investment gains
(losses) | | $ | (75 | ) | | $ | (1,110 | ) | | $ | (6,988 | ) | | Net realized investment gains (losses) | | $ | (10,691 | ) | | $ | (7,449 | ) | | $ | 2,117 | | Futures contracts on bonds | | | Net realized investment gains (losses) | | | (2,576 | ) | | | 873 | | | | 0 | | Futures contracts on equities | | | Net realized investment gains (losses) | | | (8,989 | ) | | | 1,866 | | | | 0 | | | | | | | $ | (22,256 | ) | | $ | (4,710 | ) | | $ | 2,117 | |
As of December 31, 20172020 and 2016,2019, the Company is due $3.1$2.8 million and $5.3$3.0 million, respectively, for funds it needed to post to execute the swap transaction and $9.5$17.5 million and $12.6$12.5 million, respectively, for margin calls made in connection with the interest rate swaps. These amounts are included in other assets on the consolidated balance sheets. As of December 31, 2020 and 2019, the Company posted initial margin of $0.5 million and $3.0 million, respectively, in securities for trading futures contracts and has a mark-to-market receivable of less than $0.1 million and $0.3 million, respectively, in connection with the futures contracts. Variation margin is included in other assets on the consolidated balance sheets. 7.6. | Fair Value Measurements |
The accounting standards related to fair value measurements define fair value, establish a framework for measuring fair value, outline a fair value hierarchy based on inputs used to measure fair value, and enhance disclosure requirements for fair value measurements. These standards do not change existing guidance as to whether or not an instrument is carried at fair value. The Company has determined that its fair value measurements are in accordance with the requirements of these accounting standards. The Company’s invested assets and derivative instruments are carried at their fair value and are categorized based upon a fair value hierarchy: Level 1 — | • | Level 1 – inputs utilize quoted prices (unadjusted) in active markets for identical assets that the Company has the ability to access at the measurement date. |
Level 2 — | • | Level 2 – inputs utilize other than quoted prices included in Level 1 that are observable for similar assets, either directly or indirectly. |
Level 3 —
| • | Level 3 – inputs are unobservable for the asset, and include situations where there is little, if any, market activity for the asset. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset. The following table presents information about the Company’s invested assets and derivative instruments measured at fair value on a recurring basis as of December 31, 20172020 and 2016,2019 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. | | As of December 31, 2017 | | Fair Value Measurements | | | As of December 31, 2020 | | | Fair Value Measurements | | | (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 104,680 | | | $ | — | | | $ | — | | | $ | 104,680 | | | $ | 197,480 | | | $ | 0 | | | $ | 0 | | | $ | 197,480 | | Obligations of states and political subdivisions | | | — | | | 95,114 | | | | — | | | 95,114 | | | | 0 | | | | 61,243 | | | | 0 | | | | 61,243 | | Mortgage-backed securities | | | — | | | 149,350 | | | | — | | | 149,350 | | | | 0 | | | | 358,778 | | | | 0 | | | | 358,778 | | Commercial mortgage-backed securities | | | — | | | 139,795 | | | | — | | | 139,795 | | | | 0 | | | | 110,959 | | | | 0 | | | | 110,959 | | Asset-backed securities | | | — | | | 203,701 | | | | — | | | 203,701 | | | | 0 | | | | 117,593 | | | | 0 | | | | 117,593 | | Corporate bonds | | | — | | | 423,390 | | | | — | | | 423,390 | | | | 0 | | | | 240,717 | | | | 0 | | | | 240,717 | | Foreign corporate bonds | | | — | | | 125,407 | | | | — | | | 125,407 | | | | 0 | | | | 104,416 | | | | 0 | | | | 104,416 | | | | | | | | | | | | | | | | Total fixed maturities | | 104,680 | | | 1,136,757 | | | | — | | | 1,241,437 | | | | 197,480 | | | | 993,706 | | | | 0 | | | | 1,191,186 | | Common stock | | 140,229 | | | | — | | | | — | | | 140,229 | | | | | | | | | | | | | | | | | Total assets measured at fair value (1) | | $ | 244,909 | | | $ | 1,136,757 | | | $ | — | | | $ | 1,381,666 | | | | | | | | | | | | | | | | | Equity securities | | | | 87,307 | | | | 11,683 | | | | 0 | | | | 98,990 | | Total assets measured at fair value | | | $ | 284,787 | | | $ | 1,005,389 | | | $ | 0 | | | $ | 1,290,176 | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Derivative instruments | | $ | — | | | $ | 7,968 | | | $ | — | | | $ | 7,968 | | | $ | 0 | | | $ | 16,430 | | | $ | 0 | | | $ | 16,430 | | | | | | | | | | | | | | | | Total liabilities measured at fair value | | $ | — | | | $ | 7,968 | | | $ | — | | | $ | 7,968 | | | $ | 0 | | | $ | 16,430 | | | $ | 0 | | | $ | 16,430 | | | | | | | | | | | | | | | |
(1) | Excluded from the table above are limited partnerships of $77.8 million at December 31, 2017 whose fair value is based on net asset value as a practical expedient. |
| | As of December 31, 2016 | | Fair Value Measurements | | | As of December 31, 2019 | | | Fair Value Measurements | | | (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Fixed maturities: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. treasury and agency obligations | | $ | 72,047 | | | $ | — | | | $ | — | | | $ | 72,047 | | | $ | 156,689 | | | $ | 0 | | | $ | 0 | | | $ | 156,689 | | Obligations of states and political subdivisions | | | — | | | 156,446 | | | | — | | | 156,446 | | | | 0 | | | | 63,838 | | | | 0 | | | | 63,838 | | Mortgage-backed securities | | | — | | | 88,468 | | | | — | | | 88,468 | | | | 0 | | | | 328,374 | | | | 0 | | | | 328,374 | | Commercial mortgage-backed securities | | | — | | | 183,192 | | | | — | | | 183,192 | | | | 0 | | | | 188,104 | | | | 0 | | | | 188,104 | | Asset-backed securities | | | — | | | 233,991 | | | | — | | | 233,991 | | | | 0 | | | | 168,537 | | | | 0 | | | | 168,537 | | Corporate bonds | | | — | | | 380,027 | | | | — | | | 380,027 | | | | 0 | | | | 248,259 | | | | 0 | | | | 248,259 | | Foreign corporate bonds | | | — | | | 125,860 | | | | — | | | 125,860 | | | | 0 | | | | 99,358 | | | | 0 | | | | 99,358 | | | | | | | | | | | | | | | | Total fixed maturities | | 72,047 | | | 1,167,984 | | | | — | | | 1,240,031 | | | | 156,689 | | | | 1,096,470 | | | | 0 | | | | 1,253,159 | | Common stock | | 120,557 | | | | — | | | | — | | | 120,557 | | | | | | | | | | | | | | | | | Total assets measured at fair value (1) | | $ | 192,604 | | | $ | 1,167,984 | | | $ | — | | | $ | 1,360,588 | | | | | | | | | | | | | | | | | Equity securities | | | | 251,448 | | | | 11,656 | | | | 0 | | | | 263,104 | | Total assets measured at fair value | | | $ | 408,137 | | | $ | 1,108,126 | | | $ | 0 | | | $ | 1,516,263 | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Derivative instruments | | $ | — | | | $ | 11,524 | | | $ | — | | | $ | 11,524 | | | $ | 0 | | | $ | 10,275 | | | $ | 0 | | | $ | 10,275 | | | | | | | | | | | | | | | | Total liabilities measured at fair value | | $ | — | | | $ | 11,524 | | | $ | — | | | $ | 11,524 | | | $ | 0 | | | $ | 10,275 | | | $ | 0 | | | $ | 10,275 | | | | | | | | | | | | | | | |
(1) | Excluded from the table above are limited partnerships of $66.1 million at December 31, 2016 whose fair value is based on net asset value as a practical expedient. |
The securities classified as Level 1 in the above table consist of U.S. Treasuries and equity securities actively traded on an exchange.
The securities classified as Level 2 in the above table consist primarily of fixed maturity securities and derivative instruments. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, security prices are derived through recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. If there are no recent reported trades, matrix or model processes are used to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of asset-backed securities, collateralized mortgage obligations, and mortgage-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. The estimated fair value of the derivative instruments, consisting of interest rate swaps, is obtained from a third party financial institution that utilizes observable inputs such as the forward interest rate curve. For the Company’s material debt arrangements, the current fair value of the Company’s debt at December 31, 20172020 and 20162019 was as follows: | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | December 31, 2016 | | | (Dollars in thousands) | | Carrying
Value | | | Fair Value | | | Carrying
Value | | | Fair Value | | Margin Borrowing Facility | | $ | 72,230 | | | $ | 72,230 | | | $ | 66,646 | | | $ | 66,646 | | 7.75% Subordinated Notes due 2045 (1) | | | 96,619 | | | | 100,059 | | | | 96,497 | | | | 95,697 | | 7.875% Subordinated Notes due 2047 (2) | | | 125,864 | | | | 130,429 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 294,713 | | | $ | 302,718 | | | $ | 163,143 | | | $ | 162,343 | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | | December 31, 2019 | | (Dollars in thousands) | | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | | Margin Borrowing Facility (1) | | $ | 0 | | | $ | 0 | | | $ | 73,629 | | | $ | 73,629 | | 7.75% Subordinated Notes due 2045 (2) | | | 0 | | | | 0 | | | | 96,864 | | | | 100,264 | | 7.875% Subordinated Notes due 2047 (3) | | | 126,288 | | | | 132,008 | | | | 126,147 | | | | 134,462 | | Total | | $ | 126,288 | | | $ | 132,008 | | | $ | 296,640 | | | $ | 308,355 | |
(1) | The Margin Borrowing Facility was fully paid down in August 2020. |
(2) | As of December 31,2017 and 2016,31, 2019, the carrying value and fair value of the 7.75% Subordinated Notes due 2045 are net of unamortized debt issuance cost of $3.4$3.1 million. In August 2020, the Company redeemed all of its outstanding 7.75% subordinated notes due 2045 and unamortized debt issuance cost of $3.1 million was written off and $3.5 million, respectively.included in the consolidated statements of operations as loss on the extinguishment of debt. |
(2)(3) | As of December 31, 2017,2020 and 2019, the carrying value and fair value of the 7.875% Subordinated Notes due 2047 are net of unamortized debt issuance cost of $4.1 million.$3.7 million and $3.9 million, respectively. |
The fair value of the margin borrowing facility approximates its carrying value due to the facility being due on demand. The subordinated notes due 2045 and 2047 are publicly traded instruments and are classified as Level 1 in the fair value hierarchy. There were no transfers between Level 1 and Level 2 during the years ended December 31, 2017, 2016, and 2015.
The following table presents changes in Level 3 investments measured at fair value on a recurring basis for the year ended December 31, 2017 and 2016:
| | | | | | | | | | | | Years Ended
December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | Beginning balance | | $ | — | | | $ | — | | Total gains (realized / unrealized): | | | | | | | | | Amortization of bond premium and discount, net | | | — | | | | 75 | | Included in realized gains (losses) | | | — | | | | 486 | | Purchases | | | — | | | | 27,303 | | Sales | | | — | | | | (27,864 | ) | | | | | | | | | | Ending balance | | $ | — | | | $ | — | | | | | | | | | | |
The investments classified as Level 3 in the above table consist of privately placed debt instruments purchased in 2017 with unobservable inputs. The Company does not have access to daily valuations; therefore, market trades,
performance of the underlying assets, and key risks are considered in order to estimate fair values of these middle market corporate debt instruments. In the fourth quarter of 2016, the Company exchanged the debt instruments purchased in previous quarters of 2016, along with cash and equity related to the debt instruments, for a single interest in the Private Middle Market Loan Fund, LP, which is considered a VIE. As this investment is priced using a Net Asset Value (“NAV”) it is excluded from the level 3 investment table above. See Note 4 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further information regarding the Company’s investment in VIEs for the years ended December 31, 2017 and 2016.
Fair Value of Alternative Investments Other invested assets consist of limited liability companies and limited partnerships whose carrying value approximates fair value is based on net asset value per share practical expedient. value. The following table provides the fair value and future funding commitments related to these investments at December 31, 20172020 and 2016.2019. | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | December 31, 2016 | | | (Dollars in thousands) | | Fair
Value | | | Future Funding
Commitment | | | Fair
Value | | | Future Funding
Commitment | | Real Estate Fund, LP (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | EuropeanNon-Performing Loan Fund, LP (2) | | | 26,262 | | | | 14,214 | | | | 32,922 | | | | 15,714 | | Private Middle Market Loan Fund, LP (3) | | | 33,760 | | | | 10,000 | | | | 33,199 | | | | 9,054 | | Distressed Debt Fund, LP (4) | | | 17,798 | | | | 33,500 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | $ | 77,820 | | | $ | 57,714 | | | $ | 66,121 | | | $ | 24,768 | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | | December 31, 2019 | | (Dollars in thousands) | | Fair Value | | | Future Funding Commitment | | | Fair Value | | | Future Funding Commitment | | European Non-Performing Loan Fund, LP (1) | | $ | 10,808 | | | $ | 14,214 | | | $ | 13,530 | | | $ | 14,214 | | Distressed Debt Fund, LP (2) | | | 15,721 | | | | 17,000 | | | | 23,966 | | | | 17,000 | | Mortgage Debt Fund, LP (3) | | | 10,489 | | | | 0 | | | | 9,783 | | | | 506 | | Credit Fund, LLC (4) | | | 60,000 | | | | 0 | | | | 0 | | | | 0 | | Total | | $ | 97,018 | | | $ | 31,214 | | | $ | 47,279 | | | $ | 31,720 | |
(1) | This limited partnership invests in real estate assets through a combination of direct or indirect investments in partnerships, limited liability companies, mortgage loans, and lines of credit. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company continues to hold an investment in this limited partnership and has written the fair value down to zero. |
(2) | This limited partnership invests in distressed securities and assets through senior and subordinated, secured and unsecured debt and equity, in both public and privatelarge-cap and middle-market companies. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the partnership agreement, the Company anticipates its interest in this partnership to be redeemed by 2020. |
(3)(2) | This limited partnership provides financing for middle market companies.invests in stressed and distressed securities and structured products. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the investment management agreement, the Company anticipates its interest to be redeemed no later than 2024. |
(4)(3) | This limited partnership invests in stressedREIT qualifying assets such as mortgage loans, investor property loans, and distressed debt instruments.commercial mortgage loans. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on |
(4) | This limited liability company invests in a broad portfolio of non-investment grade loans, secured and unsecured corporate debt, credit default swaps, reverse repurchase agreements and synthetic indices. The Company does have the terms of the partnership agreement, the Company anticipatesability to sell its interest by providing notice to be redeemed no later than 2027.the fund. |
Limited Liability Companies and Limited Partnerships with ownership interest exceeding 3% The Company uses the equity method to account for investments in limited liability companies and limited partnerships where its ownership interest exceeds 3%. The equity method of accounting for an investment in a limited liability companycompanies and limited partnership requires that its cost basis be updated to account for the income or loss earned on the investment. The investment income
associated with these limited liability companies orand limited partnerships, which is booked on a one quarter lag, is reflected in the consolidated statements of operations was $4.7 in the amounts of $(6.2)million, $5.2less than $0.1 million, and $2.5$6.9 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. Pricing The Company’s pricing vendors provide prices for all investment categories except for investments in limited partnerships whose fair value is based on net asset values as a practical expedient.liability companies and limited partnerships. Two primary vendors are utilized to provide prices for equity and fixed maturity securities. The following is a description of the valuation methodologies used by the Company’s pricing vendors for investment securities carried at fair value: Common stock | • | Equity security prices are received from all primary and secondary exchanges. |
Corporate and agency bonds are evaluated by utilizing terms and conditions sourced from commercial vendors. Bonds with similar characteristics are grouped into specific sectors. Both asset classes use standard inputs and utilize bid price or spread, quotes, benchmark yields, discount rates, market data feeds, and financial statements. | • | Corporate and agency bonds are evaluated by utilizing a spread to a benchmark curve. Bonds with similar characteristics are grouped into specific sectors. Inputs for both asset classes consist of trade prices, broker quotes, the new issue market, and prices on comparable securities. |
Data from commercial vendors is aggregated with market information, then converted into a prepayment/spread/LIBOR curve model used for commercial mortgage obligations (“CMO”). CMOs are categorized with mortgage-backed securities in the tables listed above. For asset-backed securities, data derived from market information along with trustee and servicer reports is converted into spreads to interpolated benchmark curve. For both asset classes, evaluations utilize standard inputs plus new issue data, monthly payment information, and collateral performance. The evaluated pricing models incorporate discount rates, loan level information, prepayment speeds, treasury benchmarks, and LIBOR and swap curves. | • | Data from commercial vendors is aggregated with market information, then converted into an option adjusted spread (“OAS”) matrix and prepayment model used for collateralized mortgage obligations (“CMO”). CMOs are categorized with mortgage-backed securities in the tables listed above. For asset-backed securities, spread data is derived from trade prices, dealer quotations, and research reports. For both asset classes, evaluations utilize standard inputs plus new issue data, and collateral performance. The evaluated pricing models incorporate cash flows, broker quotes, market trades, historical prepayment speeds, and dealer projected speeds. |
For obligations of state and political subdivisions, an integrated evaluation system is used. The pricing models incorporate trades, spreads, benchmark curves, market data feeds, new issue data, and trustee reports. | • | For obligations of state and political subdivisions, an attribute-based modeling system is used. The pricing model incorporates trades, market clearing yields, market color, and fundamental credit research. |
U.S. treasuries are evaluated by obtaining feeds from a number of live data sources including active market makers | • | U.S. treasuries are evaluated by obtaining feeds from a number of live data sources including primary and secondary dealers as well as inter-dealer brokers. |
| • | For mortgage-backed securities, various external analytical products are utilized and purchased from commercial vendors. |
The Company performs certain procedures to validate whether the pricing information received from the pricing vendors is reasonable, to ensure that the fair value determination is consistent with accounting guidance, and to ensure that its assets are properly classified in the fair value hierarchy. The Company’s procedures include, but are not limited to: | • | Reviewing periodic reports provided by the Investment Manager that provides information regarding rating changes and securities placed on watch. This procedure allows the Company to understand why a particular security’s market value may have changed or may potentially change. |
| • | Understanding and periodically evaluating the various pricing methods and procedures used by the Company’s pricing vendors to ensure that investments are properly classified within the fair value hierarchy. |
| • | On a quarterly basis, the Company corroborates investment security prices received from its pricing vendors by obtaining pricing from a second pricing vendor for a sample of securities. |
During 20172020 and 2016,2019, the Company has not adjusted quotes or prices obtained from the pricing vendors. 7.Goodwill and Intangible Assets 8. | Goodwill and Intangible Assets |
Goodwill
As a result of acquisitions in 2015 and 2010, the Company has goodwill, within the Personal Lines segment,Specialty Property and Farm, Ranch & Stable segments, of $6.5 million as of December 31, 20172020 and 2016.2019. The goodwill represents the excess purchase price over the Company’s best estimate of the fair value of the assets acquired. Impairment testing performed in 20172020 and 20162019 did not0t result in impairment of the goodwill acquired.
Intangible assets The following table presents details of the Company’s intangible assets as of December 31, 2017:2020: | (Dollars in thousands) Description | | Useful Life | | | Cost | | | Accumulated
Amortization | | | Net
Value | | | Weighted Average Amortization Period | | Cost | | | Accumulated Amortization | | | Net Value | | Trademarks | | | Indefinite | | | $ | 4,800 | | | $ | — | | | $ | 4,800 | | | Indefinite | | $ | 4,800 | | | $ | — | | | $ | 4,800 | | Tradenames | | | Indefinite | | | | 4,200 | | | | — | | | | 4,200 | | | Indefinite | | | 4,200 | | | | — | | | | 4,200 | | State insurance licenses | | | Indefinite | | | | 10,000 | | | | — | | | | 10,000 | | | Indefinite | | | 10,000 | | | | — | | | | 10,000 | | Customer relationships | | | 15 years | | | | 5,300 | | | | 2,724 | | | | 2,576 | | | 15 years | | | 5,300 | | | | 3,784 | | | | 1,516 | | Agent relationships | | | 10 years | | | | 900 | | | | 270 | | | | 630 | | | 10 years | | | 900 | | | | 535 | | | | 365 | | Trade names | | | 7 years | | | | 600 | | | | 257 | | | | 343 | | | Tradenames | | | 7 years | | | 600 | | | | 519 | | | | 81 | | | | | | | | | | | | | | | | | $ | 25,800 | | | $ | 4,838 | | | $ | 20,962 | | | | | | $ | 25,800 | | | $ | 3,251 | | | $ | 22,549 | | | | | | | | | | | | | | | |
The following table presents details of the Company’s intangible assets as of December 31, 2016:2019: | (Dollars in thousands) Description | | Useful Life | | | Cost | | | Accumulated
Amortization | | | Net
Value | | | Weighted Average Amortization Period | | Cost | | | Accumulated Amortization | | | Net Value | | Trademarks | | | Indefinite | | | $ | 4,800 | | | $ | — | | | $ | 4,800 | | | Indefinite | | $ | 4,800 | | | $ | — | | | $ | 4,800 | | Tradenames | | | Indefinite | | | | 4,200 | | | | — | | | | 4,200 | | | Indefinite | | | 4,200 | | | | — | | | | 4,200 | | State insurance licenses | | | Indefinite | | | | 10,000 | | | | — | | | | 10,000 | | | Indefinite | | | 10,000 | | | | — | | | | 10,000 | | Customer relationships | | | 15 years | | | | 5,300 | | | | 2,369 | | | | 2,931 | | | 15 years | | | 5,300 | | | | 3,430 | | | | 1,870 | | Agent relationships | | | 10 years | | | | 900 | | | | 179 | | | | 721 | | | 10 years | | | 900 | | | | 444 | | | | 456 | | Trade names | | | 7 years | | | | 600 | | | | 173 | | | | 427 | | | Tradenames | | | 7 years | | | 600 | | | | 435 | | | | 165 | | | | | | | | | | | | | | | | | $ | 25,800 | | | $ | 4,309 | | | $ | 21,491 | | | | | | $ | 25,800 | | | $ | 2,721 | | | $ | 23,079 | | | | | | | | | | | | | | | |
Amortization related to the Company’s definite lived intangible assets other than VOBA, was $0.5 million for each of the years ended December 31, 2017, 20162020, 2019, and 2015. Amortization related to the Value of Business Added (“VOBA”)2018. The weighted average amortization period for total definite lived intangible assets was $25.5 million for the year ended December 31, 2015. The Company did not have any amortization related to VOBA during the 13.6 years ended December 31, 2017 or 2016.. The Company expects that amortization expense for the next five years will be as follows: | | (Dollars in thousands) | | | | | | | | 2018 | | $ | 529 | | | 2019 | | | 529 | | | 2020 | | | 529 | | | 2021 | | | 529 | | | $ | 524 | | 2022 | | | 443 | | | | 443 | | 2023 | | | | 443 | | 2024 | | | | 443 | | 2025 | | | | 108 | |
Intangible assets with indefinite lives As of December 31, 20172020 and 2016,2019, indefinite lived intangible assets, which are comprised of tradenames, trademarks, and state insurance licenses, were $19.0 million. The Company reviewed internal business unit results, the growth of competitors and the overall property and casualty insurance market for indicators of impairment of its indefinite lived intangible assets. Impairment testing performed in 20172020 and 20162019 indicated that there was no0 impairment of these assets.
Intangible assets with definite lives As of December 31, 20172020 and 2016,2019, definite lived intangible assets, net of accumulated amortization, were $3.5$2.0 million and $4.1$2.5 million, respectively, and were comprised of customer relationships, agent relationships, and tradenames. The Company reviewed internal business unit results, the growth of competitors and the overall property and casualty insurance market for indicators of impairment of its definite lived intangible assets. There was no0 impairment of these assets in 20172020 or 2016.2019. 9.8. | Allowance for Expected Credit Losses - Premiums Receivable and Reinsurance Receivables |
The Company implemented new accounting guidance on January 1, 2020 related to the measurement of expected credit losses on financial instruments. Please see Note 23 for further discussion on this new accounting guidance. For premiums receivables, the allowance is based upon the Company’s ongoing review of key aspects of amounts outstanding, including but not limited to, length of collection periods, direct placement with collection agencies, solvency of insured or agent, terminated agents, and other relevant factors.
For reinsurance receivables, the allowance is based upon the Company’s ongoing review of key aspects of amounts outstanding, including but not limited to, length of collection periods, disputes, applicable coverage defenses, insolvent reinsurers, financial strength of solvent reinsurers based on AM Best Ratings and other relevant factors. The following table is an analysis of the allowance for expected credit losses related to the Company's premiums receivable and reinsurance receivables for the year ended December 31, 2020: | | December 31, 2020 | | (Dollars in thousands) | | Premiums Receivable | | | Reinsurance Receivables | | Beginning balance | | $ | 2,754 | | | $ | 8,992 | | Current period provision for expected credit losses | | | 1,050 | | | | 0 | | Write-offs | | | (904 | ) | | | 0 | | Ending balance | | $ | 2,900 | | | $ | 8,992 | |
The Company cedes risk to unrelated reinsurers on a pro rata (“quota share”) and excess of loss basis in the ordinary course of business to limit its net loss exposure on insurance contracts. Reinsurance ceded arrangements do not discharge the Company of primary liability. Moreover, reinsurers may fail to pay the Company due to a lack of reinsurer liquidity, perceived improper underwriting, and losses for risks that are excluded from reinsurance coverage and other similar factors, all of which could adversely affect the Company’s financial results. The Company had the following reinsurance balances as of December 31, 20172020 and 2016:2019: | | (Dollars in thousands) | | December 31,
2017 | | | December 31,
2016 | | | December 31, 2020 | | | December 31, 2019 | | Reinsurance receivables, net | | $ | 105,060 | | | $ | 143,774 | | | $ | 88,708 | | | $ | 83,938 | | Collateral securing reinsurance receivables | | | (6,584 | ) | | | (13,865 | ) | | | (4,984 | ) | | | (3,802 | ) | | | | | | | | | Reinsurance receivables, net of collateral | | $ | 98,476 | | | $ | 129,909 | | | $ | 83,724 | | | $ | 80,136 | | | | | | | | | | Allowance for uncollectible reinsurance receivables | | $ | 8,040 | | | $ | 8,040 | | | $ | 8,992 | | | $ | 8,992 | | Prepaid reinsurance premiums | | | 28,851 | | | | 42,583 | | | | 12,881 | | | | 16,716 | |
The reinsurance receivables above are net of a purchase accounting adjustment related to discounting acquired loss reserves to their present value and applying a risk margin to the discounted reserves. This adjustment was $1.2 million and $2.0$0.4 million at December 31, 2017 and 2016, respectively.2019. There was 0 adjustment at December 31, 2020. As of December 31, 2017,2020, the Company had one aggregate unsecured reinsurance receivablereceivables that exceeded 3% of shareholders’ equity from the following reinsurer. Unsecured reinsurance receivables include amounts receivable for paid and unpaid losses and loss adjustment expenses, less amounts secured by collateral. | | (Dollars in thousands) | | Reinsurance
Receivables | | | A.M. Best Ratings
(As of December 31, 2017) | | | Reinsurance Receivables | | | AM Best Ratings (As of December 31, 2020) | Munich Re America Corporation | | $ | 48,222 | | | | A+ | | | $ | 44,785 | | | A+ |
The effect of reinsurance on premiums written and earned is as follows: | | (Dollars in thousands) | | Written | | | Earned | | | Written | | | Earned | | For the year ended December 31, 2017: | | | | | | For the year ended December 31, 2020: | | | | | | | | | | Direct business | | $ | 433,922 | | | $ | 440,109 | | | $ | 554,617 | | | $ | 560,658 | | Reinsurance assumed | | | 82,412 | | | | 77,811 | | | | 51,986 | | | | 69,312 | | Reinsurance ceded (1) | | | (66,154 | ) | | | (79,886 | ) | | | (58,436 | ) | | | (62,271 | ) | | | | | | | | | Net premiums | | $ | 450,180 | | | $ | 438,034 | | | $ | 548,167 | | | $ | 567,699 | | | | | | | | | | For the year ended December 31, 2016: | | | | | | For the year ended December 31, 2019: | | | | | | | | | | Direct business | | $ | 468,046 | | | $ | 466,750 | | | $ | 548,618 | | | $ | 527,018 | | Reinsurance assumed | | | 97,799 | | | | 98,267 | | | | 88,243 | | | | 76,893 | | Reinsurance ceded (1) | | | (94,905 | ) | | | (96,552 | ) | | | (74,772 | ) | | | (78,649 | ) | | | | | | | | | Net premiums | | $ | 470,940 | | | $ | 468,465 | | | $ | 562,089 | | | $ | 525,262 | | | | | | | | | | For the year ended December 31, 2015: | | | | | | For the year ended December 31, 2018: | | | | | | | | | | Direct business | | $ | 458,185 | | | $ | 452,441 | | | $ | 495,129 | | | $ | 483,229 | | Reinsurance assumed | | | 132,048 | | | | 144,554 | | | | 52,768 | | | | 68,156 | | Reinsurance ceded (1) | | | (88,989 | ) | | | (92,852 | ) | | | (75,350 | ) | | | (83,610 | ) | | | | | | | | | Net premiums | | $ | 501,244 | | | $ | 504,143 | | | $ | 472,547 | | | $ | 467,775 | | | | | | | | | |
(1) | Includes ceded written premiums of ($1.3)less than $0.1 million, $35.3($0.3) million, and $55.8($2.1) million and ceded earned premiums of $13.5$1.6 million, $43.2$2.3 million and $59.5$7.3 million to American Bankers Insurance Company for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. |
Effective August 28, 2020, Global Indemnity Group, LLC became a publicly traded partnership for U.S. federal income tax purposes. Global Indemnity Group, LLC meets the qualifying income exception to maintain partnership status. As a publicly traded partnership, Global Indemnity Group, LLC is generally not subject to federal income tax and most state income taxes. However, income earned by the subsidiaries of Global Indemnity Group, LLC is subject to corporate tax in the United States and certain foreign jurisdictions. As of December 31, 2017,2020, the statutory income tax rates of the countries where the Company conducts or conducted business are 35%21% in the United States, 0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 27.08%19% in the Duchy of Luxembourg (for Luxembourg City), 0.25% to 2.5% in Barbados,United Kingdom and 25% onnon-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income tax rate of each country is applied against the expected annual taxable income of the Company in each country to calculateestimate the annual income tax expense. The Company’s income (loss) before income taxes from itsnon-U.S. subsidiaries and U.S. subsidiaries including the results of the quota share between Global Indemnity Reinsurance and the Insurance Operations, for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 were as follows: | Year Ended December 31, 2017: (Dollars in thousands) | | Non-U.S.
Subsidiaries | | | U.S.
Subsidiaries | | | Eliminations | | | Total | | | Year Ended December 31, 2020 (Dollars in thousands) | | | Non-U.S. Subsidiaries | | | U.S. Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 212,386 | | | $ | 462,453 | | | $ | (158,505 | ) | | $ | 516,334 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 212,432 | | | $ | 237,748 | | | $ | — | | | $ | 450,180 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 201,165 | | | $ | 236,869 | | | $ | — | | | $ | 438,034 | | | Gross written premiums | | | $ | 46,654 | | | $ | 559,949 | | | $ | 0 | | | $ | 606,603 | | Net written premiums | | | $ | 46,654 | | | $ | 501,513 | | | $ | 0 | | | $ | 548,167 | | Net earned premiums | | | $ | 53,384 | | | $ | 514,315 | | | $ | 0 | | | $ | 567,699 | | Net investment income | | | 56,890 | | | | 24,609 | | | | (42,176 | ) | | | 39,323 | | | | 17,186 | | | | 20,348 | | | | (9,142 | ) | | | 28,392 | | Net realized investment gains (losses) | | | (641 | ) | | | 2,217 | | | | — | | | | 1,576 | | | Net realized investment losses | | | | (3,867 | ) | | | (10,795 | ) | | | 0 | | | | (14,662 | ) | Other income | | | 216 | | | | 6,366 | | | | — | | | | 6,582 | | | | 148 | | | | 1,970 | | | | 0 | | | | 2,118 | | | | | | | | | | | | | | | | Total revenues | | | 257,630 | | | | 270,061 | | | | (42,176 | ) | | | 485,515 | | | | 66,851 | | | | 525,838 | | | | (9,142 | ) | | | 583,547 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 94,903 | | | | 174,309 | | | | — | | | | 269,212 | | | | 12,874 | | | | 323,327 | | | | 0 | | | | 336,201 | | Acquisition costs and other underwriting expenses | | | 89,153 | | | | 94,580 | | | | — | | | | 183,733 | | | | 17,827 | | | | 197,780 | | | | 0 | | | | 215,607 | | Corporate and other operating expenses | | | 17,399 | | | | 8,315 | | | | — | | | | 25,714 | | | | 23,357 | | | | 18,641 | | | | 0 | | | | 41,998 | | Interest expense | | | 16,740 | | | | 42,342 | | | | (42,176 | ) | | | 16,906 | | | | 869 | | | | 24,065 | | | | (9,142 | ) | | | 15,792 | | | | | | | | | | | | | | | | Loss on extinguishment of debt | | | | 3,060 | | | | 0 | | | | 0 | | | | 3,060 | | Income (loss) before income taxes | | $ | 39,435 | | | $ | (49,485 | ) | | $ | — | | | $ | (10,050 | ) | | $ | 8,864 | | | $ | (37,975 | ) | | $ | 0 | | | $ | (29,111 | ) | | | | | | | | | | | | | | |
| Year Ended December 31, 2016: (Dollars in thousands) | | Non-U.S.
Subsidiaries | | | U.S.
Subsidiaries | | | Eliminations | | | Total | | | Year Ended December 31, 2019 (Dollars in thousands) | | | Non-U.S. Subsidiaries | | | U.S. Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 201,726 | | | $ | 506,061 | | | $ | (141,942 | ) | | $ | 565,845 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 201,690 | | | $ | 269,250 | | | $ | — | | | $ | 470,940 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 212,325 | | | $ | 256,140 | | | $ | — | | | $ | 468,465 | | | Gross written premiums | | | $ | 88,282 | | | $ | 548,579 | | | $ | 0 | | | $ | 636,861 | | Net written premiums | | | $ | 88,285 | | | $ | 473,804 | | | $ | 0 | | | $ | 562,089 | | Net earned premiums | | | $ | 75,961 | | | $ | 449,301 | | | $ | 0 | | | $ | 525,262 | | Net investment income | | | 48,807 | | | | 19,341 | | | | (34,165 | ) | | | 33,983 | | | | 29,307 | | | | 26,816 | | | | (14,071 | ) | | | 42,052 | | Net realized investment gains (losses) | | | (89 | ) | | | 21,810 | | | | — | | | | 21,721 | | | Net realized investment gains | | | | 3,121 | | | | 32,221 | | | | 0 | | | | 35,342 | | Other income (loss) | | | (224 | ) | | | 10,569 | | | | — | | | | 10,345 | | | | (165 | ) | | | 1,981 | | | | 0 | | | | 1,816 | | | | | | | | | | | | | | | | Total revenues | | | 260,819 | | | | 307,860 | | | | (34,165 | ) | | | 534,514 | | | | 108,224 | | | | 510,319 | | | | (14,071 | ) | | | 604,472 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 95,812 | | | | 168,191 | | | | — | | | | 264,003 | | | | 36,502 | | | | 238,900 | | | | 0 | | | | 275,402 | | Acquisition costs and other underwriting expenses | | | 94,749 | | | | 101,901 | | | | — | | | | 196,650 | | | | 23,610 | | | | 184,793 | | | | 0 | | | | 208,403 | | Corporate and other operating expenses | | | 9,035 | | | | 8,303 | | | | — | | | | 17,338 | | | | 7,462 | | | | 11,426 | | | | 0 | | | | 18,888 | | Interest expense | | | 8,312 | | | | 34,758 | | | | (34,165 | ) | | | 8,905 | | | | 1,409 | | | | 32,684 | | | | (14,071 | ) | | | 20,022 | | | | | | | | | | | | | | | | Income (loss) before income taxes | | $ | 52,911 | | | $ | (5,293 | ) | | $ | — | | | $ | 47,618 | | | | | | | | | | | | | | | | | Income before income taxes | | | $ | 39,241 | | | $ | 42,516 | | | $ | 0 | | | $ | 81,757 | |
Year Ended December 31, 2018 (Dollars in thousands) | | Non-U.S. Subsidiaries | | | U.S. Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross written premiums | | $ | 48,050 | | | $ | 499,847 | | | $ | 0 | | | $ | 547,897 | | Net written premiums | | $ | 48,041 | | | $ | 424,506 | | | $ | 0 | | | $ | 472,547 | | Net earned premiums | | $ | 135,826 | | | $ | 331,949 | | | $ | 0 | | | $ | 467,775 | | Net investment income | | | 49,699 | | | | 27,294 | | | | (30,651 | ) | | | 46,342 | | Net realized investment losses | | | (669 | ) | | | (16,238 | ) | | | 0 | | | | (16,907 | ) | Other income (losses) | | | (210 | ) | | | 1,938 | | | | 0 | | | | 1,728 | | Total revenues | | | 184,646 | | | | 344,943 | | | | (30,651 | ) | | | 498,938 | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 91,178 | | | | 243,447 | | | | 0 | | | | 334,625 | | Acquisition costs and other underwriting expenses | | | 57,487 | | | | 133,291 | | | | 0 | | | | 190,778 | | Corporate and other operating expenses | | | 12,234 | | | | 17,532 | | | | 0 | | | | 29,766 | | Interest expense | | | 7,108 | | | | 43,237 | | | | (30,651 | ) | | | 19,694 | | Income (loss) before income taxes | | $ | 16,639 | | | $ | (92,564 | ) | | $ | 0 | | | $ | (75,925 | ) |
| | | | | | | | | | | | | | | | | Year Ended December 31, 2015: (Dollars in thousands) | | Non-U.S.
Subsidiaries | | | U.S.
Subsidiaries | | | Eliminations | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 345,392 | | | $ | 540,500 | | | $ | (295,659 | ) | | $ | 590,233 | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 345,342 | | | $ | 155,902 | | | $ | — | | | $ | 501,244 | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 283,448 | | | $ | 220,695 | | | $ | — | | | $ | 504,143 | | Net investment income | | | 44,534 | | | | 18,011 | | | | (27,936 | ) | | | 34,609 | | Net realized investment losses | | | (1,039 | ) | | | (2,335 | ) | | | — | | | | (3,374 | ) | Other income (loss) | | | (93 | ) | | | 3,493 | | | | — | | | | 3,400 | | | | | | | | | | | | | | | | | | | Total revenues | | | 326,850 | | | | 239,864 | | | | (27,936 | ) | | | 538,778 | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 141,444 | | | | 133,924 | | | | — | | | | 275,368 | | Acquisition costs and other underwriting expenses | | | 122,999 | | | | 78,304 | | | | — | | | | 201,303 | | Corporate and other operating expenses | | | 5,928 | | | | 18,520 | | | | — | | | | 24,448 | | Interest expense | | | 4,492 | | | | 28,357 | | | | (27,936 | ) | | | 4,913 | | | | | | | | | | | | | | | | | | | Income (loss) before income taxes | | $ | 51,987 | | | $ | (19,241 | ) | | $ | — | | | $ | 32,746 | | | | | | | | | | | | | | | | | | |
The following table summarizes the components of income tax expense (benefit): | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Current income tax expense (benefit): | | | | | | | | | | | | | | | | | | | Foreign | | $ | 392 | | | $ | 330 | | | $ | 263 | | | $ | 0 | | | $ | (41 | ) | | $ | 325 | | U.S. Federal | | | 127 | | | | 147 | | | | (1,785 | ) | | | 163 | | | | 0 | | | | 0 | | | | | | | | | | | | | Total current income tax expense (benefit) | | | 519 | | | | 477 | | | | (1,522 | ) | | | 163 | | | | (41 | ) | | | 325 | | Deferred income tax expense (benefit): | | | | | | | | | | | | | | | | | | | U.S. tax rate change | | | 17,524 | | | | — | | | | — | | | U.S. Federal | | | (18,542 | ) | | | (2,727 | ) | | | (7,201 | ) | | | (8,268 | ) | | | 11,783 | | | | (19,554 | ) | | | | | | | | | | | | Total deferred income tax (benefit) | | | (1,018 | ) | | | (2,727 | ) | | | (7,201 | ) | | | | | | | | | | | | | Total income tax (benefit) | | $ | (499 | ) | | $ | (2,250 | ) | | $ | (8,723 | ) | | | | | | | | | | | | | Total deferred income tax expense (benefit) | | | | (8,268 | ) | | | 11,783 | | | | (19,554 | ) | Total income tax expense (benefit) | | | $ | (8,105 | ) | | $ | 11,742 | | | $ | (19,229 | ) |
The weighted average expected tax provision has been calculated using income (loss) before income taxes in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate.
The following table summarizes the differences between the tax provision for financial statement purposes and the expected tax provision at the weighted average tax rate: | | | | Years Ended December 31, | | | Years Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | | (Dollars in thousands) | | Amount | | % of Pre-
Tax Income | | Amount | | % of Pre-
Tax Income | | Amount | | % of Pre-
Tax Income | | | Amount | | | % of Pre- Tax Income | | | Amount | | | % of Pre- Tax Income | | | Amount | | | % of Pre- Tax Income | | Expected tax provision at weighted average | | $ | (16,928 | ) | | (168.4 | %) | | $ | (1,496 | ) | | (3.1 | %) | | $ | (6,434 | ) | | (19.6 | %) | | $ | (7,975 | ) | | | 27.4 | % | | $ | 8,928 | | | | 10.9 | % | | $ | (19,112 | ) | | | 25.2 | % | Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tax exempt interest | | | (213 | ) | | (2.1 | ) | | (394 | ) | | (0.8 | ) | | (441 | ) | | (1.3 | ) | | | (2 | ) | | | 0 | | | | (3 | ) | | | 0 | | | | (6 | ) | | | 0 | | Dividend exclusion | | | (571 | ) | | (5.7 | ) | | (617 | ) | | (1.3 | ) | | (784 | ) | | (2.4 | ) | | | (202 | ) | | | 0.7 | | | | (284 | ) | | | (0.3 | ) | | | (279 | ) | | | 0.4 | | Tax rate change | | | 17,524 | | | 174.4 | | | | — | | | | — | | | | — | | | | — | | | Non-deductible interest | | | | 1,773 | | | | (6.1 | ) | | | 2,714 | | | | 3.3 | | | | 356 | | | | (0.5 | ) | Change in tax status | | | | (1,704 | ) | | | 5.8 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Parent income treated as partnership for tax | | | | (533 | ) | | | 1.8 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Other | | | (311 | ) | | (3.2 | ) | | 257 | | | 0.5 | | | (1,064 | ) | | (3.3 | ) | | | 538 | | | | (1.8 | ) | | | 387 | | | | 0.5 | | | | (188 | ) | | | 0.2 | | | | | | | | | | | | | | | | | | | | | | Effective income tax benefit | | $ | (499 | ) | | (5.0 | %) | | $ | (2,250 | ) | | (4.7 | %) | | $ | (8,723 | ) | | (26.6 | %) | | | | | | | | | | | | | | | | | | | | | | Effective income tax expense (benefit) | | | $ | (8,105 | ) | | | 27.8 | % | | $ | 11,742 | | | | 14.4 | % | | $ | (19,229 | ) | | | 25.3 | % |
The effective income tax benefit rate for 20172020 was 5.0%27.8%, compared with an effective income tax expense rate of 14.4% and an effective income tax benefit rate of 4.7%25.3% for 2019 and 26.6% for 2016 and 2015,2018, respectively. The increase in the effective income tax benefit rate in 2017 compared to 2016for 2020 is primarily due to incurring a provisional tax expensepre-tax loss of $17.5 million related to the reduction in the deferred tax asset as a result of the TCJA enacted on December 22, 2017 which lowered the U.S. tax rate from 35% to 21% offset by $18.4 million tax benefit due to an increase in losses incurred in the Company’s U.S. operations for 2017subsidiaries in 2020 as compared to 2016.pre-tax income in 2019. In addition, the income tax benefit for 2020 was also impacted by a change in tax status which is the income tax benefit recognized on net insurance liabilities that were redomiciled from Bermuda at a 0% tax rate to the United States at a 21% tax rate. The decreaseincrease in the effective income tax benefitexpense rate in 20162019 compared to 20152018 is primarily due to capital gainshigher pretax income in 2016. Financial results for the year ended December 31, 2017 reflect provisional amounts related to the December 22, 2017 enactment of the TCJA. These provisional estimates are based on the Company’s initial analysis and current interpretation of the legislation. Given the complexity of the legislation, anticipated guidance from the U.S. Treasury, and the potential for additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board, these estimates may be adjusted during 2018.in 2019.
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at December 31, 20172020 and 20162019 are presented below: | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2020 | | | 2019 | | Deferred tax assets: | | | | | | | | | | | | | Discounted unpaid losses and loss adjustment expenses | | $ | 3,625 | | | $ | 7,015 | | | $ | 7,490 | | | $ | 3,681 | | Unearned premiums | | | 5,318 | | | | 8,802 | | | | 11,703 | | | | 10,234 | | Section 163(j) carryforward | | | 7,906 | | | | 8,075 | | | | 5,580 | | | | 9,023 | | Alternative minimum tax credit carryover | | | — | | | | 10,957 | | | Net operating loss carryforward | | | 16,323 | | | | 3,205 | | | | 26,220 | | | | 21,871 | | Partnership K1 basis differences | | | 130 | | | | 238 | | | | 796 | | | | 1,703 | | Capital gain on derivative instruments | | | 1,673 | | | | 4,033 | | | Loss on derivative instruments | | | | 3,450 | | | | 2,158 | | Investment impairments | | | 1,742 | | | | 3,419 | | | | 147 | | | | 1 | | Stock options | | | 1,740 | | | | 2,820 | | | | 1,546 | | | | 1,352 | | Stat-to-GAAP reinsurance reserve | | | 1,014 | | | | 1,337 | | | | 1,517 | | | | 874 | | Intercompany transfers | | | 317 | | | | 808 | | | Depreciation and amortization | | | | 863 | | | | 0 | | Other | | | 3,249 | | | | 4,986 | | | | 1,860 | | | | 1,840 | | | | | | | | | | Total deferred tax assets | | | 43,037 | | | | 55,695 | | | | 61,172 | | | | 52,737 | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | | | | | Purchase accounting adjustment for American Reliable | | | 7,723 | | | | 6,095 | | | Intangible assets | | | 2,394 | | | | 3,942 | | | | 4,505 | | | | 3,112 | | Unrealized gain on securitiesavailable-for-sale and investments in limited partnerships included in accumulated other comprehensive income | | | 3,105 | | | | 352 | | | | 7,996 | | | | 2,950 | | Investment basis differences | | | 211 | | | | 484 | | | Unrealized gain on equity securities | | | | 182 | | | | 3,438 | | Deferred acquisition costs | | | 1,921 | | | | 2,941 | | | | 13,691 | | | | 11,608 | | Depreciation and amortization | | | 285 | | | | 119 | | | | 0 | | | | 436 | | Other | | | 1,202 | | | | 805 | | | | 533 | | | | 116 | | | | | | | | | | Total deferred tax liabilities | | | 16,841 | | | | 14,738 | | | | 26,907 | | | | 21,660 | | | | | | | | | | Total net deferred tax assets | | $ | 26,196 | | | $ | 40,957 | | | $ | 34,265 | | | $ | 31,077 | | | | | | | | | |
The deferred tax assets and deferred tax liabilities listed in the table above relate to temporary differences between the Company’s accounting and tax carrying values and carryforwards for its companies in the United States. The net deferred tax asset at December 31, 2017 includes a $17.5 million reduction as a result of the TCJA enacted on December 22, 2017. The new tax law reduces the Company’s U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the Company reduced its net deferred tax assets at December 31, 2017 and recorded a provisional deferred tax expense of $17.5 million increasing the effective tax rate for the year ending December 31, 2017 by 174.4%. Management believes it is more likely than not that the remaining deferred tax assets will be completely utilized in future years. As a result, the Company has not recorded a valuation allowance at December 31, 20172020 and 2016.2019.
The Company has an alternative minimum tax (“AMT”) credit carryforward of $11.0 million as of December 31, 2017 and 2016. The TCJA repealed the corporate AMT. The AMT credit carryforward of $11.0 million was reclassed to federal income taxes receivable at December 31, 2017 and will be fully refunded by the end of 2021. The Company has a net operating loss (“NOL”) carryforward of $16.3$26.2 million as of December 31, 2017,2020, which begins to expire in 20352036 based on when the original NOL was generated. The Company’s NOL carryforward as of December 31, 20162019 was $3.2$21.9 million.
The Company has a Section 163(j) (“163(j)”) carryforward of $7.9 $5.6 million and $8.1$9.0 million as of December 31, 20172020 and 2016,2019, respectively, which can be carried forward indefinitely. The 163(j) carryforward isrelates to the limitation on the deduction for disqualifiedbusiness interest expense paid or accrued toaccrued.
The Company had an alternative minimum tax (“AMT”) credit carryforward of $11.0 million as of December 31, 2019. Under the provisions of the CARES Act, the Company filed a related entity that is not subject to U.S. tax.request for a full refund in 2020. The Company received $11.0 million of the AMT credit carryforward during the year ended December 31, 2020. The Company and some of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various U.S. states and certain foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2014. Should the Company’s subsidiaries that are subject to income taxes imposed by the U.S. authorities pay a dividend to their foreign affiliates, withholding taxes would apply. The Company has not recorded deferred taxes for potential withholding tax on undistributed earnings. The Company believes, although there can be no assurances, that it qualifies for treaty benefits under the Tax Convention with Luxembourg and would be subject to a 5% withholding tax if it were to pay a dividend. Determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable because of the complexities with its hypothetical calculation. The Company did not pay any dividends from a U.S. subsidiary to a foreign affiliate during 2017, 2016, or 2015.2017.
The Company applies amore-likely-than-not recognition threshold for all tax uncertainties whereby it only recognizes those tax benefits that have a greater than 50% likelihood of being sustained upon examination by therelevant taxing authorities. The Company had no unrecognizedAll tax benefits during 2017 or 2016.recognized by the Company in 2020, 2019, and 2018 have a greater than 50% likelihood of being sustained upon examination by relevant taxing authorities. The Company classifies all interest and penalties related to uncertain tax positions as income tax expense. The Company did not0t incur any interest and penalties related to uncertain tax positions during the years ended December 31, 2017, 20162020, 2019 and 2015.2018. As of December 31, 2017,2020, the Company did not0t record any liabilities fortax-related interest and penalties on its consolidated balance sheets. 11. | Liability for Unpaid Losses and Loss Adjustment Expenses |
Consolidated Activity Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | 2016 | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Balance at beginning of period | | $ | 651,042 | | | $ | 680,047 | | | $ | 675,472 | | | $ | 630,181 | | | $ | 680,031 | | | $ | 634,664 | | Less: Ceded reinsurance receivables | | 130,439 | | | 108,130 | | | 123,201 | | | | 76,273 | | | | 109,342 | | | | 97,243 | | | | | | | | | | | | | Net balance at beginning of period | | 520,603 | | | 571,917 | | | 552,271 | | | | 553,908 | | | | 570,689 | | | | 537,421 | | Purchased reserves, gross | | 19,333 | | | 2,007 | | | 89,489 | | | Less: Purchased reserves ceded | | (29 | ) | | (45 | ) | | 12,800 | | | | | | | | | | | | | | Purchase reserves, net of third party reinsurance | | 19,362 | | | 2,052 | | | 76,689 | | | | | | | | | | | | | | Incurred losses and loss adjustment expenses related to: | | | | | | | | | | | | | | | | | | | Current year | | 323,112 | | | 321,255 | | | 310,066 | | | | 367,739 | | | | 308,211 | | | | 363,423 | | Prior years | | (53,900 | ) | | (57,252 | ) | | (34,698 | ) | | | (31,538 | ) | | | (32,809 | ) | | | (28,798 | ) | | | | | | | | | | | | Total incurred losses and loss adjustment expenses | | 269,212 | | | 264,003 | | | 275,368 | | | | 336,201 | | | | 275,402 | | | | 334,625 | | | | | | | | | | | | | Paid losses and loss adjustment expenses related to: | | | | | | | | | | | | | | | | | | | Current year | | 156,325 | | | 177,006 | | | 164,058 | | | | 183,109 | | | | 146,128 | | | | 173,545 | | Prior years | | 115,431 | | | 140,363 | | | 168,353 | | | | 126,347 | | | | 146,055 | | | | 127,812 | | | | | | | | | | | | | Total paid losses and loss adjustment expenses | | 271,756 | | | 317,369 | | | 332,411 | | | | 309,456 | | | | 292,183 | | | | 301,357 | | | | | | | | | | | | | Net balance at end of period | | 537,421 | | | 520,603 | | | 571,917 | | | | 580,653 | | | | 553,908 | | | | 570,689 | | Plus: Ceded reinsurance receivables | | 97,243 | | | 130,439 | | | 108,130 | | | | 82,158 | | | | 76,273 | | | | 109,342 | | | | | | | | | | | | | Balance at end of period | | $ | 634,664 | | | $ | 651,042 | | | $ | 680,047 | | | $ | 662,811 | | | $ | 630,181 | | | $ | 680,031 | | | | | | | | | | | | |
When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserve estimates. During 2017,2020, the Company reduced its prior accident year loss reserves by $53.9$31.5 million, which consisted of a $39.4$17.6 million decrease related to Commercial Lines,Specialty, a $6.6 million decrease related to Personal Lines,Specialty Property, a $2.3 million decrease related to Farm, Ranch & Stable, and a $7.9$5.0 million decrease related to Reinsurance Operations.
The $39.4$17.6 million reduction of prior accident year loss reserves related to Commercial LinesSpecialty primarily consisted of the following: General Liability:A $26.9 million reduction in aggregate with $6.9 million of favorable development in the construction defect reserve category and $20.0 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category recognizes lower than anticipated claims frequency and severity which led to reductions primarily in the 2005 through 2016 accident years. | • | General Liability: A $20.4 million reduction in aggregate with $6.6 million of favorable development in the construction defect reserve category and $13.8 million of favorable development in the other general liability reserve categories. The reduction in the construction defect reserve category primarily recognizes lower than expected claims frequency and severity in the 2005 through 2009, 2012, 2015 and 2017 accident years, slightly offset by an increase in the 2016 accident year. For the other general liability reserve categories, lower than expected claims severity was the primary driver of the favorable development mainly in the 2005 through 2014 accident years.Professional Liability: A $5.8 million decrease in aggregate primarily reflects lower than expected claims severity in the 2006 through 2008 and 2011 through 2012 accident years.
Property: A $6.3 million reduction in aggregate with $4.0 million of favorable development in the property excluding catastrophe reserve categories and $2.3 million of favorable development in the
| property catastrophe reserve categories. The favorable development in the reserve categories excluding catastrophe experience reflects lower than expected claims severity in the 2011 through 2015 accident years. For the property catastrophe reserve categories, lower than anticipated claims severity was the main driver of the favorable development primarily in the 20112005 through 2015 accident years, partially offset by increases in the 2016 through 2019 accident years.
|
| • | Professional Liability: A $1.8 million decrease mainly in the 2007 through 2010 and 2019 accident years recognizes lower than expected claims severity, partially offset by an increase in the 2006 accident year. |
| • | Commercial Auto Liability: A $1.0 million reduction primarily in the 2010 and 2012 through 2016 accident years.years recognizes lower than anticipated claims severity. |
Workers Compensation: A $0.5 million reduction primarily due to lower than expected case incurred emergence in the 2011 | • | Property: A $5.8 million increase primarily recognizes higher than expected claims severity mainly in the 2013 and 2015 through 2018 accident years, partially offset by a decrease in the 2014 accident year. The bulk of the increase was in the 2018 accident year which reflects a higher estimated ultimate for Hurricane Michael. The increase in ultimate resulted from receiving additional information during the year for a Property Brokerage claim. |
| • | Workers Compensation: A $0.2 million decrease primarily in loss adjustment expense reserves in the 2012 accident year and accident years prior to 2005. |
The $6.6 million reduction of prior accident year loss reserves related to Personal LinesSpecialty Property primarily consisted of the following: | • | Property: A $4.5 million decrease reflects a decrease in the 2017 accident year catastrophe reserve categories for subrogation recoveries from the California wildfires and mainly recognizes lower than anticipated claims severity in the 2015 through 2018 accident years, partially offset by an increase in the 2019 accident year due to higher than expected claims severity. |
| • | General Liability: A $2.1 million decrease primarily recognizes lower than expected claims severity mainly in the 2015 through 2019 accident years. |
The $2.3 million reduction of prior accident year loss reserves related to Farm, Ranch & Stable primarily consisted of the following: | • | Property: A $2.0 million decrease mainly reflects lower than anticipated claims severity in the 2016 through 2018 accident years and a reduction in the catastrophe reserve category in the 2017 accident year for subrogation recoveries from the California wildfires, partially offset by an increase in the 2019 accident year. |
Property: A $6.1 | • | Liability: A $0.3 million decrease primarily recognizes lower than expected claims severity mainly in the 2009 and 2015 through 2019 accident years, mostly offset by increases in the 2007 and 2013 accident years due to higher than anticipated claims severity. |
The $5.0 million reductiondecrease in prior accident year loss reserves related to Reinsurance Operations were primarily based on a review of the experience reported from cedants. There was a $2.9 million decrease in the property reserve categories. The decrease reflects lower than expected case incurred emergence primarilylines in the 20162009 through 2018 accident year and favorable development from the Butte wildfire subrogation recovery in the 2015 accident year. General Liability:A $0.5 million reduction reflects lower than expected case incurred emergence in the 2016 accident year, primarily in the agriculture reserve category,years, partially offset by adverse developmentan increase in the 2019 accident year. In addition, there was a reduction of $1.7 million in the professional lines in the 2014 and 2015 accident year reflecting higher than anticipated case incurred emergence mainlyyears and a reduction of $0.4 million in the dwelling reserve category.liability & workers compensation lines in the 2009 through 2012 accident years. During 2019, the Company reduced its prior accident year loss reserves by $32.8 million, which consisted of a $18.4 million decrease related to Commercial Specialty, $10.8 million decrease related to Specialty Property, $5.5 million decrease related to Farm, Ranch & Stable, and a $1.9 million increase related to Reinsurance Operations.
The $18.4 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following: | • | General Liability: A $14.5 million reduction in aggregate with $3.5 million of favorable development in the construction defect reserve category and $11.0 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category recognizes better than expected claims frequency and severity in the 2004 through 2009, 2011 through 2015, 2017 and 2018 accident years, partially offset by increases in the 2010 and 2016 accident years which reflects higher than anticipated claims severity. The decreases in the other general liability reserve categories primarily recognizes lower than anticipated claims severity in the 1999 through 2014, 2016 and 2017 accident years, partially offset by an increase in the 2015 accident year which was impacted by higher than expected claims severity. |
| • | Commercial Auto Liability: A $2.0 million decrease primarily driven by better than expected claims severity in the 2000 through 2002, 2010 through 2013, 2015 and 2016 accident years. |
| • | Professional Liability: A $1.9 million reduction primarily in the 2007 through 2011 accident years recognizes better than expected claims severity. |
| • | Property: A $0.9 million decrease in aggregate mainly due to lower than anticipated claims severity in the 2012 through 2016 accident years, partially offset by increases in the 2010, 2017 and 2018 accident years which were impacted by higher than expected claims severity. |
| • | Reinsurance: A $1.0 million increase was recognized based on a review of expected ceded recoverables by reinsurer. The increase was primarily in the general liability reserve categories and older accident years. |
The $10.8 million reduction of prior accident year loss reserves related to Specialty Property primarily consisted of the following: | • | Property: A $10.2 million decrease in aggregate primarily recognizes a reduction in the catastrophe reserve category for subrogation recoveries from the California Camp wildfire loss in the 2018 accident year. There also was favorable development in accident years 2015 through 2017 reflecting better than expected claims severity. |
| • | General Liability: A $0.6 million decrease primarily recognizes lower than expected claims severity in the 2014 through 2016 and 2018 accident years, partially offset by increases in the 2010 and 2017 accident years, recognizing higher than expected claims severity. |
The $5.5 million reduction of prior accident year loss reserves related to Farm, Ranch & Stable primarily consisted of the following: | • | Property: A $3.9 million decrease in aggregate in the 2015 through 2018 accident years primarily reflects lower than expected claims severity. Also, there were ceded recoveries from a second accident quarter catastrophe in the 2018 accident year leading to favorable development in that year. |
| • | Liability: A $1.6 million decrease primarily in the 2015 through 2017 accident years recognizes lower than anticipated claims severity, partially offset by increases in the 2013, 2014, and 2018 accident years which reflects higher than expected claims severity. |
The $1.9 million increase in prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following: | • | Property: A $5.0 million increase primarily in the 2016 through 2018 accident years partially offset by favorable development in the 2011 through 2015 accident years based on a review of the experience reported from the cedants. The 2018 accident year was adversely impacted by $9.0 million of development from Typhoon Jebi. |
| • | Professional Liability: A $3.1 million decrease was recognized in the 2008, 2010 and 2013 through 2015 accident years, partially offset by an increase in the 2007 accident year based on a review of the experience reported from the cedants. |
During 2018, the Company reduced its prior accident year loss reserves by $28.8 million, which consisted of a $7.3 million decrease related to Commercial Specialty, $7.9 million decrease related to Specialty Property, $4.7 million decrease related to Farm, Ranch & Stable, and a $8.9 million decrease related to Reinsurance Operations.
The $7.3 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following: | • | General Liability: A $1.3 million reduction in reserve categories excluding construction defect. Lower than expected claims severity was the primary driver of the favorable development, mainly in the 2002 through 2004, 2006 through 2010, and 2012 through 2014 accident years which was partially offset by increases in the 2011 and 2015 through 2017 accident years. |
| • | Commercial Auto Liability: A $3.2 million decrease in the aggregate primarily due to a reduction in the 2010, 2012 and 2013 accident years resulting from lower than anticipated claims severity partially offset by an increase in the 2015 and 2017 accident years. |
| • | Professional Liability: A $0.9 million decrease reflects lower than expected claims severity mainly in the 2008, 2011, and 2014 accident years. |
| • | Property: A $1.9 million decrease in the aggregate recognizes lower than anticipated claims severity primarily in the 2007, 2014, 2015, and 2017 accident years partially offset by an increase in the 2016 accident year. |
The $7.9 million reduction of prior accident year loss reserves related to Reinsurance Operations wasSpecialty Property primarily from the property lines for accident years 2008 through 2016. Ultimate losses were lowered in these accident years based on reviewconsisted of the experience reported from cedants.following: During 2016, the Company reduced its prior accident year loss reserves by $57.3 million, which consisted of a $43.8 million decrease related to Commercial Lines and a $13.5 million decrease related to Reinsurance Operations.
| • | Property: A $5.7 million reduction in the property reserve categories. The decrease reflects lower than anticipated claims severity primarily in the 2014 through 2017 accident years. |
| • | General Liability: A $2.2 million decrease primarily in the 2011 through 2014 and 2016 through 2017 accident years, which recognizes lower than expected claims severity, partially offset by an increase in the 2015 accident year which reflects higher than expected claims severity. |
The $43.8 million$4.7 reduction of prior accident year loss reserves related to Commercial LinesFarm, Ranch & Stable primarily consisted of the following: Property: A $0.8 million increase in aggregate with a $0.5 million increase in thenon-catastrophe segments and $0.3 million increase in the catastrophe segments. The increases reflect higher than expected case incurred emergence, primarily in the 2009, 2012, and 2015 accident years. The increases were partially offset by decreases in the 2008, 2011, and 2013 accident years due to better than expected case incurred emergence in those accident years. | • | Property: A $1.3 million reduction primarily in the 2014 through 2017 accident years mainly reflects lower than expected claims severity. |
General Liability:A $43.8 million reduction in aggregate, within the casualty lines, with $9.4 million of favorable development in the construction defect reserve category and $34.4 million of favorable development in the other general liability reserve categories. For the construction defect reserve category, lower than expected frequency and severity led to favorable development in accident years 2005 through 2015. Lower than expected claims severity was the driver of the favorable development in the other general liability reserve categories, primarily in the 2004 through 2014 accident years.
Marine: A $1.4 million decrease in accident years 2010 through 2012 was driven by less than expected case incurred emergence in these years which is primarily within the casualty lines. | • | Liability: A $3.4 million decrease reflects lower than expected claims severity primarily in the 2012, 2014, 2016 and 2017 accident years, partially offset by increases in the 2007 and 2013 accident years recognizing higher than anticipated claims severity. |
The $13.5$8.9 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily from the property lines for accident years 20102007, 2009 through 2015. Ultimate losses2012, 2015, and 2016 partially offset by increases in the 2013, 2014, and 2017 accident years. The accident year changes were lowered in these accident years based on reviewsa review of the experience reported from cedants. During 2015, the Company reduced its prior accident year loss reserves by $34.7 million, which consisted of a $25.2 million decrease related to Commercial Lines, a $0.4 million decrease related to Personal Lines, and a $9.1 million decrease related to Reinsurance Operations.
The $25.2 million reduction of prior accident year loss reserves related to Commercial Lines primarily consisted of the following:
General Liability: A $20.4 million reduction in aggregate, within the casualty lines, with $5.9 million of favorable development in the construction defect reserve category and $14.5 million of favorable development in the other general liability reserve categories. In the construction defect reserve category, a reduction in both claims frequency and severity was observed across several accident years which contributed to the recognition of favorable development primarily in accident years 2008 through 2014. For general liability excluding construction defect, lower than expected claims severity was experienced across multiple accident years leading to the recognition of favorable development in accident years 2004 through 2014.
Professional: A $6.2 million decrease in aggregate primarily related to better than anticipated claims frequency and severity in accident years 2006 through 2011 which is within the casualty lines.
Umbrella: A $1.6 million increase related to late case incurred emergence which contributed to the recognition of adverse development primarily in accident years 1990, 1995, 2001, 2007, and 2013. There is a small portion that is related to accidents years prior to 1990.
The $0.4 million reduction of prior accident year loss reserves related to Personal Lines primarily consisted of lower than expected case incurred emergence in the 2013 accident year.
The $9.1 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily driven by $6.8 million of favorable development in property mainly due to accident years 2011 through 2014 and $2.8 million of favorable development in the marine product mainly due to accident years 2010 and 2011, partially offset by adverse development of $1.0 million in workers compensation mainly due to accident year 2010. Ultimate losses from quota share underwriting years 2013 and prior were booked to the amount reported from cedants and reserve releases on legacy contracts due to better than anticipated case incurred emergence led to the recognition of favorable development.
Prior to 2001, the Company underwrote multi-peril business insuring general contractors, developers, andsub-contractors primarily involved in residential construction that has resulted in significant exposure to construction defect (“CD”) claims. The Company’s reserves for CD claims are established based upon management’s best estimate in consideration of known facts, existing case law and generally accepted actuarial methodologies. However, due to the inherent uncertainty concerning this type of business, the ultimate exposure for these claims may vary significantly from the amounts currently recorded. As of December 31, 20172020 and 2016,2019, gross reserves for CD claims were $43.8$31.4 million and $54.5$36.9 million, respectively, and net reserves for CD claims were $40.2$29.8 million and $48.6$35.4 million, respectively. The Company has exposure to asbestos and environmental (“A&E”) claims. The asbestos exposure primarily arises from the sale of product liability insurance, and the environmental exposure arises from the sale of general liability and commercial multi-peril insurance. In establishing the liability for unpaid losses and loss adjustment expenses related to A&E exposures, management considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilities have been established to cover additional exposures on both known and unasserted claims. Estimates of the liabilities are reviewed and updated regularly. Case law continues to evolve for such claims, and uncertainty exists about the outcome of coverage litigation and whether past claim experience will be representative of future claim experience. Included in net unpaid losses and loss adjustment expenses as of December 31, 2017, 2016,2020, 2019, and 20152018 were IBNR reserves of $26.9$27.3 million, $26.7$27.1 million, and $26.0$27.4 million, respectively, and case reserves of approximately $3.3$1.4 million, $3.2$2.0 million, and $4.5$2.1 million, respectively, for knownA&E-related claims.
The following table shows the Company’s gross reserves for A&E losses: | | | | | | | | | | | | | | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | Gross reserve for A&E losses and loss adjustment expenses — beginning of period | | $ | 51,919 | | | $ | 53,824 | | | $ | 56,535 | | Plus: Incurred losses and loss adjustment expenses — case reserves | | | 542 | | | | (669 | ) | | | 2,666 | | Plus: Incurred losses and loss adjustment expenses — IBNR | | | 928 | | | | 2,064 | | | | (2,663 | ) | Less: Payments | | | 1,516 | | | | 3,300 | | | | 2,714 | | | | | | | | | | | | | | | Gross reserves for A&E losses and loss adjustment expenses — end of period | | $ | 51,873 | | | $ | 51,919 | | | $ | 53,824 | | | | | | | | | | | | | | |
| | Years Ended December 31, | | (Dollars in thousands) | | 2020 | | | 2019 | | | 2018 | | Gross reserve for A&E losses and loss adjustment expenses – beginning of period | | $ | 48,825 | | | $ | 50,445 | | | $ | 51,873 | | Plus: Change in incurred losses and loss adjustment expenses | | | (259 | ) | | | (2 | ) | | | (1 | ) | Less: Payments | | | 973 | | | | 1,618 | | | | 1,427 | | Gross reserves for A&E losses and loss adjustment expenses – end of period | | $ | 47,593 | | | $ | 48,825 | | | $ | 50,445 | |
The following table shows the Company’s net reserves for A&E losses: | | | | | | | | | | | | | | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | Net reserve for A&E losses and loss adjustment expenses — beginning of period | | $ | 29,890 | | | $ | 30,529 | | | $ | 31,185 | | Plus: Incurred losses and loss adjustment expenses — case reserves | | | 769 | | | | (125 | ) | | | 395 | | Plus: Incurred losses and loss adjustment expenses — IBNR | | | 198 | | | | 631 | | | | (394 | ) | Less: Payments | | | 733 | | | | 1,145 | | | | 657 | | | | | | | | | | | | | | | Net reserves for A&E losses and loss adjustment expenses — end of period | | $ | 30,124 | | | $ | 29,890 | | | $ | 30,529 | | | | | | | | | | | | | | |
| | Years Ended December 31, | | (Dollars in thousands) | | 2020 | | | 2019 | | | 2018 | | Net reserve for A&E losses and loss adjustment expenses – beginning of period | | $ | 29,033 | | | $ | 29,524 | | | $ | 30,124 | | Plus: Change in incurred losses and loss adjustment expenses | | | 1 | | | | (1 | ) | | | 0 | | Less: Payments | | | 355 | | | | 490 | | | | 600 | | Net reserves for A&E losses and loss adjustment expenses – end of period | | $ | 28,679 | | | $ | 29,033 | | | $ | 29,524 | |
Establishing reserves for A&E and other mass tort claims involves more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage. The insurance industry continues to receive a substantial number of asbestos-related bodily injury claims, with an increasing focus being directed toward other parties, including installers of products containing asbestos rather than against asbestos manufacturers. This shift has resulted in significant insurance coverage litigation implicating applicable coverage defenses or determinations, if any, including but not limited to, determinations as to whether or not an asbestos-related bodily injury claim is subject to aggregate limits of liability found in most comprehensive general liability policies. As of December 31, 2017, 2016,2020, 2019, and 2015,2018, the survival ratio on a gross basis for the Company’s open A&E claims was 20.735.5 years, 13.832.1 years, and 15.024.2 years, respectively. As of December 31, 2017, 2016,2020, 2019, and 2015,2018, the survival ratio on a net basis for the Company’s open A&E claims was 35.659.5 years, 19.347.8 years, and 16.835.7 years, respectively. The survival ratio, which is the ratio of gross or net reserves to the3-year average of annual paid claims, is a financial measure that indicates how long the current amount of gross or net reserves are expected to last based on the current rate of paid claims. Line of Business Categories The following is information, presented by lines of business with similar characteristics including similar payout patterns, about incurred and paid claims development as of December 31, 2017,2020, net of reinsurance, as well as cumulative claim frequency and the total ofincurred-but-not-reported liabilities included within the net incurred claims amounts. The years included represent the number of years for which claims incurred typically remain outstanding but need not exceed 10 years including the most recent report period presented. The information about incurred and paid claims development for the years ended December 31, 20082010 to 2015,2019, is presented as required supplementary unaudited information. Commercial LinesSpecialty Property and Casualty Methodologies Commercial LinesSpecialty’s internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (“ALAE”) separately for property excluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarialreserve reviews were completed with data through December, 2017.2020. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to develop estimates of ultimate Loss & ALAE for most reserve categories. Additional actuarial methodologies were employed to develop estimates of ultimate Loss & ALAE for mass tort and constructions defect reserve categories due to the unique characteristics of the exposures involved. Management’s ultimate selections were based onconsidered the internal actuarial review and a third party actuarial review completed during the 4th quarter of 2017.2020. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves. These methodologies are consistent with last year. Commercial LinesSpecialty’s cumulative claim frequency has been calculated at the claim level and includes claims closed without payment.
Commercial Lines —Specialty – Property (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | Incurred Claims and Allocated
Claims Adjustment Expenses,
Net of Reinsurance For the Years
Ended December 31, | | | As of December 31, 2017 | | Accident Year | | 2015 | | | 2016 | | | 2017 | | | IBNR (1) | | | Cumulative
Number of Reported
Claims | | | | | (unaudited) | | | | | | | | | | | | | | 2015 | | $ | 63,574 | | | $ | 64,722 | | | $ | 62,575 | | | $ | 2,868 | | | | 4,649 | | 2016 | | | | | | | 61,990 | | | | 61,014 | | | | 5,097 | | | | 4,104 | | 2017 | | | | | | | | | | | 44,785 | | | | 8,583 | | | | 2,778 | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | | | | $ | 168,374 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | | | | | | | | For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2018 | | | 2019 | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | | | (unaudited) | | | (unaudited) | | | | | | | | | | | | | | 2018 | | $ | 60,555 | | | $ | 62,219 | | | $ | 66,925 | | | $ | 5,114 | | | | 2,698 | | 2019 | | | | | | | 54,853 | | | | 54,974 | | | | 2,543 | | | | 2,903 | | 2020 | | | | | | | | | | | 84,693 | | | | 14,729 | | | | 3,812 | | Total | | | $ | 206,592 | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Commercial Specialty – Property Commercial Lines — Property
(Dollars in thousands) | | | | | | | | | | | | | | | | Cumulative Paid Claims and Allocated
Claims Adjustment Expenses, Net of
Reinsurance For the Years Ended
December 31, | | Accident Year | | 2015 | | | 2016 | | | 2017 | | | | | (unaudited) | | | | | | | | 2015 | | $ | 41,942 | | | $ | 57,653 | | | $ | 58,926 | | 2016 | | | | | | | 39,643 | | | | 51,967 | | 2017 | | | | | | | | | | | 28,541 | | | | | | | | | | | | | | | Total | | | | | | | | | | | 139,434 | | All outstanding liabilities before 2015, net of reinsurance | | | | | | | | | | | 7,635 | | | | | | | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | | | | | | | | $ | 36,575 | | | | | | | |
| | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | For the Years Ended December 31, | | Accident Year | | 2018 | | | 2019 | | | 2020 | | | | (unaudited) | | | (unaudited) | | | | | | 2018 | | $ | 36,161 | | | $ | 54,400 | | | $ | 56,350 | | 2019 | | | | | | | 34,921 | | | | 48,737 | | 2020 | | | | | | | | | | | 51,119 | | Total | | | | 156,206 | | All outstanding liabilities before 2018, net of reinsurance | | | | 2,344 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 52,730 | |
The following is required supplementary information about average historical claims duration as of December 31, 2017:2020: | | | | Average Annual Percentage
Payout of Incurred Claims
by Age, Net of Reinsurance
(Unaudited) | | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | | Year | | 1 | | 2 | | 3 | | | 1 | | | 2 | | | 3 | | Commercial Lines — Property | | | 65.2 | % | | 22.7 | % | | 2.0 | % | | Commercial Specialty - Property | | | | 59.3 | % | | | 26.2 | % | | | 2.9 | % |
Commercial Lines —Specialty – Casualty (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | | | | | | Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31, | | As of December 31,
2017 | | | For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | IBNR (1) | | Cumulative
Number of
Reported
Claims | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | | | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | | | | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | | | | | | | | | 2008 | | $ | 138,417 | | | $ | 170,855 | | | $ | 160,325 | | | $ | 149,564 | | | $ | 148,019 | | | $ | 146,142 | | | $ | 138,558 | | | $ | 134,514 | | | $ | 129,894 | | | $ | 126,924 | | | $ | 7,096 | | | 6,191 | | | 2009 | | | | 93,748 | | | 96,956 | | | 104,518 | | | 104,803 | | | 104,392 | | | 96,206 | | | 94,016 | | | 91,297 | | | 88,384 | | | 7,444 | | | 3,896 | | | 2010 | | | | | | 79,188 | | | 101,830 | | | 102,252 | | | 101,113 | | | 94,484 | | | 91,368 | | | 84,681 | | | 82,824 | | | 10,785 | | | 3,503 | | | 2011 | | | | | | | | 115,441 | | | 117,602 | | | 117,288 | | | 115,193 | | | 108,720 | | | 96,361 | | | 84,269 | | | 5,701 | | | 3,741 | | | $ | 115,441 | | | $ | 117,602 | | | $ | 117,288 | | | $ | 115,193 | | | $ | 108,720 | | | $ | 96,361 | | | $ | 84,269 | | | $ | 87,045 | | | $ | 83,825 | | | $ | 82,777 | | | $ | 3,163 | | | | 3,895 | | 2012 | | | | | | | | | | 61,340 | | | 65,911 | | | 65,637 | | | 63,359 | | | 55,137 | | | 52,504 | | | 11,346 | | | 2,379 | | | | | | | | 61,340 | | | | 65,911 | | | | 65,637 | | | | 63,359 | | | | 55,137 | | | | 52,504 | | | | 50,022 | | | | 47,966 | | | | 45,404 | | | | 3,567 | | | | 2,406 | | 2013 | | | | | | | | | | | | 63,807 | | | 68,089 | | | �� | 67,702 | | | 66,301 | | | 64,877 | | | 11,435 | | | 2,519 | | | | | | | | | | | | 63,807 | | | | 68,089 | | | | 67,702 | | | | 66,301 | | | | 64,877 | | | | 61,487 | | | | 58,756 | | | | 56,696 | | | | 2,248 | | | | 2,555 | | 2014 | | | | | | | | | | | | | | 61,325 | | | 60,227 | | | 58,042 | | | 56,837 | | | 15,139 | | | 2,307 | | | | | | | | | | | | | | | | 61,325 | | | | 60,227 | | | | 58,042 | | | | 56,837 | | | | 56,129 | | | | 53,955 | | | | 50,311 | | | | 4,619 | | | | 2,354 | | 2015 | | | | | | | | | | | | | | | | 57,262 | | | 56,620 | | | 57,775 | | | 17,359 | | | 2,010 | | | | | | | | | | | | | | | | | | | | 57,262 | | | | 56,620 | | | | 57,775 | | | | 58,392 | | | | 59,568 | | | | 55,821 | | | | 5,233 | | | | 2,112 | | 2016 | | | | | | | | | | | | | | | | | | 54,130 | | | 53,776 | | | 25,895 | | | 1,750 | | | | | | | | | | | | | | | | | | | | | | | | 54,130 | | | | 53,776 | | | | 53,584 | | | | 51,893 | | | | 52,564 | | | | 6,607 | | | | 1,948 | | 2017 | | | | | | | | | | | | | | | | | | | | 54,338 | | | 37,994 | | | 1,283 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 54,338 | | | | 54,572 | | | | 53,385 | | | | 54,227 | | | | 8,316 | | | | 1,854 | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 57,879 | | | | 57,457 | | | | 57,766 | | | | 18,596 | | | | 2,223 | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 68,952 | | | | 68,938 | | | | 33,346 | | | | 2,340 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 83,372 | | | | 64,738 | | | | 1,778 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | $ | 607,876 | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | $ | 722,508 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Commercial Specialty – Casualty Commercial Lines — Casualty
(Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31, | | | For the Years Ended December 31, | | Accident Year | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | 2008 | | $ | 7,844 | | | $ | 34,172 | | | $ | 65,700 | | | $ | 86,889 | | | $ | 100,369 | | | $ | 110,145 | | | $ | 114,546 | | | $ | 116,246 | | | $ | 117,797 | | | $ | 118,254 | | | 2009 | | | | 5,564 | | | 19,154 | | | 37,653 | | | 53,738 | | | 65,721 | | | 71,108 | | | 75,181 | | | 77,771 | | | 79,896 | | | 2010 | | | | | | 5,503 | | | 19,926 | | | 34,659 | | | 50,520 | | | 58,913 | | | 65,377 | | | 67,277 | | | 69,615 | | | 2011 | | | | | | | | 5,451 | | | 21,325 | | | 41,282 | | | 56,562 | | | 64,722 | | | 72,087 | | | 74,839 | | | $ | 5,451 | | | $ | 21,325 | | | $ | 41,282 | | | $ | 56,562 | | | $ | 64,722 | | | $ | 72,087 | | | $ | 74,839 | | | $ | 77,675 | | | $ | 78,595 | | | $ | 79,121 | | 2012 | | | | | | | �� | | | 3,500 | | | 11,884 | | | 22,456 | | | 31,231 | | | 36,360 | | | 39,596 | | | | | | | | 3,500 | | | | 11,884 | | | | 22,456 | | | | 31,231 | | | | 36,360 | | | | 39,596 | | | | 39,899 | | | | 40,595 | | | | 40,877 | | 2013 | | | | | | | | | | | | 6,400 | | | 17,881 | | | 29,510 | | | 38,438 | | | 46,272 | | | | | | | | | | | | 6,400 | | | | 17,881 | | | | 29,510 | | | | 38,438 | | | | 46,272 | | | | 50,964 | | | | 52,265 | | | | 52,991 | | 2014 | | | | | | | | | | | | | | 3,968 | | | 15,690 | | | 26,268 | | | 33,697 | | | | | | | | | | | | | | | | 3,968 | | | | 15,690 | | | | 26,268 | | | | 33,697 | | | | 39,361 | | | | 42,517 | | | | 44,842 | | 2015 | | | | | | | | | | | | | | | | 3,336 | | | 14,584 | | | 25,147 | | | | | | | | | | | | | | | | | | | | 3,336 | | | | 14,584 | | | | 25,147 | | | | 35,816 | | | | 42,543 | | | | 45,661 | | 2016 | | | | | | | | | | | | | | | | | | 4,135 | | | 14,027 | | | | | | | | | | | | | | | | | | | | | | | | 4,135 | | | | 14,027 | | | | 21,966 | | | | 34,872 | | | | 40,531 | | 2017 | | | | | | | | | | | | | | | | | | | | 4,914 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,914 | | | | 12,711 | | | | 22,988 | | | | 33,137 | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,297 | | | | 13,827 | | | | 22,065 | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,174 | | | | 13,954 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,466 | | Total | | | | | | | | | | | | | | | | | | | | 506,257 | | Total | | | | 378,645 | | All outstanding liabilities before 2008, net of reinsurance | | | 64,830 | | | | | | | | | All outstanding liabilities before 2011, net of reinsurance | | All outstanding liabilities before 2011, net of reinsurance | | | | 58,261 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 281,081 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 287,492 | | | | | | | |
The following is required supplementary information about average historical claims duration as of December 31, 2017:2020: | | | | Average Annual Percentage Payout of Incurred Claims by Age,
Net of Reinsurance (Unaudited) | | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | | Year | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | | 1 | | | 2 | | | 3 | | | 4 | | | 5 | | | 6 | | | 7 | | | 8 | | | 9 | | | 10 | | Commercial Lines — Casualty | | | 7.2 | % | | 18.3 | % | | 20.3 | % | | 16.5 | % | | 11.0 | % | | 7.3 | % | | 3.4 | % | | 2.4 | % | | 1.8 | % | | 0.4 | % | | Commercial Specialty - Casualty | | | | 7.8 | % | | | 18.2 | % | | | 19.5 | % | | | 18.7 | % | | | 11.5 | % | | | 7.2 | % | | | 2.7 | % | | | 2.1 | % | | | 0.9 | % | | | 0.6 | % |
Personal Lines
Specialty Property Property and Casualty Methodologies Personal LinesSpecialty Property’s internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (ALAE) separately for property excluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarialreserve reviews were completed with data through December, 2017.2020. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to develop estimates of ultimate Loss & ALAE. Management’s ultimate selections were based onconsidered the internal actuarial review and a third party actuarial review completed during the 4th quarter of 2017.2020. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves. These methodologies are consistent with last year.
Personal lines areSpecialty Property is primarily comprised of business acquired in the purchase of American Reliable, which occurred on January 1, 2015. The acquisition included the purchase of the business of the legal entity as well as additional books of business written by other Assurant entities. In addition, ceding arrangements subsequent to the date of the acquisition are not consistent with years prior to the acquisition. As a result, it is not practical, nor would it be consistent, to include information for years prior to 2015 in the development tables for Personal Lines.Specialty Property.
Personal LinesSpecialty Property’s cumulative claim frequency has been calculated at the claim level and includes claims closed without payment.
Specialty Property – Property Personal Lines — Property
(Dollars in thousands) | | | | | | | | | | Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | | | | | | | | | Incurred Claims and Allocated Claims
Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31, | | | As of December 31, 2017 | | | For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2016 | | | 2017 | | | IBNR (1) | | | Cumulative
Number of Reported
Claims | | | 2019 | | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | 2016 | | $ | 146,571 | | | $ | 144,787 | | | | 5,418 | | | | 17,356 | | | 2017 | | | | | 148,016 | | | | 15,743 | | | | 16,384 | | | | | | | | | | | | | | (unaudited) | | | | | | | | | | | | | | 2019 | | | $ | 79,798 | | | | $ | 80,721 | | | $ | 2,722 | | | | 10,379 | | 2020 | | | | | | | | | 94,686 | | | | 5,532 | | | | 11,049 | | Total | | | | $ | 292,803 | | | | | | Total | | | | $ | 175,407 | | | | | | | | | | | | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Personal Lines —Specialty Property – Property
(Dollars in thousands) | | | | Cumulative Paid Claims
and Allocated Claims
Adjustment Expenses, Net
of Reinsurance | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | For the Years Ended
December 31, | | | For the Years Ended December 31, | | Accident Year | | 2016 | | | 2017 | | | 2019 | | | 2020 | | 2016 | | $ | 121,899 | | | $ | 138,289 | | | 2017 | | | | | 114,360 | | | | | | | | | | (unaudited) | | | | | | 2019 | | | $ | 66,786 | | | $ | 76,942 | | 2020 | | | | | | | | 84,514 | | Total | | | | | 252,649 | | Total | | | | 161,456 | | All outstanding liabilities before 2016, net of reinsurance | | | | | 4,206 | | | | | | | | | | All outstanding liabilities before 2019, net of reinsurance | | All outstanding liabilities before 2019, net of reinsurance | | | | 5,339 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | | $ | 44,360 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 19,290 | | | | | | | | |
The following is required supplementary information about average historical claims duration as of December 31, 2017.2020. | | | | Average Annual Percentage Payout of
Incurred Claims by Age, Net of
Reinsurance (Unaudited) | | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | | Year | | 1 | | 2 | | | 1 | | | 2 | | Personal Lines — Property | | | 80.7 | % | | 11.3 | % | | Specialty Property - Property | | | | 86.0 | % | | | 12.6 | % |
Personal Lines —Specialty Property – Casualty
(Dollars in thousands) | | | | | | | | | | | | Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | | | | | | | | | Incurred Claims and Allocated
Claims Adjustment
Expenses, Net of Reinsurance
For the Years Ended December 31, | | | As of December 31, 2017 | | | For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2015 | | | 2016 | | | 2017 | | | IBNR (1) | | | Cumulative
Number of Reported
Claims | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | | | | (unaudited) | | | | | | | | | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | | | | | | | | | 2015 | | $ | 18,930 | | | $ | 20,506 | | | $ | 21,850 | | | $ | 5,059 | | | | 1,317 | | | $ | 6,875 | | | $ | 8,455 | | | $ | 11,230 | | | $ | 11,656 | | | $ | 11,412 | | | $ | 11,208 | | | $ | 793 | | | | 857 | | 2016 | | | | | 21,476 | | | | 21,073 | | | | 11,345 | | | | 1,370 | | | | | | | | 8,249 | | | | 8,068 | | | | 7,613 | | | | 6,713 | | | | 6,495 | | | | 1,249 | | | | 855 | | 2017 | | | | | | | 19,999 | | | | 15,334 | | | | 878 | | | | | | | | | | | | 7,213 | | | | 6,966 | | | | 7,515 | | | | 7,366 | | | | 932 | | | | 506 | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | 5,242 | | | | 5,028 | | | | 4,875 | | | | 2,467 | | | | 339 | | 2019 | | | | | | | | | | | | | | | | | | | | 3,986 | | | | 3,948 | | | | 2,170 | | | | 282 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | 3,503 | | | | 2,386 | | | | 202 | | Total | | | | | | $ | 62,922 | | | | | | Total | | | $ | 37,395 | | | | | | | | | | | | | | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Personal Lines —Specialty Property – Casualty
(Dollars in thousands) | | | | Cumulative Paid Claims and
Allocated Claims Adjustment
Expenses, Net of Reinsurance | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | | | | | For the Years Ended December 31, | | | For the Years Ended December 31, | | | | | | Accident Year | | 2015 | | | 2016 | | | 2017 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | | | (unaudited) | | | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | 2015 | | $ | 3,439 | | | $ | 8,757 | | | $ | 12,926 | | | $ | 1,301 | | | $ | 4,979 | | | $ | 6,698 | | | $ | 9,129 | | | $ | 10,050 | | | $ | 10,136 | | 2016 | | | | | 3,507 | | | | 6,885 | | | | | | | | 1,165 | | | | 2,654 | | | | 3,889 | | | | 4,856 | | | | 4,971 | | 2017 | | | | | | | 2,132 | | | | | | | | | | | | 979 | | | | 2,658 | | | | 4,502 | | | | 5,803 | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | 248 | | | | 1,339 | | | | 1,844 | | 2019 | | | | | | | | | | | | | | | | | | | | 397 | | | | 1,221 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | 552 | | Total | | | | | | | 21,943 | | Total | | | | 24,527 | | All outstanding liabilities before 2015, net of reinsurance | | | | | | | 11,672 | | All outstanding liabilities before 2015, net of reinsurance | | | | 661 | | | | | | | | | | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | | | | $ | 52,651 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 13,529 | | | | | | | | | | |
The following is required supplementary information about average historical claims duration as of December 31, 2017:2020: | | | | Average Annual Percentage Payout of
Incurred Claims by Age, Net of
Reinsurance (Unaudited) | | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | | Year | | 1 | | 2 | | 3 | | | 1 | | | 2 | | | 3 | | | 4 | | | 5 | | | 6 | | Personal Lines — Casualty | | | 14.3 | % | | 20.2 | % | | 19.1 | % | | Specialty Property - Casualty | | | | 12.3 | % | | | 24.4 | % | | | 17.4 | % | | | 18.1 | % | | | 5.0 | % | | | 0.8 | % |
Farm, Ranch & Stable Property and Casualty Methodologies Farm, Ranch & Stable’s internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (ALAE) separately for property excluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarialreserve reviews were completed with data through December, 2020. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to develop estimates of ultimate Loss & ALAE. Management’s ultimate selections considered the internal actuarial review and a third party actuarial review completed during the 4th quarter of 2020. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves. These methodologies are consistent with last year. Farm, Ranch & Stable is primarily comprised of business acquired in the purchase of American Reliable, which occurred on January 1, 2015. The acquisition included the purchase of the business of the legal entity as well as additional books of business written by other Assurant entities. In addition, ceding arrangements subsequent to the date of the acquisition are not consistent with years prior to the acquisition. As a result, it is not practical, nor would it be consistent, to include information for years prior to 2015 in the development tables for Farm, Ranch & Stable. Farm, Ranch & Stable’s cumulative claim frequency has been calculated at the claim level and includes claims closed without payment.
Farm, Ranch & Stable – Property (Dollars in thousands) | | Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | | | | | | | | For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2019 | | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | | | (unaudited) | | | | | | | | | | | | | | | 2019 | | $ | 37,120 | | | | $ | 37,350 | | | $ | 1,406 | | | | 3,023 | | 2020 | | | | | | | | 38,226 | | | | 1,810 | | | | 2,821 | | Total | | | | $ | 75,576 | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Farm, Ranch & Stable – Property (Dollars in thousands) | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | For the Years Ended December 31, | | Accident Year | | 2019 | | | 2020 | | | | (unaudited) | | | | | | 2019 | | $ | 31,461 | | | $ | 35,338 | | 2020 | | | | | | | 32,721 | | Total | | | | 68,059 | | All outstanding liabilities before 2019, net of reinsurance | | | | 1,214 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 8,731 | |
The following is required supplementary information about average historical claims duration as of December 31, 2020. | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | | Year | | 1 | | | 2 | | Farm, Ranch & Stable - Property | | | 84.9 | % | | | 10.4 | % |
Farm, Ranch & Stable – Casualty (Dollars in thousands) | | Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | | | | | | | | For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | | | | | | | | | 2015 | | $ | 12,055 | | | $ | 12,052 | | | $ | 10,621 | | | $ | 10,664 | | | $ | 10,383 | | | $ | 10,145 | | | $ | 1,059 | | | | 475 | | 2016 | | | | | | | 13,226 | | | | 13,005 | | | | 11,977 | | | | 10,507 | | | | 10,420 | | | | 1,495 | | | | 545 | | 2017 | | | | | | | | | | | 12,786 | | | | 12,171 | | | | 10,600 | | | | 10,167 | | | | 3,493 | | | | 488 | | 2018 | | | | | | | | | | | | | | | 9,934 | | | | 10,559 | | | | 10,695 | | | | 1,998 | | | | 548 | | 2019 | | | | | | | | | | | | | | | | | | | 9,781 | | | | 9,746 | | | | 4,616 | | | | 504 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | 9,963 | | | | 7,689 | | | | 404 | | Total | | | $ | 61,136 | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Farm, Ranch & Stable – Casualty (Dollars in thousands) | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | For the Years Ended December 31, | | Accident Year | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | 2015 | | $ | 2,138 | | | $ | 3,778 | | | $ | 6,228 | | | $ | 6,986 | | | $ | 8,481 | | | $ | 9,057 | | 2016 | | | | | | | 2,342 | | | | 4,231 | | | | 5,954 | | | | 7,069 | | | | 7,615 | | 2017 | | | | | | | | | | | 1,153 | | | | 2,145 | | | | 4,242 | | | | 6,156 | | 2018 | | | | | | | | | | | | | | | 1,092 | | | | 3,225 | | | | 7,125 | | 2019 | | | | | | | | | | | | | | | | | | | 1,626 | | | | 3,853 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | 1,075 | | Total | | | | 34,881 | | All outstanding liabilities before 2015, net of reinsurance | | | | 1,130 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 27,385 | |
The following is required supplementary information about average historical claims duration as of December 31, 2020: | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | | Year | | 1 | | | 2 | | | 3 | | | 4 | | | 5 | | | 6 | | Farm, Ranch & Stable - Casualty | | | 15.4 | % | | | 17.4 | % | | | 24.4 | % | | | 12.3 | % | | | 10.0 | % | | | 5.7 | % |
Reinsurance Lines Property & Casualty Methodologies Reinsurance OperationsOperations’ internal reserve reviews were completed for loss and allocated loss adjustment expenses (ALAE) combined for run off treaties and the current book of business. The current book of business is constituted of professional liability portfolios and retrocessions from Bermuda based companies for property catastrophe, marine business, and mortgage insurance.casualty business. The reserve reviews were completed based on the latest data reported from the cedants which is typically on a quarter lag. Paid loss, ALAE and Case reserves, shown in the reinsurance category tables below, which are originally based in a foreign currency, are remeasured in U.S. dollars based on the Foreign Exchange (FX) rate at the dateend of the cedant’s report.period. Management’s ultimate selections were based on a review of ultimates reported from the cedants, including loss emergence during the reporting period, and consideration of the internal actuarial review and a third party actuarial review completed during the 4th quarter of 2017.2020. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves. These methodologies are consistent with last year. The Company does not have direct access to claim frequency information underlying certain reinsurance contracts. As a result, the Company does not believe providing claim frequency information is practicable. Reinsurance Lines —– Property (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | | | | | | | | | | | | | Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31, | | As of December 31,
2017 | | | For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | IBNR (1) | | Cumulative
Number of
Reported
Claims | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | | | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | | | | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | | | | | | | | | 2011 | | $ | 30,963 | | | $ | 28,547 | | | $ | 26,916 | | | $ | 25,994 | | | $ | 24,994 | | | $ | 24,912 | | | $ | 24,786 | | | $ | 1,028 | | | | — | | | 2012 | | | | 10,388 | | | 10,578 | | | 9,279 | | | 8,579 | | | 8,497 | | | 8,397 | | | 539 | | | | — | | | 2013 | | | | | | 15,153 | | | 9,948 | | | 8,197 | | | 6,698 | | | 6,345 | | | 753 | | | | — | | | 2014 | | | | | | | | 21,787 | | | 18,861 | | | 14,139 | | | 13,590 | | | 1,264 | | | | — | | | $ | 21,787 | | | $ | 18,861 | | | $ | 14,139 | | | $ | 13,590 | | | $ | 14,301 | | | $ | 13,554 | | | $ | 13,170 | | | $ | 330 | | | | 0 | | 2015 | | | | | | | | | | 19,877 | | | 16,738 | | | 12,526 | | | 2,977 | | | | — | | | | | | | | 19,877 | | | | 16,738 | | | | 12,526 | | | | 9,945 | | | | 9,050 | | | | 8,434 | | | | 602 | | | | 0 | | 2016 | | | | | | | | | | | | 23,646 | | | 22,485 | | | 10,433 | | | | — | | | | | | | | | | | | 23,646 | | | | 22,485 | | | | 12,497 | | | | 13,021 | | | | 11,902 | | | | 1,176 | | | | 0 | | 2017 | | | | | | | | | | | | | | 43,782 | | | 26,239 | | | | — | | | | | | | | | | | | | | | | 43,782 | | | | 50,032 | | | | 51,711 | | | | 47,197 | | | | 5,042 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | 59,022 | | | | 66,314 | | | | 65,190 | | | | 11,107 | | | | 0 | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | 32,442 | | | | 36,896 | | | | 9,576 | | | | 0 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,751 | | | | 9,209 | | | | 0 | | Total | | | | | | | | | | | | | | $ | 131,911 | | | | | | Total | | | $ | 196,540 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Reinsurance Lines —– Property (Dollars in thousands) | | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | For the Years Ended December 31, | | | For the Years Ended December 31, | | Accident Year | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | 2011 | | $ | 12,044 | | | $ | 19,274 | | | $ | 20,698 | | | $ | 22,060 | | | $ | 22,426 | | | $ | 22,771 | | | $ | 23,096 | | | 2012 | | | | | 1,127 | | | | 5,481 | | | | 7,221 | | | | 7,648 | | | | 7,527 | | | | 7,584 | | | 2013 | | | | | | | 723 | | | | 4,008 | | | | 5,835 | | | | 5,111 | | | | 5,255 | | | 2014 | | | | | | | | | 2,243 | | | | 9,035 | | | | 10,460 | | | | 11,182 | | | $ | 2,243 | | | $ | 9,035 | | | $ | 10,460 | | | $ | 11,182 | | | $ | 12,339 | | | $ | 12,480 | | | $ | 12,558 | | 2015 | | | | | | | | | | | 742 | | | | 5,163 | | | | 6,768 | | | | | | | | 742 | | | | 5,163 | | | | 6,768 | | | | 7,139 | | | | 7,411 | | | | 7,492 | | 2016 | | | | | | | | | | | | | 2,071 | | | | 5,704 | | | | | | | | | | | | 2,071 | | | | 5,704 | | | | 7,161 | | | | 8,514 | | | | 9,399 | | 2017 | | | | | | | | | | | | | | | 2,152 | | | | | | | | | | | | | | | | 2,152 | | | | 20,609 | | | | 28,079 | | | | 32,668 | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | 21 | | | | 21,608 | | | | 36,936 | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | 139 | | | | 13,033 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 561 | | Total | | | | | | | | | | | | | | | 61,741 | | Total | | | | 112,647 | | All outstanding liabilities before 2011, net of reinsurance | | | | | | | | | | | | | | | 322 | | | | | | | | | All outstanding liabilities before 2014, net of reinsurance | | All outstanding liabilities before 2014, net of reinsurance | | | | 728 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | | | | | | | | | | | | $ | 70,492 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 84,621 | | | | | | | |
The following is required supplementary information about average historical claims duration as of December 31, 2017:2020: | | | | Average Annual Percentage Payout of Incurred Claims by Age,
Net of Reinsurance (Unaudited) | | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) | | Year | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | | 1 | | | 2 | | | 3 | | | 4 | | | 5 | | | 6 | | | 7 | | Reinsurance Lines — Property | | | 15.7 | % | | 39.0 | % | | 15.7 | % | | 1.1 | % | | 0.8 | % | | 1.0 | % | | 1.3 | % | | Reinsurance Lines - Property | | | 7.5% | | | 40.3% | | | 16.3% | | | 7.7% | | | 6.5% | | | 1.0% | | | 0.6% | |
Reinsurance Lines —– Casualty (Dollars in thousands) | | | | Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31, | | As of December 31,
2017 | | | Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, | | | As of December 31, 2020 | | Accident Year | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | IBNR (1) | | Cumulative
Number of
Reported
Claims | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | IBNR (1) | | | Cumulative Number of Reported Claims | | | | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | | | | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | | | | | | | | | 2008 | | $ | 8,906 | | | $ | 8,758 | | | $ | 8,988 | | | $ | 8,997 | | | $ | 10,167 | | | $ | 10,340 | | | $ | 10,340 | | | $ | 9,435 | | | $ | 9,835 | | | $ | 9,768 | | | $ | 291 | | | | — | | | 2009 | | | | 20,706 | | | 23,818 | | | 25,444 | | | 30,533 | | | 30,850 | | | 31,340 | | | 31,419 | | | 31,453 | | | 31,514 | | | 386 | | | | — | | | 2010 | | | | | | 41,831 | | | 53,279 | | | 57,916 | | | 62,628 | | | 61,062 | | | 61,792 | | | 60,701 | | | 60,573 | | | 2,015 | | | | — | | | 2011 | | | | | | | | 45,726 | | | 48,846 | | | 44,692 | | | 47,980 | | | 46,510 | | | 43,657 | | | 42,968 | | | 2,122 | | | | — | | | $ | 45,726 | | | $ | 48,846 | | | $ | 44,692 | | | $ | 47,980 | | | $ | 46,510 | | | $ | 43,657 | | | $ | 42,968 | | | $ | 42,235 | | | $ | 41,826 | | | $ | 41,885 | | | $ | 590 | | | | 0 | | 2012 | | | | | | | | | | 15,865 | | | 15,624 | | | 17,123 | | | 17,579 | | | 17,360 | | | 17,348 | | | 1,113 | | | | — | | | | | | | | 15,865 | | | | 15,624 | | | | 17,123 | | | | 17,579 | | | | 17,360 | | | | 17,348 | | | | 16,982 | | | | 16,449 | | | | 16,301 | | | | 300 | | | | 0 | | 2013 | | | | | | | | | | | | 1,224 | | | 1,262 | | | 1,172 | | | 1,013 | | | 974 | | | 870 | | | | — | | | | | | | | | | | | 1,224 | | | | 1,262 | | | | 1,172 | | | | 1,013 | | | | 974 | | | | 974 | | | | 112 | | | | 98 | | | | 1 | | | | 0 | | 2014 | | | | | | | | | | | | | | 1,988 | | | 2,095 | | | 2,060 | | | 1,957 | | | 1,954 | | | | — | | | | | | | | | | | | | | | | 1,988 | | | | 2,095 | | | | 2,060 | | | | 1,957 | | | | 1,957 | | | | 593 | | | | 2 | | | | 0 | | | | 0 | | 2015 | | | | | | | | | | | | | | | | 2,908 | | | 2,911 | | | 2,780 | | | 2,779 | | | | — | | | | | | | | | | | | | | | | | | | | 2,908 | | | | 2,911 | | | | 2,780 | | | | 2,780 | | | | 2,180 | | | | 1,091 | | | | 1,090 | | | | 0 | | 2016 | | | | | | | | | | | | | | | | | | 3,627 | | | 3,627 | | | 3,627 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | 3,627 | | | | 3,627 | | | | 3,627 | | | | 3,627 | | | | 3,627 | | | | 3,627 | | | | 0 | | 2017 | | | | | | | | | | | | | | | | | | | | 4,358 | | | 4,358 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4,358 | | | | 4,358 | | | | 4,358 | | | | 4,358 | | | | 4,356 | | | | 0 | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,573 | | | | 5,573 | | | | 5,573 | | | | 5,573 | | | | 0 | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,686 | | | | 13,686 | | | | 10,936 | | | | 0 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 30,398 | | | | 30,252 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | $ | 117,019 | | | | | | | | | | Total | | | | | | | | | | | | | | | | | | | | $ | 175,867 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Incurred-but-not-reported liabilities plus expected development on reported claims |
Reinsurance Lines —– Casualty (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | | | | | Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31, | | | For the Years Ended December 31, | | Accident Year | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | | | | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | | | | | | 2008 | | $ | — | | | $ | 627 | | | $ | 1,955 | | | $ | 5,149 | | | $ | 5,648 | | | $ | 6,832 | | | $ | 8,713 | | | $ | 8,875 | | | $ | 8,919 | | | $ | 8,981 | | | 2009 | | | | 1,986 | | | 9,759 | | | 11,064 | | | 12,597 | | | 13,652 | | | 15,104 | | | 30,141 | | | 31,019 | | | 31,128 | | | 2010 | | | | | | 10,185 | | | 21,447 | | | 30,754 | | | 36,090 | | | 39,123 | | | 55,315 | | | 55,848 | | | 56,960 | | | 2011 | | | | | | | | 7,968 | | | 20,072 | | | 28,495 | | | 36,020 | | | 38,907 | | | 39,815 | | | 40,079 | | | $ | 7,968 | | | $ | 20,072 | | | $ | 28,495 | | | $ | 36,020 | | | $ | 38,907 | | | $ | 39,815 | | | $ | 40,079 | | | $ | 40,303 | | | $ | 40,476 | | | $ | 40,693 | | 2012 | | | | | | | | | | 5,312 | | | 9,435 | | | 11,658 | | | 15,534 | | | 15,696 | | | 15,790 | | | | | | | | 5,312 | | | | 9,435 | | | | 11,658 | | | | 15,534 | | | | 15,696 | | | | 15,790 | | | | 15,625 | | | | 15,691 | | | | 15,749 | | 2013 | | | | | | | | | | | | 123 | | | 50 | | | 62 | | | 65 | | | 65 | | | | | | | | | | | | 123 | | | | 50 | | | | 62 | | | | 65 | | | | 65 | | | | 65 | | | | 71 | | | | 70 | | 2014 | | | | | | | | | | | | | | 88 | | | 47 | | | 50 | | | 1 | | | | | | | | | | | | | | | | 88 | | | | 47 | | | | 50 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | 2015 | | | | | | | | | | | | | | | | 107 | | | 128 | | | 1 | | | | | | | | | | | | | | | | | | | | 107 | | | | 128 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | 2016 | | | | | | | | | | | | | | | | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 0 | | 2017 | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 2 | | | | 2 | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | 0 | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 27 | | | | 801 | | 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 49 | | Total | | | | | | | | | | | | | | | | | | | | 153,005 | | Total | | | | 57,366 | | All outstanding liabilities before 2008, net of reinsurance | | | | | | | | | | | | | | | | | | | | 1,210 | | | | | | | | | All outstanding liabilities before 2011, net of reinsurance | | All outstanding liabilities before 2011, net of reinsurance | | | | 2,273 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | | | | | | | | | | | | | | | | | | $ | 24,072 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | $ | 61,926 | | | | | | | |
The following is required supplementary information about average historical claims duration as of December 31, 2017:2020: | | | | Average Annual Percentage Payout of Incurred Claims by Age,
Net of Reinsurance (Unaudited) | | | Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) (1) (2) | | Year | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | 7 | | 8 | | 9 | | 10 | | | 1 | | | 2 | | | 3 | | | 4 | | | 5 | | | 6 | | | 7 | | | 8 | | | 9 | | | 10 | | Reinsurance Lines — Casualty | | | 9.3 | % | | 10.3 | % | | 7.8 | % | | 12.0 | % | | 3.5 | % | | 9.2 | % | | 17.1 | % | | 2.1 | % | | 0.4 | % | | 0.6 | % | | Reinsurance Lines - Casualty | | | 408.4% | | | (204.0%) | | | 23.8% | | | (305.2%) | | | (1.2%) | | | 0.6% | | | 1.5% | | | (0.1%) | | | 0.4% | | | 0.5% | |
(1) | May not be indicative of future average annual percentage payout of incurred claims due to a change in mix of business |
(2) | The payout patterns are calculated using simple averages consistent with last year’s calculation methodology. However, these payout patterns based on simple averages look unusual given the change in estimate of ultimate losses for accident years 2013 through 2015 during the year and due to very minimal yet volatile payment activity for those accident years. Using a weighted average approach would produce smoother payout patterns as less weight is given to the accident years with minimal paid losses. The resulting volume weighted ten year annual payout pattern, for ages one through ten would be 11.7%, 19.5%, 14.4%, 16.9%, 4.8%, 1.7%, 0.2%, 0.5%, 0.4%, and 0.5%, respectively. |
The reconciliation of the net incurred and paid claims development tables to the liability for unpaid losses and loss adjustment expenses in the consolidated balance sheets as of December 31, 20172020 is as follows: | Net outstanding liabilities | | | | | | | Commercial Lines — Property | | $ | 36,575 | | | Commercial Lines — Casualty | | | 281,081 | | | Personal Lines — Property | | | 44,360 | | | Personal Lines — Casualty | | | 52,651 | | | Reinsurance Lines — Property | | | 70,492 | | | Reinsurance Lines — Casualty | | | 24,072 | | | | | | | | Commercial Specialty – Property | | | $ | 52,730 | | Commercial Specialty – Casualty | | | | 287,492 | | Specialty Property – Property | | | | 19,290 | | Specialty Property – Casualty | | | | 13,529 | | Farm, Ranch & Stable – Property | | | | 8,731 | | Farm, Ranch & Stable – Casualty | | | | 27,385 | | Reinsurance Lines – Property | | | | 84,621 | | Reinsurance Lines – Casualty | | | | 61,926 | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | | 509,231 | | | | 555,704 | | | | | | | Reinsurance recoverable on unpaid claims | | | | | | | Commercial Lines — Property | | | 8,508 | | | Commercial Lines — Casualty | | | 68,786 | | | Personal Lines — Property | | | 10,608 | | | Personal Lines — Casualty | | | 7,718 | | | Reinsurance Lines — Property | | | — | | | Reinsurance Lines — Casualty | | | 71 | | | | | | | | Commercial Specialty – Property | | | | 18,362 | | Commercial Specialty – Casualty | | | | 44,483 | | Specialty Property – Property | | | | 7,089 | | Specialty Property – Casualty | | | | 2,334 | | Farm, Ranch & Stable – Property | | | | 1,318 | | Farm, Ranch & Stable – Casualty | | | | 6,449 | | Reinsurance Lines – Property | | | | 0 | | Reinsurance Lines – Casualty | | | | 0 | | Total reinsurance recoverable on unpaid claims | | | 95,691 | | | | 80,035 | | | | | | | Other outstanding liabilities | | | | | | | Commercial Lines | | | | Commercial Specialty | | | | | | Ceded Allowance | | | 8,040 | | | | 8,992 | | Unallocated claims adjustment expenses | | | 16,930 | | | | 14,967 | | Purchase accounting adjustment | | | (1,200 | ) | | | 0 | | Loss Clearing | | | 322 | | | | (2,034 | ) | Personal Lines | | | | Specialty Property | | | | — | | Fronted business ceded to Assurant | | | 2,752 | | | | 2,098 | | Unallocated claims adjustment expenses | | | | 926 | | Loss Clearing | | | | 0 | | Farm, Ranch & Stable | | | | — | | Ceded Allowance | | | | 0 | | Unallocated claims adjustment expenses | | | 2,190 | | | | 959 | | Loss Clearing | | | (25 | ) | | | 0 | | Reinsurance Lines | | | | | — | | Unallocated claims adjustment expenses | | | 987 | | | | 356 | | Other | | | (254 | ) | | | 808 | | | | | | | Total other outstanding liabilities | | | 29,742 | | | | 27,072 | | | | | | | Total gross liability for unpaid losses and loss adjustment expenses | | $ | 634,664 | | | $ | 662,811 | | | | | | |
Loss indemnification related to Purchase of American Reliable On March 8, 2018, the Company settled its final reserve calculation which resulted in $41.5 million being due to Global Indemnity Group, LLC in accordance with the Stock Purchase Agreement between Global Indemnity Group, LLC and American Bankers Insurance Group, Inc. for the purchase of American Reliable. The settlement is comprised of (i) receipt of $38.8 million for loss and loss adjustment expenses paid on or after January 1, 2015 or payable as of December 31, 2017 with respect to losses incurred prior to January 1, 2015, (ii) receipt of $6.2 million for accrued interest and (iii) payment of $3.5 million for the difference between the agreed upon purchase price and actual settlement on January 1, 2015. These amounts, which were included in other assets on the consolidated balance sheets as of December 31, 2017, were received on March 9, 2018. The Company’s outstanding debt consisted of the following at December 31, 20172020 and 2016:2019: | | | | December 31, | | | December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2020 | | | 2019 | | Margin Borrowing Facility | | $ | 72,230 | | | $ | 66,646 | | | $ | 0 | | | $ | 73,629 | | 7.75% Subordinated Notes due 2045 | | | 96,619 | | | | 96,497 | | | | 0 | | | | 96,864 | | 7.875% Subordinated Notes due 2047 | | | 125,864 | | | | — | | | | 126,288 | | | | 126,147 | | | | | | | | | | Total | | $ | 294,713 | | | $ | 163,143 | | | $ | 126,288 | | | $ | 296,640 | | | | | | | | | |
Margin Borrowing Facility The Company has available a margin borrowing facility. At December 31, 2017, theThe borrowing rate for this facility wasis tied to the Fed Funds Effective rate and was approximately 1.6%. At0.8% and 1.9% at December 31, 2016, the borrowing rate for this facility was tied to LIBOR2020 and was approximately 1.6%.2019, respectively. This facility is due on demand. The borrowings are subject to maintenance margin, which is a minimum account balance that must be maintained. A decline in market conditions could require an additional deposit of collateral. The Company did 0t have any securities that were deposited as collateral at December 31, 2020. As of December 31, 2017,2019, approximately $88.0$88.2 million in securities were deposited as collateral to support borrowings. The amount borrowed against the margin account may fluctuate as routine investment transactions, such as dividends received, investment income received, maturities andpay-downs, impact cash balances. The margin facility contains customary events of default, including, without limitation, insolvency, failure to make required payments, failure to comply with any representations or warranties, failure to adequately assure future performance, and failure of a guarantor to perform under its guarantee. The amount outstanding on the Company’s margin borrowing facility was $72.2 million and $66.6$73.6 million as of December 31, 2017 and 2016, respectively.2019. The Company did not have any amounts outstanding on the margin borrowing facility as of December 31, 2020. The Company recorded interest expense related to the Margin Borrowing Facility of approximately $1.0$0.5 million, $1.0$1.8 million, and $1.9$1.4 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. 7.75% Subordinated Notes due 2045 OnIn August 12, 2015,2020, GBLI Holdings and Global Indemnity Limited redeemed the Company issuedentire outstanding $100.0 million in aggregate principal amount of its 20457.75% Subordinated Notes through an underwritten public offering (the “2045due 2045 (“2045 Notes”).
The 2045 Notes bear interest at an annual rate equal to 7.75%, payable quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, commencing November 15, 2015. The 2045 Notes mature on August 15, 2045. The Company has In connection with the right to redeem the 2045 Notes in $25 increments, in whole or in part, on and after August 15, 2020, or on any interest payment date thereafter, at a redemption, price equal to 100% of the principal amount of the 2045 Notes being redeemed plus accrued and unpaid interest to, but not including, the date of redemption.
The 2045 Notes are subordinated unsecured obligations and rank (i) senior to the Company’s existing and future capital stock, (ii) senior in right of payment to future junior subordinated debt, (iii) equally in right of payment with any unsecured, subordinated debt that the Company incurs in the future that ranks equally with the 2045 Notes, and (iv) subordinate in right of payment to any of the Company’s existing and future senior debt. In addition, the 2045 Notes are structurally subordinated to all existing and future indebtedness, liabilities and other obligations of the Company’s subsidiaries.
The 2045 Notes do not require the maintenance of any financial ratios or specified levels of net worth or liquidity, and do not contain provisions that would afford holders of the 2045 Notes protection in the event of a sudden and dramatic decline in the Company’s credit quality resulting from any highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect holders. The 2045 Notes do not restrict the Company in any way, now or in the future, from incurring additional indebtedness, including senior indebtedness that would rank senior in right of payment to the 2045 Notes. There is no right of acceleration of maturity of the 2045 Notes in the case of default in the payment of principal, premium, if any, or interest on, the 2045 Notes or in the performance of any other obligation of the Company under the 2045 Notes or if the Company defaults on any other debt securities. Holders may accelerate payment of indebtedness on the 2045 Notes only upon the Company’s bankruptcy, insolvency or reorganization.
The Company incurred $3.7 million inwrote off deferred issuance costs associated withof $3.1 million which was recognized as a loss on extinguishment of debt in its consolidated statements of operations for the 2045 Notes, which is being amortized over the term of the 2045 Notes. year ended December 31, 2020.
Interest expense, including amortization of deferred issuance costs through the date of redemption, recognized on the 2045 Notes was $7.9$4.9 million, $7.9 million, and $3.0$7.9 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively. 7.875% Subordinated Notes due 2047 On March 23, 2017, the CompanyGlobal Indemnity Limited issued Subordinated Notes due in 2047 in the aggregate principal amount of $120.0 million through an underwritten public offering (the “2047 Notes”). Pursuant to the underwriting agreement, the CompanyGlobal Indemnity Limited granted the underwriters a 30 day option to purchase up to an additional $18 million aggregate principal amount of the 2047 Notes solely to cover over-allotments, if any. On March 30, 2017, the underwriters exercised their over-allotment option in the amount of $10 million principal amount of the 2047 Notes. As a result, the aggregate principal amount of the 2047 Notes increased to $130.0 million. The sale of the 2047 Notes pursuant to the over-allotment option closed on March 30, 2017.
The 2047 Notes bear interest at an annual rate equal to 7.875%, payable quarterly in arrears on January 15, April 15, July 15, and October 15 of each year, commencing July 15, 2017. The 2047 Notes mature on April 15, 2047. The Company has the right to redeem the 2047 Notes in $25 increments, in whole or in part, on and after April 15, 2022, or on any interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the 2047 Notes being redeemed plus accrued and unpaid interest to, but not including, the date of redemption. If the Company redeems only a portion of the 2047 Notes on any date of redemption, the Company may subsequently redeem additional 2047 Notes. The 2047 Notes are subordinated unsecured obligations and rank (i) senior to the Company’s existing and future capital stock, (ii) senior in right of payment to future junior subordinated debt, (iii) equally in right of payment with any existing unsecured, subordinated debt that the Company has issued or may issue in the future that ranks equally with the 2047 Notes, including the Company’s 2045 Notes, and (iv) subordinate in right of payment to any of the Company’s future senior debt. In addition, the 2047 Notes are structurally subordinated to all existing and future indebtedness, liabilities and other obligations of the Company’s subsidiaries including the Company’s margin borrowing facility. The 2047 Notes do not require the maintenance of any financial ratios or specified levels of net worth or liquidity, and do not contain provisions that would afford holders of the 2047 Notes protection in the event of a sudden and dramatic decline in the Company’s credit quality resulting from any highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect holders. The 2047 Notes do not restrict the Company in any way, now or in the future, from incurring additional indebtedness, including senior indebtedness that would rank senior in right of payment to the 2047 Notes. There is no right of acceleration of maturity of the 2047 Notes in the case of default in the payment of principal, premium, if any, or interest on the 2047 Notes or in the performance of any other obligation of the Company under the notes or if the Company defaults on any other debt securities. Holders may accelerate payment of indebtedness on the 2047 Notes only upon the Company’s bankruptcy, insolvency or reorganization. The Company incurred $4.2 million in deferred issuance costs associated with the 2047 Notes, which is being amortized over the term of the 2047 Notes. Interest expense, including amortization of deferred issuance costs, recognized on the 2047 Notes was $8.0$10.4 million for each of the yearyears ended December 31, 2017.2020, 2019, and 2018. The following table represents the amounts recorded for the subordinated notes as of December 31, 20172020 and 2016:2019: | | | | | | | | December 31, 2020 | | | | | December 31, 2017 | | | | | | Outstanding
Principal | | | Unamortized
Debt Issuance
Costs | | | Net
Carrying
Amount | | | 7.75% Subordinated Notes due 2045 | | $ | 100,000 | | | $ | (3,381 | ) | | $ | 96,619 | | | (Dollars in thousands) | | | Outstanding Principal | | | Unamortized Debt Issuance Costs | | | Net Carrying Amount | | 7.875% Subordinated Notes due 2047 | | | 130,000 | | | | (4,136 | ) | | | 125,864 | | | | 130,000 | | | | (3,712 | ) | | | 126,288 | | | | | | | | | | | | | $ | 130,000 | | | $ | (3,712 | ) | | $ | 126,288 | | | | $ | 230,000 | | | $ | (7,517 | ) | | $ | 222,483 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | December 31, 2016 | | | | | Outstanding
Principal | | | Unamortized
Debt Issuance
Costs | | | Net
Carrying
Amount | | 7.75% Subordinated Notes due 2045 | | $ | 100,000 | | | $ | (3,503 | ) | | $ | 96,497 | | | | | | | | | | | | | | |
| | December 31, 2019 | | (Dollars in thousands) | | Outstanding Principal | | | Unamortized Debt Issuance Costs | | | Net Carrying Amount | | 7.75% Subordinated Notes due 2045 | | $ | 100,000 | | | $ | (3,136 | ) | | $ | 96,864 | | 7.875% Subordinated Notes due 2047 | | | 130,000 | | | | (3,853 | ) | | | 126,147 | | | | $ | 230,000 | | | $ | (6,989 | ) | | $ | 223,011 | |
Supplemental Indentures On November 7, 2016,August 28, 2020, in connection with the merger of Global Indemnity Limited with and into New Cayco, each of Global Indemnity Limited, as successor to Global Indemnity plc, an Irish public limited company, GBLI Holdings, LLC, a Delaware limited liability company, as co-obligor (the "Co-Obligor"), New CayCo, Wells Fargo Bank, National Association, as trustee (the "Original Trustee"), and U.S. Bank National Association, as series trustee of the 7.875% Subordinated Notes due 2047 (the "Series Trustee" and, together with the Original Trustee, the "Trustees") entered into a Fourth Supplemental Indenture, dated as of August 28, 2020 (the "Fourth Supplemental Indenture"), to the base indenture, dated as of August 12, 2015 (as supplemented, the "Indenture"). Pursuant to the Fourth Supplemental Indenture, New CayCo expressly assumed the obligations of Global Indemnity Limited under the Indenture, including the obligations of Global Indemnity Limited under the outstanding 2047 Notes issued pursuant to such Indenture. On August 28, 2020, in connection with the merger of New Cayco with and into Global Indemnity Group, LLC, each of New CayCo, the Co-Obligor, Global Indemnity Group, LLC and the Trustees entered into a Cayman Islands exemptedFifth Supplemental Indenture, dated as of August 28, 2020 (the "Fifth Supplemental Indenture"), to the Indenture.
Pursuant to the Fifth Supplemental Indenture, Global Indemnity Group, LLC expressly assumed the obligations of New CayCo under the Indenture, including the obligations of New CayCo under the outstanding 2047 Notes issued pursuant to such Indenture. Co-obligor Transaction In April, 2018, GBLI Holdings, LLC, an indirect wholly-owned subsidiary of the Company, became a subordinated co-obligor with respect to the 2045 Notes, which were fully redeemed in August 2020, and the 2047 Notes with the same obligations and duties as the Company under the Indenture (including the due and punctual performance and observance of all of the covenants and conditions to be performed by the Company, including, without limitation, the obligation to pay the principal of, and interest on, the 2047 Notes when due whether at maturity, by acceleration, redemption or otherwise), and with the same rights, benefits and privileges of the Company thereunder. Notwithstanding the foregoing, GBLI Holdings, LLC's obligations (including the obligation to pay the principal of and interest in respect of the 2047 Notes) are subject to subordination to all monetary obligations or liabilities of GBLI Holdings, LLC owing to any regulated reinsurance or insurance company that is a direct or indirect subsidiary of the Company, in addition to indebtedness of GBLI Holdings, LLC for borrowed money. If the Company pays any amount with respect to the subordinated note obligations, the Company is entitled to be reimbursed by GBLI Holdings, LLC within 10 business days after a demand is made to GBLI Holding, LLC by the Company. In consideration for becoming a subordinated co-obligor on the subordinated notes, GBLI Holdings, LLC received a promissory note from Global Indemnity Limited with a principal amount of $230 million due April 15, 2047 that has since been assigned to an affiliate. This promissory note was settled in August 2020. Effective January 1, 2019, the Company adopted new accounting guidance which increased transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted this new accounting guidance using the optional transition method. Under this method, the Company applied the new leases standard at the adoption date and recognized a cumulative effect adjustment of less than $0.1 million to the opening balance sheet of retained earnings. The Company elected the package of practical expedients permitted under the transition guidance within the new standard. In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases. The Company determines if an arrangement is a lease at inception. Leases with a term of 12 months or less are not recorded on the consolidated balance sheets. For leases with a term of greater than 12 months, lease right-of-use assets (“ROU”) are included in other assets on the consolidated balance sheets and lease liabilities are included in other liabilities on the consolidated balance sheets. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company’s leases do not provide an implicit rate; therefore, the Company uses its incremental borrowing rate at the commencement date in determining the present value of future payments. The ROU assets are calculated using the initial lease liability amount, plus any lease payments made at or before the commencement date, minus any lease incentives received, plus any initial direct costs incurred. The Company’s lease agreements may contain both lease and non-lease components which are accounted separately. The Company elected the practical expedient on not separating lease components from non-lease components for its equipment leases. The Company leases office space and equipment under various operating lease arrangements. The Company’s leases have remaining lease terms ranging from 3 months to 10 years. Some building leases have options to extend, terminate, or retract the leased area. The Company did not factor in term extension, terminations, or space retractions into the lease terms used to calculate the right-of-use assets and lease liabilities since it was uncertain as to whether these options would be executed. The Company is also party to certain service contracts. These agreements will continue to be accounted for as service contracts and expensed in the period the services have been provided. As contracts are signed, renewed, or renegotiated, they will be evaluated using the criteria set forth in the new lease guidance to determine if these contracts contain a lease and will be accounted for properly depending upon the terms and language in the contract. Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. The components of lease expenses were as follows: | | Years Ended December 31, | | (Dollars in thousands) | | 2020 | | | 2019 | | Operating lease expenses | | $ | 2,952 | | | $ | 3,293 | | Short-term lease expenses | | | 7 | | | | 7 | | Total lease expenses | | $ | 2,959 | | | $ | 3,300 | |
Prior to the adoption of the new accounting guidance, rental expense under operating leases was $3.5 million for the year ended December 31, 2018. There was 0 sublease income for the years ended December 31, 2020, 2019, and 2018. Supplemental cash flow information related to leases was as follows: | | Years Ended December 31, | | (Dollars in thousands) | | 2020 | | | 2019 | | Cash paid for amounts included in the measurement of liabilities: | | | | | | | | | Operating leases | | $ | 2,012 | | | $ | 2,530 | | Right-of-use assets obtained in exchange for new lease obligations: | | | | | | | | | Operating leases | | $ | 772 | | | $ | 13,858 | |
Supplemental balance sheet information related to leases was as follows: The table below presents the lease-related assets and liabilities recorded on the consolidated balance sheets. | | | | December 31, | | (Dollars in thousands) | | Classification on the consolidated balance sheets | | 2020 | | | 2019 | | Assets: | | | | | | | | | | | Operating lease assets | | Other assets | | $ | 21,077 | | | $ | 22,761 | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | Operating lease liabilities | | Other liabilities | | $ | 22,950 | | | $ | 23,539 | | | | | | | | | | | | | Weighted-average remaining lease term | | | | | | | | | | | Operating leases | | | | 8.8 years | | | 10.2 years | | | | | | | | | | | | | Weighted-average discount rate | | | | | | | | | | | Operating leases (1) | | | | | 2.6 | % | | | 2.7 | % |
(1) | Represents the Company’s incremental borrowing rate |
At December 31, 2020, future minimum lease payments under non-cancelable operating leases were as follows: (Dollars in thousands) | | | | | 2021 | | $ | 2,883 | | 2022 | | | 2,756 | | 2023 | | | 2,790 | | 2024 | | | 2,816 | | 2025 | | | 2,871 | | Thereafter | | | 11,657 | | Total future minimum lease payments | | | 25,773 | | Less: amount representing interest | | | 2,823 | | Present value of minimum lease payments | | $ | 22,950 | |
On August 28, 2020, Global Indemnity completed the previously discloseda scheme of arrangement under Irish law (the “Scheme of Arrangement”)and amalgamation that effected a transactioncertain transactions (the “Redomestication”"Redomestication") that resulted in the shareholders of Global Indemnity plcLimited becoming shareholdersthe holders of all of the issued and outstanding common shares of Global Indemnity Group, LLC. Please see Note 2 of the notes to the consolidated financial statements in Item 8 of Part II of this report for details on the redomestication.
The treasury shares of Global Indemnity Limited andwere not subject to the scheme of arrangement. The carrying value of the Global Indemnity plc becoming a subsidiaryLimited treasury shares, $4.1 million, were offset against the Additional Paid-in Capital account of Global Indemnity Limited, until itaccording to the Company’s policy regarding the treatment of treasury shares. Please see Note 2 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2019 Annual Report on Form 10-K for more information on the Company’s policy regarding the treatment of treasury shares. Issuance of Preferred Shares On August 27, 2020, Global Indemnity Group, LLC issued and sold to Wyncote LLC (“Wyncote”), an affiliate of Fox Paine & Company, LLC, 4,000 Series A Preferred Interests at a price of $1,000 per Series A Preferred Interest, for the aggregate purchase price of $4,000,000. The issuance of Series A Preferred Interests to Wyncote was liquidatedmade pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Series A Preferred Interests are not convertible into or exchangeable for any other securities or property of Global Indemnity Group, LLC. The preferred shares are redeemable at the discretion of Global Indemnity Group, LLC after five years or at the discretion of the holders upon the occurrence of a change in 2017. In accordancecontrol of Global Indemnity Group, LLC. While the preferred shares are non-voting, the preferred shareholders are entitled to appoint 2 additional members to Global Indemnity Group, LLC’s Board of Directors whenever the “Unpaid Targeted Priority Return” (as defined in the applicable Share Designation) with respect to the preferred shares exceed zero immediately following six or more “Distribution Dates” (as defined in the applicable Share Designation), whether or not such Distribution Dates occur consecutively and Global Indemnity Group, LLC’s Board of Directors is obligated to take, and cause Global Indemnity Group, LLC’s officers to take, any necessary actions to effectuate such appointments, including expanding the size of the Board of Directors, in connection with any exercise of the foregoing provisions. Following the effective time of the Redomestication (the “Effective Time”), all of the issued and outstanding Series A Preferred Interests sold to Wyncote remain outstanding as "Series A Cumulative Fixed Rate Preferred Shares", unaffected by the Scheme of Arrangement and subject to the terms of the SchemeSecond Amended and Restated Limited Liability Company Agreement of Arrangement, the following steps occurred effectively simultaneously on November 7, 2016: | 1. | 13,463,864 shares of Global Indemnity plc A ordinary shares, par value $0.0001 per share, which represent all of the existing A ordinary shares excluding the treasury shares held by Global Indemnity plc and A shares held by Global Indemnity Limited, and 4,133,366 Global Indemnity plc B ordinary shares, par value $0.0001 per share, (together, the “Global Indemnity plc ordinary shares”) were cancelled. The treasury shares of Global Indemnity plc were not subject to the scheme. The carrying value of the Global Indemnity plc treasury shares, $103.2 million, were offset against the AdditionalPaid-in Capital account of Global Indemnity Limited, according to the Company’s policy regarding the treatment of treasury shares; |
| 2. | the reserves created on the cancellation of the Global Indemnity plc ordinary shares were used to issue 17,597,230 Global Indemnity plc ordinary shares to Global Indemnity Limited; and |
| 3. | in return for such issuance of new Global Indemnity plc ordinary shares to Global Indemnity Limited, Global Indemnity Limited issued 13,463,864 A ordinary shares, par value $0.0001 per share, and 4,133,366 Global Indemnity Limited B ordinary shares, par value $0.0001 per share (together the “Global Indemnity Limited ordinary shares”), to the former stockholders of Global Indemnity plc. Each shareholder received one Global Indemnity Limited A ordinary share for each Global Indemnity plc A ordinary share owned by such shareholder prior to the Scheme of Arrangement and one Global Indemnity Limited B ordinary share for each Global Indemnity plc B ordinary share owned by such shareholder prior to the Scheme of Arrangement. |
Prior to the Redomestication, the Global Indemnity plcGroup, LLC (the “LLCA”) and that certain Share Designation, effective as of the Effective Time, that sets forth the designation, rights, preferences, powers, duties, restrictions, limitations and obligations of the Series A ordinary shares were listed onCumulative Fixed Rate Preferred Shares from and after the Nasdaq Global Select Market (“Nasdaq”) under the symbol “GBLI” and registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In connection with the Redomestication, Global Indemnity plc requested that Nasdaq file with the U.S. Securities and Exchange Commission (the “SEC”) an application to strike the Global Indemnity plc A ordinary shares from listing on Nasdaq and the Global Indemnity plc A ordinary shares from registration under the Exchange Act.
The Global Indemnity Limited ordinary shares are deemed registered under the Exchange Act. The Global Indemnity Limited A ordinary shares began trading on Nasdaq under the symbol “GBLI,” the same symbol under which the Global Indemnity plc ordinary shares previously traded, at the opening of Nasdaq on November 7, 2016.
Dividend RestrictionDistribution Restrictions
The ability of Global Indemnity LimitedGroup, LLC to pay dividendsdistributions is subject to Cayman Island regulations. Under Cayman Islands law, dividendsapplicable federal and distributions may only be made from distributable reservesstate laws and Global Indemnity Group, LLC’s LLCA. Distributions of cash or from amounts standing to the credit of the Company’s share premium account, together with any reserve established by the revaluation of the Company’s asset, subject to the ability of the Company to meet its obligations in the ordinary course as they fall due. Distributable reserves represents the accumulated realized profits and lossesother assets of Global Indemnity Limited onGroup, LLC may be paid to Global Indemnity Group, LLC’s shareholders out of Global Indemnity Group, LLC’s assets legally available therefor only when, and if determined by the Board. Each Series A Preferred Shareholder is entitled to a standalone basis, which is $275.8 million as of December 31, 2017.“Priority Return” (as defined in the applicable Share premium represents the excessDesignation). On each Distribution Date, Global Indemnity Group, LLC shall make a distribution to each holder of the consideration paid upon the initial issuanceSeries A Preferred Shares out of, any share over the par value. As of December 31, 2017, share premium was $434.7 million. Reserves establishedand subject to a determination by the revaluationBoard that the Company has on the applicable Distribution Date, funds legally available therefor, payable in cash only, in an amount equal to the estimated amount necessary to reduce the Unpaid Priority Return of the Company’s asset were $9.0 million as of December 31, 2017. As of December 31, 2017, the maximum dividends andeach Series A Preferred Share immediately after such Distribution Date to zero. All such distributions allowable under Cayman Island law is $719.6 million.shall be made pro rata in relation to each such Series A Preferred Share’s Unpaid Priority Return. Since the CompanyGlobal Indemnity Group, LLC is a holding company and has no direct operations, its ability to pay dividendsdistributions depends, in part, on the ability of its subsidiaries to pay dividends. Global Indemnity ReinsurancePenn-Patriot Insurance Company and the U.S.its insurance subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends. Global Indemnity Investments, Inc. is dependent on generating investment income in order to pay a dividend to Global Indemnity Group, LLC. See Note 1920 for additional information regarding dividend limitations imposed on Global Indemnity ReinsurancePenn-Patriot Insurance Company and the U.S. insuranceits subsidiaries. Dividend / Distribution Program During the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend / distribution program. Although subject to the absolute discretion of the Board of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability of declaring a quarterly dividend the Company/ distribution, Global Indemnity Group, LLC currently anticipates an initial dividenda distribution rate of $0.25 per share per quarter ($1.00 per share per year).
Dividends/ Distributions Dividend & distribution payments of $0.25 per common share per quarter were declared during the year ended December 31, 2020 as follows: Approval Date | | Record Date | | Payment Date | | Total Dividends / Distributions Declared (Dollars in thousands) | | February 9, 2020 (1) | | March 24, 2020 | | March 31, 2020 | | $ | 3,539 | | June 7, 2020 (1) | | June 23, 2020 | | June 30, 2020 | | | 3,545 | | September 13, 2020 (2) | | September 25, 2020 | | September 30, 2020 | | | 3,552 | | December 6, 2020 (2) | | December 24, 2020 | | December 31, 2020 | | | 3,558 | | Various (3) | | Various | | Various | | | 451 | | Total | | | | | | $ | 14,645 | |
(1) | Represents dividend payments |
(2) | Represents distribution / return of capital payments |
(3) | Represents dividends / distributions declared on unvested shares, net of forfeitures |
Dividend payments of $0.25 per common share per quarter were declared during the year ended December 31, 2019 as follows: Approval Date | | Record Date | | Payment Date | | Total Dividends / Distributions Declared (Dollars in thousands) | | February 10, 2019 | | March 22, 2019 | | March 29, 2019 | | $ | 3,521 | | June 2, 2019 | | June 21, 2019 | | June 28, 2019 | | | 3,525 | | September 15, 2019 | | September 26, 2019 | | October 2, 2019 | | | 3,528 | | December 8, 2019 | | December 24, 2019 | | December 31, 2019 | | | 3,532 | | Various (1) | | Various | | Various | | | 268 | | Total | | | | | | $ | 14,374 | |
(1) | Represents dividends declared on unvested shares, net of forfeitures. |
Dividend payments of $0.25 per common share per quarter were declared during the year ended December 31, 2018 as follows: Approval Date | | Record Date | | Payment Date | | Total Dividends / Distributions Declared (Dollars in thousands) | | March 4, 2018 | | March 21, 2018 | | March 29, 2018 | | $ | 3,499 | | June 3, 2018 | | June 22, 2018 | | June 29, 2018 | | | 3,502 | | September 16, 2018 | | September 27, 2018 | | October 1, 2018 | | | 3,504 | | December 2, 2018 | | December 24, 2018 | | December 31, 2018 | | | 3,506 | | Various (1) | | Various | | Various | | | 197 | | Total | | | | | | $ | 14,208 | |
| (1) | Represents dividends declared on unvested shares, net of forfeitures. |
In addition, distributions of $0.1 million were paid to Global Indemnity Group, LLC’s preferred shareholders during the year ended December 31, 2020. As of December 31, 2020 and 2019, accrued dividends on unvested common shares, which were included in other liabilities on the consolidated balance sheets, were $0.7 million and $0.3 million, respectively. Accrued preferred distributions were less than $0.1 million as of December 31, 2020 and were also included in other liabilities on the consolidated balance sheets. There was 0 accrued preferred distributions at December 31, 2019.
Repurchases and Redemptions of the Company’s OrdinaryGlobal Indemnity Group, LLC’s Common Shares The CompanyGlobal Indemnity Group, LLC allows employees to surrender A ordinarycommon shares as payment for the tax liability incurred upon the vesting of restricted stock that was issued under the Company’s share incentive plan in effect at the time of issuance. During 2017, 2016,2020, 2019, and 2015, the Company2018, Global Indemnity purchased an aggregate of 29,551, 28,0995,120, 27,028 and 11,895,45,233, respectively, of surrendered A ordinarycommon shares from its employees for $1.2$0.2 million, $0.8$0.9 million and $0.3$1.8 million, respectively. All shares purchased from employees by the CompanyGlobal Indemnity Group, LLC are held as treasury stock and recorded at cost until formally retired by the company.
In 2015, the Company entered into a redemption agreement with certain affiliates of Fox Paine & Company to redeem 8,260,870 of its ordinary shares. In conjunction with the 2015 redemption, the Company acquired rights, expiring year end 2019, to redeem an additional 3,397,031 ordinary shares for $78.1 million, which amount was subject to an annual 3% increase. On December 29, 2017, Global Indemnity acquired 3,397,031 of its A ordinary shares for approximately $83.0 million in the aggregate (approximately $24.44 per share) from former investors in vehicles managed by Fox Paine & Company,Group, LLC. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2015 Annual Report on Form10-K for more information on the 2015 redemption.
The following table provides information with respect to the class A ordinarycommon shares that were surrendered, repurchased, or redeemed in 2017:2020: | | | | | | | | | | | | | | | | | Period (1) | | Total Number
of Shares
Purchased or
Redeemed | | | Average
Price Paid
Per Share | | | Total Number of Shares
Purchased as Part of
Publicly Announced
Plan or Program | | | Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs | | A ordinary shares: | | | | | | | | | | | | | | | | | January1-31, 2017 | | | 13,656 | (2) | | $ | 38.21 | | | | — | | | | — | | February1-28, 2017 | | | 15,309 | (2) | | $ | 40.18 | | | | — | | | | — | | May1-31, 2017 | | | 586 | (2) | | $ | 38.49 | | | | — | | | | — | | December 1-31, 2017 | | | 3,397,031 | | | $ | 24.44 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 3,426,582 | | | $ | 24.57 | | | | — | | | | | | | | | | | | | | | | | | | | | | |
Period (1) | | Total Number of Shares Purchased or Redeemed | | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | Class A common shares: | | | | | | | | | | | | | | | | | | January 1-31, 2020 | | | 3,124 | | (2) | | $ | 29.63 | | | | 0 | | | | 0 | | February 1-28, 2020 | | | 1,600 | | (2) | | $ | 31.13 | | | | 0 | | | | 0 | | August 1-31, 2020 | | | 396 | | (2) | | $ | 24.95 | | | | 0 | | | | 0 | | Total | | | 5,120 | | | | $ | 29.74 | | | | 0 | | | | — | |
(1) | Based on settlement date. |
(2) | Surrendered by employees as payment of taxes withheld on the vesting of restricted stock. |
There were no0 class B ordinarycommon shares that were surrendered, repurchased, or repurchasedredeemed in 2017.2020. The following table provides information with respect to the class A ordinarycommon shares that were surrendered, repurchased, or repurchasedredeemed in 2016:2019: | | | | | | | | | | | | | | | | | Period (1) | | Total Number
of Shares
Purchased | | | Average
Price Paid
Per Share | | | Total Number of Shares
Purchased as Part of
Publicly Announced
Plan or Program | | | Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs | | A ordinary shares: | | | | | | | | | | | | | | | | | January1-31, 2016 | | | 12,410 | (2) | | $ | 29.02 | | | | — | | | | — | | February1-29, 2016 | | | 15,093 | (2) | | $ | 28.25 | | | | — | | | | — | | May1-31, 2016 | | | 596 | (2) | | $ | 30.56 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | Total | | | 28,099 | | | $ | 28.64 | | | | — | | | | | | | | | | | | | | | | | | | | | | |
Period (1) | | Total Number of Shares Purchased or Redeemed | | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | Class A common shares: | | | | | | | | | | | | | | | | | | January 1-31, 2019 | | | 7,945 | | (2) | | $ | 36.23 | | | | 0 | | | | 0 | | February 1-28, 2019 | | | 19,083 | | (2) | | $ | 34.59 | | | | 0 | | | | 0 | | Total | | | 27,028 | | | | $ | 35.07 | | | | 0 | | | | — | |
(1) | Based on settlement date. |
(2) | Surrendered by employees as payment of taxes withheld on the vesting of restricted stock. |
There were no0 class B ordinarycommon shares that were surrendered, repurchased, or repurchasedredeemed in 2016.2019. 14. | Related Party Transactions |
Fox Paine & CompanyEach class A common share has one vote and each B common share has ten votes.
As of December 31, 2017,2020, Global Indemnity Group, LLC’s class A common shares were held by approximately 180 shareholders of record. There were 4 holders of record of Global Indemnity Group, LLC’s class B common shares, all of whom are affiliated investment funds of Fox Paine & Company, beneficially ownedLLC, as of December 31, 2020. Global Indemnity Group, LLC’s preferred shares having approximately 83%were held by 1 holder of the Company’s total outstanding voting power. record, an affiliate of Fox Paine & Company, hasLLC, as of December 31, 2020. 15.Related Party Transactions Fox Paine Entities Pursuant to Global Indemnity Group, LLC’s LLCA, Fox Paine Capital Fund II International, L.P. and certain of its affiliates (the “Fox Paine Funds”), together with Fox Mercury Investments, L.P. and certain of its affiliates (the “FM Entities”), and Fox Paine & Company LLC (collectively, the “Fox Paine Entities”) currently constitute a Class B Majority Shareholder (as defined in the LLCA) and, as such, have the right to appoint a number of the Company’s DirectorsGlobal Indemnity Group, LLC’s directors equal in aggregate to the pro rata percentage of the voting shares of the Companypower in Global Indemnity Group, LLC beneficially held by the Fox Paine & Company for so long asEntities, rounded up to the nearest whole number of directors. The Fox Paine & Company holds an aggregate of 25% or moreEntities beneficially own shares representing approximately 83.9% of the voting power in the Company.of Global Indemnity Group, LLC as of December 31, 2020. The Fox Paine & Company controlsEntities control the election of all of the Company’sGlobal Indemnity
Group, LLC’s Directors due to itstheir controlling share ownership. The Company’sGlobal Indemnity Group, LLC’s Chairman is a memberthe chief executive and founder of Fox Paine & Company.Company, LLC. The Company relies on
On August 27, 2020, Global Indemnity Group, LLC issued and sold to Wyncote LLC, an affiliate of Fox Paine & Company, LLC, 4,000 Series A Cumulative Fixed Rate Preferred Interests at a price of $1,000 per Series A Preferred Interest, for the aggregate purchase price of $4,000,000. While these preferred interests are non-voting, the preferred shareholders are entitled to provide management servicesappoint two additional members to Global Indemnity Group, LLC’s Board of Directors whenever the “Unpaid Targeted Priority Return” with respect to the preferred interests exceed zero immediately following six or more “Distribution Dates”, whether or not such Distribution Dates occur consecutively. Global Indemnity Group, LLC’s Board of Directors is obligated to take, and cause Global Indemnity Group, LLC’s officers to take, any necessary actions to effectuate such appointments, including expanding the size of the Board of Directors, in connection with any exercise of the foregoing provisions. See Note 14 of the notes to consolidated financial statements in Item 8 of Part II of this report for additional information on the Series A Cumulative Fixed Rate Preferred Interests. Pursuant to the Third Amended and Restated Management Agreement, (“Management Agreement”) dated August 28, 2020, between Global Indemnity Group, LLC and Fox Paine & Company, LLC, Global Indemnity Group, LLC agrees to pay, or to cause one of its affiliates to pay, an annual service fee (“Annual Service Fee”) as compensation for Fox Paine & Company, LLC’s ongoing provision of certain financial and strategic consulting, advisory and other services related to the operationsGlobal Indemnity Group, LLC and its affiliates, and to reimburse all direct and indirect expenses paid or incurred in connection with such services upon request, excluding expenses for travel, lodging, meals, and other items relating to attendance at regularly scheduled meetings of the Company. StartingBoard of Directors. For the twelve-month period beginning on September 5, 2019 and ending September 4, 2020, the Annual Service Fee was equal to $2.6 million, which amount will be adjusted on an ongoing basis in 2014, this fee is adjusted annuallyeach subsequent twelve-month period to reflect the percentage changeaggregate increase in theCPI-U. Payment of Should Global Indemnity Group, LLC and Fox Paine & Company, LLC agree that the annual management feeAnnual Service Fee will be deferred, until a change of control or September, 2018, whichever occurs first, and isthe Annual Service Fee will become subject to an annual adjustment equal to the percentage rate of return the Company earns on its investment portfolio. portfolio multiplied by the aggregate Annual Service Fees and adjustment amounts accumulated and unpaid through such date. Management fee expense of $2.6 million, $2.1 million, and $2.1 million was incurred during the years ended December 31, 2020, 2019, and 2018, respectively. Prepaid management fees, which were included in other assets on the consolidated balance sheets, were $1.8 million and $1.4 million as of December 31, 2020 and 2019, respectively. In addition, Fox Paine & Company, LLC may also propose and negotiate transaction fees with the Company subject to the provisions of the Company’s related party transaction and conflict matter policies, including approval of Global Indemnity Group, LLC’s Conflicts Committee of the Company’sBoard of Directors or Global Indemnity Limited’s Audit Committee of the Board of Directors, for those services from time to time. Management fee expenseEach of $2.2 million, $2.1 million,the Company’s transactions with Fox Paine & Company, LLC described below was reviewed and $1.9 millionapproved by either Global Indemnity Group, LLC’s Conflicts Committee or Audit Committee, which is composed of independent directors, and the Board of Directors (other than Saul A. Fox, Chairman of the Board of Directors of the Company and Chief Executive of Fox Paine & Company, LLC, who is not a member of the Conflicts Committee and was not a member of Global Indemnity Limited’s Audit Committee and recused himself from the Board of Directors’ deliberations). Recapitalization and Reorganization Transactions Fee On April 25, 2018, Global Indemnity Limited and its indirect wholly-owned subsidiaries (including GBLI Holdings, LLC and Global Indemnity Reinsurance) entered into a series of recapitalization and reorganization transactions (collectively, the “Reorganization”) designed to improve the Company’s annual results and long-term financial performance. Pursuant to the Reorganization, the Company’s affiliated group implemented the following, among other things: (i) GBLI Holdings, LLC became a subordinated co-obligor with Global Indemnity Limited under the Company’s 7.75% Subordinated Notes due in 2045 and its 7.875% Subordinated Notes due in 2047, (ii) GBLI Holdings, LLC agreed to provide capital to Global Indemnity Reinsurance from time to time to satisfy Global Indemnity Reinsurance’s obligations incurred in connection with its insurance and reinsurance business and (iii) GBLI Holdings, LLC received a promissory note from Global Indemnity Limited, which was subsequently assigned within the Company’s affiliated group in connection with the settlement of certain intra-group indebtedness. Fox Paine & Company, LLC acted as financial advisor to the Company's affiliated group in connection with the design, structuring and implementation of the Reorganization. Fox Paine & Company, LLC’s services for the Company’s affiliated group in connection with the Reorganization were performed during the years endedfirst and second quarter of 2018. The total fee for these services was $12.5 million which was paid in June 2018. As with each of the Company's transactions with Fox Paine & Company, LLC, this transaction was reviewed and approved by Global Indemnity Group, LLC 's Audit Committee and the Board of Directors (other than Saul A. Fox, Chairman of the Board of Directors of Global Indemnity Group, LLC and Chief Executive of Fox Paine & Company, LLC, who is not a member of the Audit Committee and recused himself from the Board of Directors’ deliberations), and, in connection with its review and approval of this transaction, the Audit Committee also engaged its own investment banking firm for advice.
Illiquid Investment Fund Divestiture Fee On December 31, 2017, 2016,21, 2018, GBLI Holdings, LLC exited an investment in a private credit fund pursuant to a sale of GBLI Holdings, LLC’s investment to third parties at par plus accrued interest. Fox Paine & Company, LLC provided services to GBLI Holdings, LLC in connection with the sale, including conducting due diligence to evaluate the private fund, recommending that GBLI Holdings, LLC withdraw from the private fund, and 2015, respectively. Asconducting extended negotiations with the private fund to secure GBLI Holdings, LLC’s withdrawal from the private fund on favorable terms. Fox Paine & Company, LLC’s services for GBLI Holdings, LLC in connection with the sale were performed during the second, third, and fourth quarters of December 31, 20172018. The total fee for these services was $2.0 million which was accrued in the 4th quarter of 2018, which is the period in which the transaction was completed, and 2016, unpaid management fees, which were includedwas paid in other liabilities onMay 2019. Redomestication Fee Pursuant to the consolidated balance sheets, were $6.8 million and $4.6 million, respectively. In addition,Management Agreement, Fox Paine & Company, LLC performed extensive financial advisory services for the Company paidin connection with the conceptualization, design, structuring and implementation of the redomestication plan. In accordance with the Management Agreement, Fox Paine & Company, LLC may propose and negotiate advisory fees for such services with the Company, subject to the provisions of the Company’s related party transaction policies. The Company agreed to pay an $11.0 million advisory fee to Fox Paine in connection with the redemption of 3,397,031 shares on December 29, 2017 as well as other services performed. See Note 13 for additional information on the share redemption. During 2015, the Company reimbursed Fox Paine & Company, $1.2LLC for such services in an amount of $10.0 million for expenses related to the 2015 redemption of the Company’s ordinary shares. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2015 Annual Report on Form10-K for more information on the 2015 redemption.
On September 17, 2017, the Company and Fox Paine entered into a confidentiality agreement whereby Fox Paine agrees to keep confidential proprietary information, as defined in the confidentiality agreement, it receives regarding the Company from time to time, including proprietary information it may receive from director or director nominees appointed by Fox Paine.
In connection with the acquisition of American Reliable, the Company agreed to pay to Fox Paine & Company an investment banking fee of 3% of the amount paid plus the additional capital required to operate American Reliable on a standalone basis and a $1.5 million investment advisory fee, which in the aggregate, totaled $6.5 million. This amount was included in corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the year ended December 31, 2015. As payment for these fees, 267,702 A ordinary shares of Global Indemnity were issued under2020. The $10.0 million fee was approved by the Global Indemnity plc Share Incentive Plan in May, 2015. These shares cannot be sold until the earlier of five years after January 1, 2015 or a change of control. See Note 16 for additional information on the Company’s share incentive plans including the Global Indemnity plc Share Incentive Plan which was replaced with the Global Indemnity Limited Share Incentive Plan.
Cozen O’Connor
The Company incurred $0.7 million for legal services rendered by Cozen O’Connor during the year ended December 31, 2015. Stephen A. Cozen, the chairman of Cozen O’Connor, was a member of the Company’s Board of Directors until he resigned on December 31, 2015.
Crystal & Company
During each of the years ended December 31, 2016 and 2015, the Company incurred $0.2 million in brokerage fees to Crystal & Company, an insurance broker. James W. Crystal, the chairman and chief executive officer of Crystal & Company, was a member of the Company’s Board of Directors until he resigned on July 24, 2016.
Hiscox Insurance Company (Bermuda) Ltd.
Global Indemnity Reinsurance is a participant in two reinsurance agreements with Hiscox Insurance Company (Bermuda) Ltd. (“Hiscox Bermuda”) while Steve Green, the President of Global Indemnity Reinsurance, was a member of Hiscox Bermuda’s Board of Directors. Steve Green was a member of the Hiscox Bermuda’s Board of Directors until May, 2014. The Company estimated that the following earned premium and incurred losses related to these agreements have been assumed by Global Indemnity Reinsurance from Hiscox Bermuda:Conflicts Committee.
| | | | | | | | | | | | | | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | Assumed earned premium | | $ | 4 | | | $ | 27 | | | $ | 2,266 | | Assumed losses and loss adjustment expenses | | | (130 | ) | | | (527 | ) | | | 509 | |
Net payable balances due from Global Indemnity Reinsurance under this agreement are as follows:
| | | | | | | | | | | | As of December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | Net payable balance | | $ | (10 | ) | | $ | (107 | ) |
15.16. | Commitments and Contingencies |
Legal Proceedings The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company maintains insurance and reinsurance coverage for such risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on its business, results of operations, cash flows, or financial condition. There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’ have operations that are in runoff, and therefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business. Commitments In 2014, the Company entered into a $50 million commitment to purchase an alternative investment vehicle which is comprised of Europeannon-performing loans. As of December 31, 2017,2020, the Company has funded $35.8 million of this commitment leaving $14.2 million as unfunded. In 2016, Since the investment period has concluded, the Company entered into a $40 million commitment with an investment manager that provides financing for middle market companies. As of December 31, 2017, the Company has funded $30.0 million of this commitment leaving $10.0 million as unfunded.expects minimal capital calls will be made prospectively.
In 2017, the Company entered into a $50 million commitment to purchase an alternative investment vehicle comprised of stressed and distressed debt instruments.securities and structured products. As of December 31, 2017,2020, the Company has funded $16.5$33.0 million of this commitment leaving $33.5$17.0 million as unfunded. Since the investment period has concluded, the Company expects minimal capital calls will be made prospectively. Lease Commitments
Total rental expense under operating leases forIn 2019, the years endedCompany entered into a $10 million commitment to purchase an alternative investment vehicle which is comprised of mortgage loans and other real-estate related investments. As of December 31, 2017, 2016, and 2015 was $3.52020, the Company has fully funded this commitment.
In 2020, the Company entered into a $60 million $3.7 million, and $3.5 million, respectively. Rent expense was netcommitment to purchase an alternative investment vehicle which is comprised of sublease incomenon-investment grade loans. As of $0.02 million and $0.07 million for the years ended December 31, 2016 and 2015, respectively. There was no sublease income for2020, the year ended December 31, 2017. At December 31, 2017, future minimum cash payments undernon-cancelable operating leases were as follows:Company has fully funded this commitment. | | | | | | (Dollars in thousands) | | | | 2018 | | $ | 3,147 | | 2019 | | | 2,192 | | 2020 | | | 127 | | | | | | | Total | | $ | 5,466 | | | | | | |
Other Commitments The Company is party to a Management Agreement, as amended, with Fox Paine & Company, LLC, whereby in connection with certain management services provided to it by Fox Paine & Company, LLC, the Company agreed to pay an annual management fee to Fox Paine & Company.Company, LLC. See Note 1415 above for additional information pertaining to this management agreement. COVID-19 There is risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within the Company’s Commercial Specialty and Farm, Ranch & Stable policies, or other conditions included in policies that would otherwise preclude coverage.
16.17. | Share-Based Compensation Plans |
Effective January 1, 2017, the Company adopted new accounting guidance which changed several aspects of the accounting for share-based payment transactions. Under the new guidance, all excess tax benefits and tax deficiencies associated with share-based payment awards are required to be recognized as an income tax benefit or expense in net income with the corresponding cash flows recognized as an operating activity in the Consolidated Statement of Cash Flow as opposed to being reported separately as a financing activity. Excess tax benefits and deficiencies are no longer recognized in additionalpaid-in-capital. The new guidance removes the requirement to delay recognition of any excess tax benefit when there is no current taxes payable to which the benefit would be applied. The new guidance also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur, rather than estimating forfeitures upon issuance of the award.
Upon adoption of this new accounting guidance, the Company elected to retain its policy of accruing the compensation cost based on the number of awards that are expected to vest. The adoption of this accounting guidance did not result in any cumulative adjustment or restatement. The provisions of this new guidance were adopted on a prospective basis and did not have a material impact on the Company’s financial position, results of operations or cash flows.
The fair value method of accounting recognizes share-based compensation to employees andnon-employee directors in the consolidated statements of operations using the grant-date fair value of the stock options and other equity-based compensation expensed over the requisite service and vesting period. For the purpose of determining the fair value of stock option awards, the Company uses the Black-Scholes option-pricing model. The Company elected a policy to accrue for compensation cost based on the number of awards that are expected to vest. An estimation of forfeitures is required when recognizing compensation expense which is then adjusted over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment to compensation in the period of change. Prior to January 1, 2017, the prescribed accounting guidance required
Excess tax benefits relating to excess stock-based compensation deductionsand tax deficiencies associated with share-based payment awards are required to be prospectively presentedrecognized as an income tax benefit or expense in net income (loss) with the corresponding cash flows recognized as an operating activity in the consolidated statementsConsolidated Statement of cash flows as financing cash inflows. The tax benefit resulting from stock-based compensation deductions in excess of amounts reported for financial reporting purposes was $0.1 million and $0.05 million forCash Flow. In connection with the years ended December 31, 2016 and 2015, respectively. Share Incentive Plan
On June 11, 2014,Redomestication, the Company’s Shareholders approved the Global Indemnity plc Share Incentive Plan (the “Plan”). The previous share incentive plan, which became effective in 2003, expired per its terms on September 5, 2013. As a result of the redomestication, the Global Indemnity plc Share Incentive Plan’s sponsorship and existing obligations with respect to awards granted and outstanding were assumed by the Company and the Global Indemnity plc2018 Share Incentive Plan was replaced with theamended and restated to reflect Global Indemnity Limited Share Incentive Plan (collectively, the “Plan”). The purposeGroup, LLC’s assumption of the Plan is to givesponsorship of the Company a competitive advantage in attracting and retaining officers, employees, consultants andnon-employee directors by offering stock options, restricted sharesplan and other stock-based awards. Underchanges deemed necessary and appropriate to reflect the Plan,completion of the Company may grant up to 2.0 million A ordinary shares pursuant to grants under the Plan.Redomestication.
Options Award activity for stock options granted under the Plan and the weighted average exercise price per share are summarized as follows: | | | | | | | | | | Time-Based Options | | | Performance- Based Options | | | | Total Options | | | Weighted Average Exercise Price Per Share | | | | | Time-Based
Options | | Performance-
Based Options | | Total
Options | | Weighted
Average
Exercise Price
Per Share | | | Options outstanding at January 1, 2015 | | | 612,500 | | | | — | | | 612,500 | | | $ | 25.38 | | | Options outstanding at January 1, 2018 | | | | 300,000 | | | | 300,000 | | (1) | | | 600,000 | | | $ | 25.13 | | Options issued | | | — | | | 200,000 | | | 200,000 | | | $ | 28.37 | | | | 300,000 | | | | — | | | | | 300,000 | | | | 50.00 | | Options forfeited | | | — | | | | — | | | | — | | | | — | | | | — | | | | (100,000 | ) | | | | (100,000 | ) | | | 38.43 | | Options exercised | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | Options expired | | | (12,500 | ) | | | — | | | (12,500 | ) | | $ | 37.70 | | | | — | | | | — | | | | | — | | | | — | | Options purchased by the Company | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | | | | | | | | | | | | | Options outstanding at December 31, 2015 | | | 600,000 | | | 200,000 | | | 800,000 | | | $ | 25.94 | | | Options outstanding at December 31, 2018 | | | | 600,000 | | | | 200,000 | | | | | 800,000 | | | | 35.06 | | Options issued | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | Options forfeited | | | — | | | (200,000 | ) | | (200,000 | ) | | $ | 28.37 | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | Options exercised | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | Options expired | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | Options purchased by the Company | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | Options outstanding at December 31, 2016 | | | 600,000 | | | | — | | | 600,000 | | | $ | 25.13 | | | Options outstanding at December 31, 2019 | | | | 600,000 | | | | 200,000 | | | | | 800,000 | | | | 35.06 | | Options issued | | | — | | | | — | | | | — | | | | — | | | | 300,000 | | | | 0 | | | | | 300,000 | | | | 52.79 | | Options forfeited | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | (100,000 | ) | | | | (100,000 | ) | | | 38.43 | | Options exercised | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | Options expired | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | Options purchased by the Company | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | Options outstanding at December 31, 2017 | | | 600,000 | | | | — | | | 600,000 | | | 25.13 | | | | | | | | | | | | | | | | | Options exercisable at December 31, 2017 | | | 300,000 | | | | — | | | 300,000 | | | 17.87 | | | | | | | | | | | | | | | | | Options outstanding at December 31, 2020 | | | | 900,000 | | | | 100,000 | | | | | 1,000,000 | | | $ | 40.04 | | Options exercisable at December 31, 2020 | | | | 600,000 | | | | 100,000 | | | | | 700,000 | | | $ | 34.58 | |
Of
(1) | In 2014, 300,000 performance-based options were granted. On March 6, 2018, the existing vesting provisions of these options were eliminated and replaced with new vesting provisions related to return on equity targets for 2018, 2019, and 2020 (“Bonus Years”). Return on equity targets for the 2018 and 2020 bonus years were not met. As a result, 100,000 performance-based options related to the 2018 bonus year and 100,000 performance-based options related to the 2020 bonus year were forfeited. 100,000 performance-based options remain outstanding. The remaining 100,000 performance-based options, which were related to return on equity targets for the 2019 bonus year, vested on December 31, 2019. These options are subject to remeasurement of 2019 bonus year results after the third full calendar year following the bonus year. |
The Company awarded 300,000 time-based options outstanding, there are 300,000 options that are not yet exercisable. Vestingin each of the options is dependent on meeting or exceeding underwriting targets. 60,000 options are related to the 2015 accident year. These options are subject to remeasurement of 2015 accident year results on December 31, 2018. As of December 31, 2017, the written premium target was not met but the targeted 2015 accident year results were met. 90,000 options are related to the 2016 accident year and are subject to remeasurement of accident year results on December 31, 2019. 150,000 options are related to the 2017 accident year and are subject to remeasurement of accident year results on December 31, 2020. As of December 31, 2017 the targeted accident year results for 2016 and 2017 were not met. During the yearyears ended December 31, 2015, the Company awarded 200,000 options2020 and 2018 with aan average strike price of $28.37 which were subsequently forfeited during the year ended December 31, 2016.$52.79 and $50.00, respectively. There were no0 stock options issuedgranted in 2016 or 2017.2019.
The Company recorded ($0.4)$1.6 million, $0.3$ 1.1 million, and $0.4$0.3 million of compensation expense for stock options outstanding under the Plan during the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively.
The Company did not0t receive any proceeds from the exercise of options during 2017, 20162020, 2019 or 20152018 under the Plan. All options outstanding are fully amortized as of December 31, 2017.
Option intrinsic values, which are the differences between the fair value of $42.02$28.59 at December 31, 20172020 and the strike price of the option, are as follows: | | | | Number
of Shares | | | Weighted
Average
Strike Price | | Intrinsic Value | | | Number of Shares | | | Weighted Average Strike Price | | | Intrinsic Value | | Outstanding | | | 600,000 | | | | 25.13 | | | | 10.1 million | | | | 1,000,000 | | | | 40.04 | | | $3.2 Million | | Exercisable | | | 300,000 | | | | 17.87 | (1) | | | 7.2 million | | | | 700,000 | | | | 34.58 | | | $3.2 Million | | Exercised (1) | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | |
(1) | The intrinsic value of the exercised options is the difference between the fair market value at time of exercise and the strike price of the option. |
The options exercisable at December 31, 20172020 include the following: | | | | | Option Price | | Number of options
exercisable | | $17.87 | | | 300,000 | | | | | | | Options exercisable at December 31, 2017 | | | 300,000 | | | | | | |
There were no options granted under the Plan in 2017 or 2016. The weighted average fair value of options granted under the Plan was $8.69 in 2015 using a Black-Scholes option-pricing model and the following weighted average assumptions.
Option Price | | | Number of options exercisable | | $ | 17.87 | | | | 300,000 | | $ | 38.43 | | (1) | | 100,000 | | $ | 50.00 | | | | 300,000 | | Options exercisable at December 31, 2020 | | | | 700,000 | |
| | | | | | | 2015 | | Dividend yield(1)
| | | 0.0% | | Expected volatility
| | | 31.59% | | Risk-free interest rate
| | | 1.7% | | Expected option life
| | | 5.0 years | |
The following tables summarize the range of exercise prices of options outstanding at December 31, 2017, 2016, and 2015:
| | | | | | | Ranges of Exercise Prices | | Outstanding at
December 31, 2017 | | Weighted Average Per
Share Exercise Price | | Weighted Average
Remaining Life | $17.87 — $19.99 | | 300,000 | | $17.87 | | 3.7 years | $30.00 — $37.70 | | 300,000 (1) | | $32.38 | | 6.1 years | | | | | | | | Total | | 600,000 | | | | | | | | | | | |
(1) | — the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer for additional information. |
| | | | | | | | | Ranges of Exercise Prices | | Outstanding at
December 31, 2016 | | | Weighted Average Per
Share Exercise Price | | Weighted Average
Remaining Life | $17.87 — $19.99 | | | 300,000 | | | $17.87 | | 4.7 years | $30.00 — $37.70 | | | 300,000 | (1) | | $32.38 | | 7.1 years | | | | | | | | | | Total | | | 600,000 | | | | | | | | | | | | | | |
There were no options granted under the Plan in 2019. The weighted average fair value of options granted under the Plan was $1.92 in 2020 and $3.79 in 2018 using a Black-Scholes option-pricing model and the following weighted average assumptions. | | 2020 | | | 2018 | | Dividend yield | | 2.0% | | | 2.0% | | Expected volatility | | 38.32% | | | 22.47% | | Risk-free interest rate | | 0.4% | | | 2.0% | | Expected option life | | 3.5 years | | | 3.3 years | |
The following tables summarize the range of exercise prices of options outstanding at December 31, 2020, 2019, and 2018: Ranges of Exercise Prices | | Outstanding at December 31, 2020 | | | | Weighted Average Per Share Exercise Price | | | Weighted Average Remaining Life | $17.87 — $19.99 | | | 300,000 | | | | $ | 17.87 | | | 0.7 years | $30.00 — $38.43 | | | 100,000 | | (1) | | $ | 38.43 | | | 4.0 years | $49.62 — $59.99 | | | 600,000 | | | | $ | 51.40 | | | 8.5 years | Total | | | 1,000,000 | | | | | | | | |
(1) | — the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer for additional information. |
| Ranges of Exercise Prices | | Outstanding at
December 31, 2015 | | Weighted Average Per
Share Exercise Price | | Weighted Average
Remaining Life | | Outstanding at December 31, 2019 | | | | Weighted Average Per Share Exercise Price | | | Weighted Average Remaining Life | $17.87 — $19.99 | | 300,000 | | $17.87 | | 5.7 years | | | 300,000 | | | | $ | 17.87 | | | 1.7 years | $20.00 — $29.99 | | 200,000 | | $28.37 | | 9.0 years | | $30.00 — $37.70 | | 300,000 (1) | | $32.38 | | 8.1 years | | | | | | | | | | $30.00 — $38.43 | | | | 200,000 | | (1) | | $ | 38.43 | | | 5.0 years | $50.00 — $59.99 | | | | 300,000 | | | | $ | 50.00 | | | 8.0 years | Total | | 800,000 | | | | | | | 800,000 | | | | | | | | | | | | | | | | |
(1) | — the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer for additional information. |
Ranges of Exercise Prices | | Outstanding at December 31, 2018 | | | | Weighted Average Per Share Exercise Price | | | Weighted Average Remaining Life | $17.87 — $19.99 | | | 300,000 | | | | $ | 17.87 | | | 2.7 years | $30.00 — $38.43 | | | 200,000 | | (1) | | $ | 38.43 | | | 6.0 years | $50.00 — $59.99 | | | 300,000 | | | | $ | 50.00 | | | 9.0 years | Total | | | 800,000 | | | | | | | | |
(1) | the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer for additional information. |
Restricted Shares / Restricted Stock Units In addition to stock option grants, the Plan also provides for the granting of restricted shares and restricted stock units to employees andnon-employee Directors. The Company recognized compensation expense for restricted stock of $4.1 million, $3.2 million, $2.8 million and $3.5$3.1 million for 2017, 2016,2020, 2019, and 2015,2018, respectively. The total unrecognized compensation expense for thenon-vested restricted stock is $1.7$0.2 million at December 31, 2017,2020, which will be recognized over a weighted average life of 1.51.0 years. The Company recognized compensation expense for restricted stock units of $3.2 million and $0.4 million for 2020 and 2019, respectively. There was 0 compensation expense for restricted stock units in 2018. The total unrecognized compensation expense for the non-vested restricted stock units is $4.7 million at December 31, 2020, which will be recognized over a weighted average life of 1.8 years. The following table summarizes the restricted stock grants since the 2003 inception of the original share incentive plan.plan: | | | | | | | | | | | | | | | | Restricted Stock Awards | | Year | | Employees | | | Directors | | | Total | | Inception through 2014 | | | 806,762 | | | | 441,888 | | | | 1,248,650 | | 2015 | | | 138,507 | | | | 36,321 | | | | 174,828 | | 2016 | | | 121,346 | | | | 35,185 | | | | 156,531 | | 2017 | | | 22,503 | | | | 27,121 | | | | 49,624 | | | | | | | | | | | | | | | | | | 1,089,118 | | | | 540,515 | | | | 1,629,633 | | | | | | | | | | | | | | |
| | Restricted Stock Awards | | Year | | Employees | | | Directors | | | Total | | Inception through 2017 | | | 1,089,118 | | | | 540,515 | | | | 1,629,633 | | 2018 | | | 38,778 | | | | 31,646 | | | | 70,424 | | 2019 | | | 43,680 | | | | 66,919 | | | | 110,599 | | 2020 | | | 0 | | | | 108,521 | | | | 108,521 | | | | | 1,171,576 | | | | 747,601 | | | | 1,919,177 | |
The following table summarizes the restricted stock unit grants since the 2003 inception of the original share incentive plan: | | Restricted Stock Unit Awards | | Year | | Employees | | | Directors | | | Total | | Inception through 2018 | | | 0 | | | | 0 | | | | 0 | | 2019 | | | 175,498 | | | | 0 | | | | 175,498 | | 2020 | | | 161,238 | | | | 41,667 | | | | 202,905 | | | | | 336,736 | | | | 41,667 | | | | 378,403 | |
The following table summarizes the non-vested restricted shares activity for the years ended December 31, 2017, 2016,2020, 2019, and 2015:2018: | | | | | | Number of Shares | | | Weighted Average Price Per Share | | | | | Number of
Shares | | | Weighted
Average
Price
Per Share | | | Non-vested Restricted Shares at January 1, 2015 | | | 172,275 | | | $ | 23.76 | | | Non-vested Restricted Shares at January 1, 2018 | | | | 212,812 | | | | 29.67 | | Shares issued | | | 174,828 | | | $ | 28.24 | | | | 70,424 | | | | 38.85 | | Shares vested | | | (70,503 | ) | | $ | 25.31 | | | | (166,117 | ) | | | 30.88 | | Shares forfeited | | | (16,695 | ) | | $ | 24.11 | | | | (3,255 | ) | | | 28.91 | | | | | | | | | Non-vested Restricted Shares at December 31, 2015 | | | 259,905 | | | $ | 26.33 | | | Non-vested Restricted Shares at December 31, 2018 | | | | 113,864 | | | | 33.61 | | Shares issued | | | 156,531 | | | $ | 29.44 | | | | 110,599 | | | | 30.93 | | Shares vested | | | (111,205 | ) | | $ | 26.11 | | | | (150,395 | ) | | | 29.86 | | Shares forfeited | | | (5,633 | ) | | $ | 27.25 | | | | (11,828 | ) | | | 38.42 | | | | | | | | | Non-vested Restricted Shares at December 31, 2016 | | | 299,598 | | | $ | 28.02 | | | Non-vested Restricted Shares at December 31, 2019 | | | | 62,240 | | | | 37.00 | | Shares issued | | | 49,624 | | | $ | 39.42 | | | | 108,521 | | | | 24.86 | | Shares vested | | | (116,111 | ) | | $ | 29.75 | | | | (128,623 | ) | | | 26.84 | | Shares forfeited | | | (20,299 | ) | | $ | 28.63 | | | | (6,735 | ) | | | 27.74 | | | | | | | | | Non-vested Restricted Shares at December 31, 2017 | | | 212,812 | | | $ | 29.67 | | | | | | | | | | Non-vested Restricted Shares at December 31, 2020 | | | | 35,403 | | | $ | 38.45 | |
The following table summarizes the non-vested restricted stock units activity for the years ended December 31, 2020, 2019, and 2018: | | Number of Restricted Stock Units | | | Weighted Average Price Per Restricted Stock Unit | | Non-vested Restricted Stock Units at January 1, 2018 | | | 0 | | | $ | 0 | | Restricted Stock Units issued | | | 0 | | | | 0 | | Restricted Stock Units vested | | | 0 | | | | 0 | | Restricted Stock Units forfeited | | | 0 | | | | 0 | | Non-vested Restricted Stock Units at December 31, 2018 | | | 0 | | | $ | 0 | | Restricted Stock Units issued | | | 175,498 | | | | 30.18 | | Restricted Stock Units vested | | | 0 | | | | 0 | | Restricted Stock Units forfeited | | | 0 | | | | 0 | | Non-vested Restricted Stock Units at December 31, 2019 | | | 175,498 | | | $ | 30.18 | | Restricted Stock Units issued | | | 202,905 | | | | 29.02 | | Restricted Stock Units vested | | | (41,667 | ) | | | 24.00 | | Restricted Stock Units forfeited | | | (21,710 | ) | | | 30.06 | | Non-vested Restricted Stock Units at December 31, 2020 | | | 315,026 | | | $ | 30.26 | |
Based on the terms of the Restricted Sharerestricted share and restricted stock unit grants, all forfeited shares revert back to the Company. During 2015,2018, the Company granted an aggregate of 138,50738,778 restricted class A ordinarycommon shares, to key employees atwith a weighted average grant date fair value of $28.37$40.57 per share, to key employees under the Plan. Of the11,843 of these shares granted in 2015, 10,574 were granted to the Company’s Chief Executive Officer and vest 33 1/3% on each subsequent anniversary date of the grant for a period of three years subject to an accident yeartrue-up of bonus year underwriting results as of the third anniversary of the grant and an additional 44,058 shares were granted to the Company’s Chief Executive Officer and other key employees which vest 100% on January 1, 2018.vested immediately. The remaining 83,875 shares were granted to key employees andremainder will vest as follows: 16.5% vested on January 1, 2016, 16.5% vested on January 1, 2017, and 17.0% of the granted stock will vest on January 1, 2018. | • | 16.5% vested on both January 1, 2019 and January 1, 2020. 17.0% of the granted restricted stock will vest on January 1, 2021. |
Subject to Board approval, 50% of granted stock vests 100%, no later than March 15, 2018, following are-measurement of 2014 results as of December 31, 2017. | • | Subject to Board approval, 50% of granted restricted stock will vests 100%, no later than March 15, 2021, following a re-measurement of 2017 results as of December 31, 2020. |
During 2015,2018, the Company granted 36,32131,646 restricted A ordinarycommon shares, at a weighted average grant date fair value of $27.73$36.74 per share, tonon-employee directors of the Company under the Plan. During 2016,2019, the Company granted an aggregate of 121,34643,680 restricted A ordinarycommon shares, to key employees atwith a weighted average grant date fair value of $28.97$34.23 per share, to key employees under the Plan. Of the9,063 of these shares granted in 2016, 11,199 were granted to the Company’s Chief Executive Officer and vest 33 1/3% on each subsequent anniversary datevested immediately. 27,117 of the grant for a period of three years subject to atrue-up of bonus year underwriting results as of the third anniversary of the grant. 5,309these shares were granted to another key employee and were due to vest 100% on February 7, 2019. These shares were forfeited during 2017 as the key employee is no longer employed by the company. 8,253 shares were granted to other key employees and vest 33% on the first and second anniversary of the grant and vest 34% on the third anniversary of the grant contingent on meeting certain performance objectives and subject to Board approval. The remaining 96,585 shares were granted to key employees and will vest as follows: | • | 16.5% vested on January 1, 2020. 16.5% and 17.0% of the restricted stock will vest on January 1, 2021, and January 1, 2022, respectively. |
| • | Subject to Board approval, 50% of restricted stock will vest 100%, no later than March 15, 2022, following a remeasurement of 2018 results as of December 31, 2021. |
Of the remaining 7,500 shares, 20% vested on January 1, 2017. 16.5%August 26, 2020 and 17.0% of the granted stock20% will vest on January 1, 2018August 26, 2021, August 26, 2022, August 26, 2023 and January 1, 2019, respectively. Subject to Board approval, 50% of granted stock vests 100%, no later than March 15, 2019, following are-measurement of 2015 results as of December 31, 2018.
During 2016,In addition, the Company granted 35,185175,498 restricted stock units with a weighted average grant date value of $30.18 per unit, to key employees under the Plan. These restricted stock units will vest as follows:
| • | 10.0%, 20.0%, 30.0%, and 40.0% of the restricted stock units will vest on June 18, 2021, June 18, 2022, June 18, 2023 and June 18, 2024, respectively. |
During 2019, the Company granted 66,619 restricted A ordinarycommon shares at a weighted average grant date fair value of $31.05$28.77 per share, tonon-employee directors of the Company under the Plan.plan. During 2017,2020, the Company granted an aggregate of 22,503 A ordinary shares to key employees at161,238 restricted stock units, with a weighted average grant date fair value of $38.21$30.32 per share, to key employees under the Plan. These shares3,375 of these restricted stock units will vest evenly over the next three years on January 1, 2021, January 1, 2022 and January 1, 2023.
66,957 of these restricted stock units will vest as follows: | • | 10.0%, 20.0%, 30.0% and 40.0% of the restricted stock units will vest on June 18, 2021, June 18, 2022, June 18, 2023 and June 18, 2024, respectively. |
The remaining 90,906 restricted stock units will vest as follows: | • | 16.5%, 16.5%, and 17.0% of the restricted stock units will vest on January 1, 2021, January 1, 2022, and January 1, 2023, respectively. |
| • | Subject to Board approval, 50% of restricted stock units will vest 100%, no later than March 15, 2023, following a re-measurement of 2019 results as of December 31, 2022. |
The Company did 0t grant any restricted class A common shares during 2020. 16.5%, 16.5%, and 17.0% of the granted stock vest on January 1, 2018, January 1, 2019, and January 1, 2020, respectively.
Subject to Board approval, 50% of granted stock vests 100%, no later than March 15, 2020, following are-measurement of 2016 results as of December 31, 2019.
During 2017,2020, the Company granted 27,121108,521 restricted A ordinarycommon shares at a weighted average grant date fair value of $40.42$24.86 per share, tonon-employee directors of the Company under the Plan.plan. During 2020, the Company granted 41,667 restricted stock units at a weighted average grant date fair value of $24.00 per share, to a non-employee director of the Company under the plan. All of the shares and restricted stock units granted tonon-employee directors in 2017, 2016,2020, 2019, and 20152018 were fully vested but subject to certain restrictions. Chief Executive Officer Effective September 19, 2011,On March 6, 2018, the Company entered into a Chief Executive Agreement (the “Employment Agreement”) with Cynthia Y. Valko, was hired as the Company’s Chief Executive Officer.
Ms. Valko’s terms of employment included two equity components including In accordance with the granting ofEmployment Agreement, the vesting schedule for the 300,000 stock options issued in 2014 (“Tranche 2 Options”) was modified. 100,000 of the Tranche 2 Options were related to the attainment of Return on Equity criteria for 2018 and were scheduled to vest on December 31, 2018. These options were forfeited on December 31, 2018 because the Return on Equity criteria was not met. 100,000 of the Tranche 2 Options were related to the attainment of Return on Equity criteria for 2020 and were scheduled to vest on December 31, 2020. These options were forfeited on December 31, 2020 because the Return on Equity criteria was not met. The remaining 100,000 options vested on December 31, 2019. These options are subject to remeasurement of 2019 bonus year results after the third full calendar year following the bonus year.
Under the terms of the Employment Agreement, Ms. Valko was also granted an additional 300,000 Time-Based Options (“Tranche 3 Options”) with an exercise price of $50 per share. 100,000 of the Tranche 3 Options each vested on December 31, 2018, December 31, 2019, and December 31, 2020. Tranche 3 Options expire on the earlier of December 31, 2027 or 90 calendar days after Ms. Valko is neither employed by Global Indemnity nor a strikemember of the Board of Directors. On December 10, 2020, the Company entered into a new Chief Executive Agreement (the “Chief Executive Agreement”) with Ms. Valko. The Chief Executive Agreement grants Ms. Valko 300,000 options (“Tranche 4 Options”) to buy Shares, which are in addition to the 900,000 stock options previously granted by the Company to Ms. Valko. 100,000 of the Tranche 4 Options shall have an exercise price equal to the greater of the book value per share of the Company’s Shares on December 31, 2020 and the closing per-share price of the Company’s shares on the last NASDAQ trading day precedingprior to the starteffective date or $17.87 per share, andof the Chief Executive Agreement (“Tranche 4-I Options”). 100,000 of the Tranche 4 Options shall have an annual bonus opportunityexercise price equal to the exercise price of which 50%the Tranche 4-I Options, plus $3.09 (“Tranche 4-II Options”). 100,000 of the Tranche 4 Options shall be paid in restricted shares basedhave an exercise price equal to the exercise price of the Tranche 4-II Options, plus $3.33 (“Tranche 4-III Options”). Tranche 4-I Options vest on the market valueearlier of April 1, 2022 or the date a party that is not affiliated with Fox Paine & Company, LLC or Saul Fox acquires 50% or more of the Company’s voting shares (“Change in Control”). Tranche 4-II Options vest on the earlier of April 1, 2023 or a Change in Control. Tranche 4-III Options vest on the earlier of April 1, 2024 or a Change in Control. Vesting is contingent upon Ms. Valko being a Company employee in good standing as of December 31 of the subject bonus year. The stock options vested 33 1/3% on December 31, 2012, 2013, and 2014. The restricted shares vest 33 1/3% on each anniversary of the subject bonus year. All equity components based on performance are subject to accident yeartrue-up of bonus year underwriting results and are subject to Board approval. In 2014, Ms. Valko was awarded an additional 300,000 stock options. The stock options which vested as follows: 20% vested on December 31, 2015, 30% vested on December 31, 2016, and the remaining 50% vested on December 31, 2017 were based on achieving underwriting income, premium volume, and underwriting profitability targets, subject to an accident year true up on the 3rd anniversary of each such year. Vesting of the stock options is subject to continued employment. The exercise price applicable to the Stockvesting date. Tranche 4 Options is $25.00 subject to adjustment based on the Company’s averageyear-end tangible book value per share, the average interest rate of certain Treasury bonds and the time period elapsed between January 1, 2014 and the date the stock options are exercised. The stock options were granted under andmay only be exercised if vested. Tranche 4 Options are subject to the terms of the Plan, as amended,Company’s stock option plans and ancillary agreements.
Ms. Valko will also be granted fully vested and exercisable options to acquire 300,000 Shares (“Tranche 5 Options”) on September 20, 2021, regardless of whether Ms. Valko is employed by the Company on such date. Tranche 5 Options shall have an exercise price equal to the greater of $17.87 and the closing per-share price of the Shares on the date of grant. Tranche 5 Options are subject to shareholder approvalthe terms of such plan to the extent required to affect such grant under the plan.Company’s stock option plans and ancillary agreements. In January, 2021, Ms. Valko announced her retirement effective January 31, 2021. Corporate expenses includes $1.3 million related to extending the time to exercise existing options and for the accrual of Tranche 5 options. See Note 25 for additional information regarding Ms. Valko’s retirement.
The Company maintains a 401(k) defined contribution plan that covers all eligible U.S. employees. Under this plan, the Company matches 100% of the first 6% contributed by an employee. Vesting on contributions made by the Company is immediate. Total expenses for the plan were $1.9 million $1.9 million, and $2.0 million for each of the years ended December 31, 2017, 2016,2020, 2019, and 2015, respectively.2018. Earnings per share have been computed using the weighted average number of ordinarycommon shares and ordinarycommon share equivalents outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share.share: | | | | | | | | | | | | | | | | Years Ended December 31, | | (Dollars in thousands, except share and per share
data) | | 2017 | | | 2016 | | | 2015 | | Net income (loss) | | $ | (9,551 | ) | | $ | 49,868 | | | $ | 41,469 | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | Weighted average shares outstanding — basic | | | 17,308,663 | | | | 17,246,717 | | | | 24,253,657 | | | | | | | | | | | | | | | Net income (loss) per share | | $ | (0.55 | ) | | $ | 2.89 | | | $ | 1.71 | | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | Weighted average shares outstanding — diluted (1) | | | 17,308,663 | | | | 17,547,061 | | | | 24,505,851 | | | | | | | | | | | | | | | Net income (loss) per share | | $ | (0.55 | ) | | $ | 2.84 | | | $ | 1.69 | | | | | | | | | | | | | | |
| | Years Ended December 31, | | (Dollars in thousands, except share and per share data) | | 2020 | | | 2019 | | | 2018 | | Numerator: | | | | | | | | | | | | | Net income (loss) | | $ | (21,006 | ) | | $ | 70,015 | | | $ | (56,696 | ) | Less: preferred stock distributions | | | 152 | | | | 0 | | | | 0 | | Net income (loss) available to common shareholders | | $ | (21,158 | ) | | $ | 70,015 | | | $ | (56,696 | ) | | | | | | | | | | | | | | Denominator: | | | | | | | | | | | | | Weighted average shares for basic earnings per share | | | 14,291,265 | | | | 14,191,756 | | | | 14,088,883 | | Non-vested restricted stock | | | 0 | | | | 20,492 | | | | 0 | | Non-vested restricted stock units | | | 0 | | | | 3,392 | | | | 0 | | Options | | | 0 | | | | 119,066 | | | | 0 | | Weighted average shares for diluted earnings per share (1) | | | 14,291,265 | | | | 14,334,706 | | | | 14,088,883 | | | | | | | | | | | | | | | Earnings per share - Basic | | $ | (1.48 | ) | | $ | 4.93 | | | $ | (4.02 | ) | Earnings per share - Diluted | | $ | (1.48 | ) | | $ | 4.88 | | | $ | (4.02 | ) |
(1) | For the yearyears ended December 31, 2017,2020 and 2018, “weighted average shares outstanding —– basic” was used to calculate “diluted earnings per share” due to a net loss for the period.these periods. |
A reconciliation of weighted average shares for basic earnings per share to weighted average shares for diluted earnings per share is as follows:
| | | | | | | | | | | | | | | | Years Ended December 31, | | | | | 2017 | | | 2016 | | | 2015 | | Weighted average shares for basic earnings per share | | | 17,308,663 | | | | 17,246,717 | | | | 24,253,657 | | Non-vested restricted stock | | | — | | | | 187,526 | | | | 148,669 | | Options | | | — | | | | 112,818 | | | | 103,525 | | | | | | | | | | | | | | | Weighted average shares for diluted earnings per share | | | 17,308,663 | | | | 17,547,061 | | | | 24,505,851 | | | | | | | | | | | | | | |
If the Company had not incurred a loss in the yearyears ended December 31, 2017, 17,680,2092020 and 2018, 14,458,008 and 14,325,276 weighted average shares, respectively, would have been used to compute the diluted loss per share calculation.calculations. In addition to the basic shares, weighted average shares for the diluted calculationcalculations for the years ended December 31, 2020 and 2018 would have included 157,44117,470 and 76,568 shares ofnon-vested restricted stock, respectively, 57,456 and 214,1050 restricted stock units, respectively, and 91,816 and 159,825 share equivalents for options.options, respectively. The weighted average shares outstanding used to determine dilutive earnings per share for the year ended December 31, 2020 did not include 700,000 options and 66,957 restricted stock units which were deemed to be anti-dilutive. The weighted average shares outstanding used to determine dilutive earnings per share for the years ended December 31, 20162019 and 20152018 do not include 300,000 and 500,000 options respectively, which were deemed to be anti-dilutive. The year ended December 31, 2017 did not have any options that were deemed to be anti-dilutive. 19.20. | Statutory Financial Information |
GAAP differs in certain respects from Statutory Accounting Principles (“SAP”) as prescribed or permitted by the various U.S. state insurance departments. The principal differences between SAP and GAAP are as follows: | • | Under SAP, investments in debt securities are primarily carried at amortized cost, while under GAAP the Company records its debt securities at estimated fair value. |
| • | Under SAP, policy acquisition costs, such as commissions, premium taxes, fees and other costs of underwriting policies are charged to current operations as incurred, while under GAAP such costs are deferred and amortized on a pro rata basis over the period covered by the policy. |
Under SAP, certain assets designated as“Non-admitted assets” | • | Under SAP, certain assets designated as "Non-admitted assets" (such as prepaid expenses) are charged against surplus. |
| • | Under SAP, net deferred income tax assets are admitted following the application of specified criteria, with the resulting admitted deferred tax amount being credited directly to surplus. |
Under SAP, certain premium receivables arenon-admitted and are charged against surplus based upon aging criteria.
Under SAP, the costs and related receivables for guaranty funds and other assessments are recorded based on management’s estimate of the ultimate liability and related receivable settlement, while under GAAP such costs are accrued when the liability is probable and reasonably estimable and the related receivable amount is based on future premium collections or policy surcharges fromin-force policies. | • | Under SAP, certain premium receivables are non-admitted and are charged against surplus based upon aging criteria. |
Under SAP, unpaid losses and loss adjustment expenses and unearned premiums are reported net of the effects of reinsurance transactions, whereas under GAAP, unpaid losses and loss adjustment expenses and unearned premiums are reported gross of reinsurance. | • | Under SAP, the costs and related receivables for guaranty funds and other assessments are recorded based on management's estimate of the ultimate liability and related receivable settlement, while under GAAP such costs are accrued when the liability is probable and reasonably estimable and the related receivable amount is based on future premium collections or policy surcharges from in-force policies. |
Under SAP, a provision for reinsurance is charged to surplus based on the authorized status of reinsurers, available collateral, and certain aging criteria, whereas under GAAP, an allowance for uncollectible reinsurance is established based on management’s best estimate of the collectability of reinsurance receivables. | • | Under SAP, unpaid losses and loss adjustment expenses and unearned premiums are reported net of the effects of reinsurance transactions, whereas under GAAP, unpaid losses and loss adjustment expenses and unearned premiums are reported gross of reinsurance. |
| • | Under SAP, a provision for reinsurance is charged to surplus based on the authorized status of reinsurers, available collateral, and certain aging criteria, whereas under GAAP, an allowance for uncollectible reinsurance is established based on management’s best estimate of the collectability of reinsurance receivables. |
| • | Under SAP, the tax impact of the Tax Cuts and Jobs Act enacted on December 22, 2017 is recorded through surplus, whereas under GAAP, the tax impact is recorded in the Consolidated Statements of Operations. |
The National Association of Insurance Commissioners (“NAIC”) issues model laws and regulations, many of which have been adopted by state insurance regulators, relating to: (a) risk-based capital (“RBC”("RBC") standards; (b) codification of insurance accounting principles; (c) investment restrictions; and (d) restrictions on the ability of insurance companies to pay dividends. The Company’s U.S. insurance subsidiaries are required by law to maintain certain minimum surplus on a statutory basis, and are subject to regulations under which payment of a dividend from statutory surplus is restricted and may require prior approval of regulatory authorities. Applying the current regulatory restrictions as of December 31, 2017,2020, the maximum amount of distributions that could be paid in 20182021 by Penn-Patriot Insurance Company, the United National insurance companies, and the Penn-America insurance companies, and American Reliable under applicable laws and regulations without regulatory approval is approximately $21.0$34.3 million, $17.4 million, $8.1 million, and $6.3$10.0 million, respectively. The Penn-America insurance companies limitation includes $2.1$2.7 million that would be distributed to United National Insurance Company or its subsidiary, Penn Independent Corporation, based on the December 31, 20172020 ownership percentages. American Reliable is unable toThe Company’s insurance subsidiaries did 0t declare or pay a distributionany dividends in 2018 without regulatory approval. During 2017, the United National Insurance Company, the Penn-America Insurance Company, and American Reliable declared and paid dividends of $17.8 million, $7.9 million, and $3.3 million, respectively. In addition, United National Insurance Company paid a $35.0 million dividend, which was previously declared in 2015, to its parent company, American Insurance Services, Inc. during the year ended December 31, 2017.2020. The NAIC’sNAIC's RBC model provides a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks, as well as its reinsurance exposures, to assess the potential need for regulatory attention. The model provides four levels of regulatory attention, varying with the ratio of an insurance company’scompany's total adjusted capital to its authorized control level RBC (“ACLRBC”("ACLRBC"). If a company’s total adjusted capital is: | (a) | less than or equal to 200%, but greater than 150% of its ACLRBC (the “Company"Company Action Level”Level"), the company must submit a comprehensive plan to the regulatory authority proposing corrective actions aimed at improving its capital position; |
| (b) | less than or equal to 150%, but greater than 100% of its ACLRBC (the “Regulatory"Regulatory Action Level”Level"), the regulatory authority will perform a special examination of the company and issue an order specifying the corrective actions that must be followed; |
| (c) | less than or equal to 100%, but greater than 70% of its ACLRBC (the “Authorized"Authorized Control Level”Level"), the regulatory authority may take any action it deems necessary, including placing the company under regulatory control; and |
| (d) | less than or equal to 70% of its ACLRBC (the “Mandatory"Mandatory Control Level”Level"), the regulatory authority must place the company under its control. |
Based on the standards currently adopted, the Company reported in its 20172020 statutory filings that the capital and surplus of the U.S. insurance companies are above the prescribed Company Action Level RBC requirements. The following is selected information for the Company’s U.S. insurance companies, net of intercompany eliminations, where applicable, as determined in accordance with SAP: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Statutory capital and surplus, as of end of period | | $ | 274,586 | | | $ | 323,144 | | | $ | 318,101 | | | $ | 342,987 | | | $ | 263,793 | | | $ | 225,645 | | Statutory net income (loss) | | ($ | 19,019 | ) | | | 35,618 | | | | 48,633 | | | | 73,655 | | | | 39,971 | | | | (52,036 | ) |
Prior to Global Indemnity Reinsurance’s merger into Penn-Patriot on August 28, 2020, Global Indemnity Reinsurance mustwas required to also prepare annual statutory financial statements. The Bermuda Insurance Act 1978 (the “Insurance Act”) prescribes rules for the preparation and substance of these statutory financial statements which include, in statutory form, a balance sheet, an income statement, a statement of capital and surplus and notes thereto. The statutory financial statements are not prepared in accordance with GAAP or SAP and are distinct from the financial statements prepared for presentation to Global Indemnity Reinsurance’sReinsurance's shareholders and under the Bermuda Companies Act 1981 (the “Companies Act”), which financial statements will be prepared in accordance with GAAP. The principal differences between statutory financial statements prepared under the Insurance Act and GAAP are as follows: | • | Under the Insurance Act, policy acquisition costs, such as commissions, premium taxes, fees and other costs of underwriting policies are charged to current operations as incurred, while under GAAP such costs are deferred and amortized on a pro rata basis over the period covered by the policy. |
| • | Under the Insurance Act, prepaid expenses and intangible assets are charged to current operations as incurred, while under GAAP such costs are deferred and amortized on a pro rata basis. |
| • | Under the Insurance Act, unpaid losses and loss adjustment expenses and unearned premiums are reported net of the effects of reinsurance transactions, whereas under GAAP, unpaid losses and loss adjustment expenses and unearned premiums are reported gross of reinsurance. |
Under the Companies Act, Global Indemnity Reinsurance may only declare or pay a dividend if it has no reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would not be less than the aggregate of its liabilities and its issued share capital and share premium accounts. Global Indemnity Reinsurance is also prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital or 25% or more of its total statutory capital and surplus as set out in its previous year’s statutory financial statements, and any application for such approval must include such information as the BMA may require. Based upon the total statutory capital plus the statutory surplus as set out in its 2017 statutory financial statements that will be filed in 2018, Global Indemnity Reinsurance could pay a dividend of up to $227.1 million without requesting BMA approval. Global Indemnity Reinsurance is dependent on receiving distributions from its subsidiaries in order to pay the full dividend in cash. In 2017,June, 2020, Global Indemnity Reinsurance declared and paid a dividend of $120.0$226.0 million to its parent Global Indemnity. Of this amount, $100.0 million was paid tocompany, Global Indemnity in December, 2017. As of December 31, 2017, accrued dividends were $20.0 million.Limited. On August 26, 2020, Global Indemnity Reinsurance merged into Penn-Patriot Insurance Company. The following is selected information for Global Indemnity Reinsurance, net of intercompany eliminations, where applicable, as determined in accordance with the Bermuda Insurance Act 1978: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | Statutory capital and surplus, as of end of period | | $ | 908,433 | | | $ | 838,923 | | | $ | 713,842 | | | $ | 885,763 | | | $ | 835,620 | | Statutory net income | | | 29,647 | | | | 32,768 | | | | 864 | | | Statutory net income (loss) | | | | 34,086 | | | | (3,972 | ) |
The
As a result of the merger, the Company managesno longer has any subsidiaries which are Bermuda licensed companies and is not required to prepare annual statutory financial statements in accordance with the Bermuda Insurance Act 1978 for 2020. 21.Segment Information During the 1st quarter of 2019, the Company re-evaluated its business through three business segments.Personal Lines segment and determined that Personal Lines should be bifurcated into 2 reportable segments: Specialty Property and Farm, Ranch & Stable. In addition, the Company has changed the name of its Commercial Lines offers specialty property and casualty products designedsegment to Commercial Specialty to better align with its key product offerings. The segment results for product lines such as Small Business Binding Authority, Property Brokerage, and Programs. Personal Lines offers specialty personal lines and agricultural coverage. Reinsurance Operations provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies.the year ended December 31, 2018 have been revised to reflect these changes. Please see Note 1 for additional information related to these segment changes. All threefour segments follow the same accounting policies used for the Company’s consolidated financial statements. For further disclosure regarding the Company’s accounting policies, please see Note 3. DuringThe Company manages its business through 4 business segments. Commercial Specialty offers specialty property and casualty products designed for product lines such as Small Business Binding Authority, Property Brokerage, and Programs. Specialty Property offers specialty personal lines property and casualty insurance products. Farm, Ranch & Stable offers specialized property and casualty coverage including Commercial Farm Auto and Excess/Umbrella Coverage for the 1st quarter of 2017,agriculture industry as well as specialized insurance products for the Companyre-evaluated its Commercial Linesequine mortality and Personal Lines segmentsequine major medical industry. Reinsurance Operations provides reinsurance solutions through brokers and determined that certain portions of business will be managed, operatedprimary writers including insurance and reported by including them in the other segment. As a result, the composition of the Company’s reportable segments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included as part of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs written by American Reliable Insurance Company, which was previously included within the Personal Lines segment, is now aggregated within the Commercial Lines segment. Accordingly, the segment results for 2016 and 2015 have been revised to reflect these changes.reinsurance companies.
On September 30, 2016, Diamond State Insurance Company sold all the outstanding shares of capital stock of one of its wholly owned subsidiaries, United National Specialty Insurance Company, to an unrelated party. Diamond State Insurance Company received aone-time payment of $18.7 million and recognized a pretax gain of $6.9 million which is reflected in other income in 2016. This transaction did not have an impact on the Company’s ongoing business operations. Subsequent to the sale, any business previously written by United National Specialty Insurance Company is being written by other companies within the Company’s U.S. Insurance Operations.
The following are tabulations of business segment information for the years ended December 31, 2017, 2016,2020, 2019, and 2015.2018. Corporate information is included to reconcile segment data to the consolidated financial statements. | 2017: (Dollars in thousands) | | Commercial
Lines (1) | | Personal
Lines (1) | | Reinsurance
Operations (2) | | Total | | | 2020: (Dollars in thousands) | | | Commercial Specialty | | | | Specialty Property | | | | Farm, Ranch, & Stable | | | | Reinsurance Operations | | (1) | | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 212,670 | | | $ | 249,777 | (6) | | $ | 53,887 | | | $ | 516,334 | | | | | | | | | | | | | | | | | Net premiums written | | $ | 186,448 | | | $ | 209,799 | | | $ | 53,933 | | | $ | 450,180 | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 178,798 | | | $ | 215,983 | | | $ | 43,253 | | | $ | 438,034 | | | Gross written premiums | | | $ | 321,879 | | | | $ | 138,401 | | (2) | | $ | 85,646 | | | | $ | 60,677 | | | | $ | 606,603 | | Net written premiums | | | $ | 292,216 | | | | $ | 121,111 | | | | $ | 74,163 | | | | $ | 60,677 | | | | $ | 548,167 | | Net earned premiums | | | $ | 285,694 | | | | $ | 131,474 | | | | $ | 76,166 | | | | $ | 74,365 | | | | $ | 567,699 | | Other income | | | 78 | | | 6,288 | | | 216 | | | 6,582 | | | | 0 | | | | | 1,705 | | | | | 142 | | | | | 191 | | | | | 2,038 | | | | | | | | | | | | | | | | Total revenues | | | 178,876 | | | 222,271 | | | 43,469 | | | 444,616 | | | | 285,694 | | | | | 133,179 | | | | | 76,308 | | | | | 74,556 | | | | | 569,737 | | | | | | | | | | | | | | | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 62,834 | | | 165,798 | | | 40,580 | | | 269,212 | | | | 155,271 | | | | | 94,540 | | | | | 47,151 | | | | | 39,239 | | | | | 336,201 | | Acquisition costs and other underwriting expenses | | | 75,990 | (3) | | 93,113 | (4) | | 14,630 | | | 183,733 | | | | 104,659 | | | | | 55,547 | | | | | 29,761 | | | | | 25,640 | | | | | 215,607 | | | | | | | | | | | | | | | | Income (loss) from segments | | $ | 40,052 | | | $ | (36,640 | ) | | $ | (11,741 | ) | | (8,329 | ) | | $ | 25,764 | | | | $ | (16,908 | ) | | | $ | (604 | ) | | | $ | 9,677 | | | | | 17,929 | | | | | | | | | | | | | | | Unallocated Items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | 39,323 | | | | | | | | | | | | | | | | | | | | | | | | 28,392 | | Net realized investment gains | | | | | | | | 1,576 | | | Net realized investment losses | | | | | | | | | | | | | | | | | | | | | | | | (14,662 | ) | Other income | | | | | | | | | | | | | | | | | | | | | | | | 80 | | Corporate and other operating expenses | | | | | | | | (25,714 | ) | | | | | | | | | | | | | | | | | | | | | | | (41,998 | ) | Interest expense | | | | | | | | (16,906 | ) | | | | | | | | | | | | | | | | | | | | | | | (15,792 | ) | | | | | | | | | | | | Loss on extinguishment of debt | | | | | | | | | | | | | | | | | | | | | | | | (3,060 | ) | Loss before income taxes | | | | | | | | (10,050 | ) | | | | | | | | | | | | | | | | | | | | | | | (29,111 | ) | Income tax benefit | | | | | | | | 499 | | | | | | | | | | | | | | | | | | | | | | | | 8,105 | | | | | | | | | | | | | Net loss | | | | | | | | $ | (9,551 | ) | | | | | | | | | | | | | | | | | | | | | | $ | (21,006 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Segment assets | | | $ | 850,813 | | | | $ | 237,835 | | | | $ | 152,037 | | | | $ | 278,174 | | | | $ | 1,518,859 | | Corporate assets | | | | | | | | | | | | | | | | | | | | | | | | 386,049 | | Total assets | | $ | 905,184 | | | $ | 467,525 | | | $ | 628,960 | (5) | | $ | 2,001,669 | | | | | | | | | | | | | | | | | | | | | | | $ | 1,904,908 | | | | | | | | | | | | | | | |
(1) | Includes business ceded to the Company’s Reinsurance Operations. |
(2) | External business only, excluding business assumed from affiliates. |
(3) | Includes federal excise tax of $714 relating to cessions from Commercial Lines to Reinsurance Operations. |
(4) | Includes federal excise tax of $862 relating to cessions from Personal Lines to Reinsurance Operations. |
(5) | Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries |
(6)(2) | Includes ($1,338)less than $0.1 million of business written by American Reliable that iswas ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement. |
| | | | | | | | | | | | | | | | | 2016: (Dollars in thousands) | | Commercial
Lines (1) | | | Personal
Lines (1) | | | Reinsurance
Operations (2) | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 203,061 | | | $ | 302,947 | (6) | | $ | 59,837 | | | $ | 565,845 | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 182,956 | | | $ | 228,183 | | | $ | 59,801 | | | $ | 470,940 | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 189,342 | | | $ | 237,555 | | | $ | 41,568 | | | $ | 468,465 | | Other income (loss) | | | 6,857 | | | | 3,712 | | | | (224 | ) | | | 10,345 | | | | | | | | | | | | | | | | | | | Total revenues | | | 196,199 | | | | 241,267 | | | | 41,344 | | | | 478,810 | | | | | | | | | | | | | | | | | | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 75,401 | | | | 174,528 | | | | 14,074 | | | | 264,003 | | Acquisition costs and other underwriting expenses | | | 81,477 | (3) | | | 99,109 | (4) | | | 16,064 | | | | 196,650 | | | | | | | | | | | | | | | | | | | Income (loss) from segments | | $ | 39,321 | | | $ | (32,370 | ) | | $ | 11,206 | | | | 18,157 | | | | | | | | | | | | | | | | | | | Unallocated Items: | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | 33,983 | | Net realized investment gains | | | | | | | | | | | | | | | 21,721 | | Corporate and other operating expenses | | | | | | | | | | | | | | | (17,338 | ) | Interest expense | | | | | | | | | | | | | | | (8,905 | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | 47,618 | | Income tax benefit | | | | | | | | | | | | | | | 2,250 | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | $ | 49,868 | | | | | | | | | | | | | | | | | | | Total assets | | $ | 790,564 | | | $ | 470,508 | | | $ | 711,874 | (5) | | $ | 1,972,946 | | | | | | | | | | | | | | | | | | |
2019: (Dollars in thousands) | | Commercial Specialty | | (1) | | Specialty Property | | (1) | | Farm, Ranch, & Stable | | (1) | | Reinsurance Operations | | (2) | | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | Gross written premiums | | $ | 297,332 | | | | $ | 163,503 | | (3) | | $ | 87,745 | | | | $ | 88,281 | | | | $ | 636,861 | | Net written premiums | | $ | 258,719 | | | | $ | 140,670 | | | | $ | 74,416 | | | | $ | 88,284 | | | | $ | 562,089 | | Net earned premiums | | $ | 237,758 | | | | $ | 140,232 | | | | $ | 71,312 | | | | $ | 75,960 | | | | $ | 525,262 | | Other income (loss) | | | — | | | | | 1,820 | | | | | 132 | | | | | (136 | ) | | | | 1,816 | | Total revenues | | | 237,758 | | | | | 142,052 | | | | | 71,444 | | | | | 75,824 | | | | | 527,078 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 108,911 | | | | | 75,426 | | | | | 42,700 | | | | | 48,365 | | | | | 275,402 | | Acquisition costs and other underwriting expenses | | | 96,475 | | | | | 58,768 | | | | | 29,551 | | | | | 23,609 | | | | | 208,403 | | Income (loss) from segments | | $ | 32,372 | | | | $ | 7,858 | | | | $ | (807 | ) | | | $ | 3,850 | | | | | 43,273 | | Unallocated Items: | | | | | | | | | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | | | | | | | | | 42,052 | | Net realized investment gains | | | | | | | | | | | | | | | | | | | | | | | 35,342 | | Corporate and other operating expenses | | | | | | | | | | | | | | | | | | | | | | | (18,888 | ) | Interest expense | | | | | | | | | | | | | | | | | | | | | | | (20,022 | ) | Income before income taxes | | | | | | | | | | | | | | | | | | | | | | | 81,757 | | Income tax expense | | | | | | | | | | | | | | | | | | | | | | | (11,742 | ) | Net income | | | | | | | | | | | | | | | | | | | | | | $ | 70,015 | | �� | | | | | | | | | | | | | | | | | | | | | | | | | Segment assets | | $ | 713,010 | | | | $ | 226,388 | | | | $ | 136,891 | | | | $ | 325,451 | | | | $ | 1,401,740 | | Corporate assets | | | | | | | | | | | | | | | | | | | | | | | 674,145 | | Total assets | | | | | | | | | | | | | | | | | | | | | | $ | 2,075,885 | |
(1) | Includes business ceded to the Company’s Reinsurance Operations. This quota share agreement was cancelled effective January 1, 2018. |
(2) | External business only, excluding business assumed from affiliates. |
(3) | Includes federal excise tax of $756 relating to cessions from Commercial Lines to Reinsurance Operations. |
(4) | Includes federal excise tax of $948 relating to cessions from Personal Lines to Reinsurance Operations. |
(5) | Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries |
(6)(3) | Includes $35,334($273) of business written by American Reliable that iswas ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement. |
2018: (Dollars in thousands) | | Commercial Specialty | | (1) | | Specialty Property | | (1) | | Farm, Ranch, & Stable | | (1) | | Reinsurance Operations | | (2) | | Total | | Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | Gross written premiums | | $ | 249,948 | | | | $ | 170,168 | | (6) | | $ | 79,738 | | | | $ | 48,043 | | | | $ | 547,897 | | Net written premiums | | $ | 226,827 | | | | $ | 127,470 | | | | $ | 70,217 | | | | $ | 48,033 | | | | $ | 472,547 | | Net earned premiums | | $ | 218,357 | | | | $ | 128,768 | | | | $ | 69,248 | | | | $ | 51,402 | | | | $ | 467,775 | | Other income (loss) | | | — | | | | | 1,782 | | | | | 156 | | | | | (210 | ) | | | | 1,728 | | Total revenues | | | 218,357 | | | | | 130,550 | | | | | 69,404 | | | | | 51,192 | | | | | 469,503 | | Losses and Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 114,476 | | | | | 122,709 | | | | | 41,180 | | | | | 56,260 | | | | | 334,625 | | Acquisition costs and other underwriting expenses | | | 87,371 | | (3) | | | 55,760 | | (4) | | | 29,801 | | (5) | | | 17,846 | | | | | 190,778 | | Income (loss) from segments | | $ | 16,510 | | | | $ | (47,919 | ) | | | $ | (1,577 | ) | | | $ | (22,914 | ) | | | | (55,900 | ) | Unallocated Items: | | | | | | | | | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | | | | | | | | | 46,342 | | Net realized investment losses | | | | | | | | | | | | | | | | | | | | | | | (16,907 | ) | Corporate and other operating expenses | | | | | | | | | | | | | | | | | | | | | | | (29,766 | ) | Interest expense | | | | | | | | | | | | | | | | | | | | | | | (19,694 | ) | Loss before income taxes | | | | | | | | | | | | | | | | | | | | | | | (75,925 | ) | Income tax benefit | | | | | | | | | | | | | | | | | | | | | | | 19,229 | | Net loss | | | | | | | | | | | | | | | | | | | | | | $ | (56,696 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Segment assets | | $ | 712,632 | | | | $ | 270,083 | | | | $ | 134,056 | | | | $ | 316,922 | | | | $ | 1,433,693 | | Corporate assets | | | | | | | | | | | | | | | | | | | | | | | 526,573 | | Total assets | | | | | | | | | | | | | | | | | | | | | | $ | 1,960,266 | |
(1) | Includes business ceded to the Company’s Reinsurance Operations. This quota share agreement was cancelled effective January 1, 2018. |
(2) | External business only, excluding business assumed from affiliates. |
(3) | Includes federal excise tax of $386 relating to cessions from Commercial Specialty to Reinsurance Operations. |
(4) | Includes federal excise tax of $313 relating to cessions from Specialty Property to Reinsurance Operations. |
(5) | Includes federal excise tax of $145 relating to cessions from Farm, Ranch & Stable to Reinsurance Operations. |
(6) | Includes ($2,062) of business written by American Reliable that was ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement. |
| | | | | | | | | | | | | | | | | 2015: (Dollars in thousands) | | Commercial
Lines (1) | | | Personal
Lines (1) | | | Reinsurance
Operations (2) | | | Total | | Revenues: | | | | | | | | | | | | | | | | | Gross premiums written | | $ | 213,353 | | | $ | 327,147 | (6) | | $ | 49,733 | | | $ | 590,233 | | | | | | | | | | | | | | | | | | | Net premiums written | | $ | 198,404 | | | $ | 253,157 | | | $ | 49,683 | | | $ | 501,244 | | | | | | | | | | | | | | | | | | | Net premiums earned | | $ | 198,404 | | | $ | 253,948 | | | $ | 51,791 | | | $ | 504,143 | | Other income (loss) | | | — | | | | 3,493 | | | | (93 | ) | | | 3,400 | | | | | | | | | | | | | | | | | | | Total revenues | | | 198,404 | | | | 257,441 | | | | 51,698 | | | | 507,543 | | | | | | | | | | | | | | | | | | | Losses and Expenses: | | | | | | | | | | | | | | | | | Net losses and loss adjustment expenses | | | 98,471 | | | | 163,045 | | | | 13,852 | | | | 275,368 | | Acquisition costs and other underwriting expenses | | | 84,623 | (3) | | | 97,687 | (4) | | | 18,993 | | | | 201,303 | | | | | | | | | | | | | | | | | | | Income (loss) from segments | | $ | 15,310 | | | $ | (3,291 | ) | | $ | 18,853 | | | | 30,872 | | | | | | | | | | | | | | | | | | | Unallocated Items: | | | | | | | | | | | | | | | | | Net investment income | | | | | | | | | | | | | | | 34,609 | | Net realized investment losses | | | | | | | | | | | | | | | (3,374 | ) | Corporate and other operating expenses | | | | | | | | | | | | | | | (24,448 | ) | Interest expense | | | | | | | | | | | | | | | (4,913 | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | 32,746 | | Income tax benefit | | | | | | | | | | | | | | | 8,723 | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | $ | 41,469 | | | | | | | | | | | | | | | | | | | Total assets | | $ | 714,688 | | | $ | 524,912 | | | $ | 717,694 | (5) | | $ | 1,957,294 | | | | | | | | | | | | | | | | | | |
(1)22. | Includes business ceded to the Company’s Reinsurance Operations. |
(2) | External business only, excluding business assumed from affiliates. |
(3) | Includes federal excise tax of $1,047 relating to cessions from Commercial Lines to Reinsurance Operations. |
(4) | Includes federal excise tax of $1,270 relating to cessions from Personal Lines to Reinsurance Operations. |
(5) | Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries |
(6) | Includes $55,829 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement. |
21. | Supplemental Cash Flow Information |
Taxes and Interest Paid The Company paid the following net federal income taxes and interest for 2017, 2016,2020, 2019, and 2015:2018: | | | | Years Ended December 31, | | | Years Ended December 31, | | | (Dollars in thousands) | | 2017 | | | 2016 | | | 2015 | | | 2020 | | | 2019 | | | 2018 | | Federal income taxes paid | | $ | 133 | | | $ | 195 | | | $ | 104 | | | $ | 162 | | | $ | 251 | | | $ | 859 | | Federal income taxes recovered | | | 19 | | | | 4,889 | | | | 2 | | | | 10,987 | | | | 170 | | | | 0 | | Interest paid | | | 14,504 | | | | 8,771 | | | | 3,926 | | | | 16,602 | | | | 19,711 | | | | 19,387 | |
Non-Cash Activities
On January 1, 2015, Global Indemnity Group, Inc. acquired 100% of the voting equity interest of American Reliable. In conjunction with the acquisition, fair value of assets acquired and liabilities assumed by the Company were as follows:
| | | | | | (Dollars in thousands) | | | | Fair value of assets acquired (including goodwill) | | $ | 383,668 | | Liabilities assumed | | | 283,871 | |
22.23. | New Accounting Pronouncements |
Accounting Standards Adopted in 2020 In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those statements. This rule is effective January 4, 2021 with early adoption permitted. The following areCompany adopted this new standard in the fourth quarter of 2020. Accordingly, summarized financial information has been presented only for the parent and subsidiary co-obligor of the Company’s registered debt securities for the most recent fiscal year. The location of the required disclosures has been moved outside the Notes to Consolidated Financial Statements and is provided in the “Liquidity and Capital Resources - Co-obligor Financial Information” section of “Management’s Discussion and Analysis of Results of Operations and Financial Condition’ in Item 7 of Part II of this report. In March, 2020, the FASB issued new accounting guidance which have not yet been adopted. In May, 2017,that affected a variety of topics in the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance which clarifies whether changesCodification. The amendments in this update are meant to make the terms or conditions of a share-based payment award require an entityCodification easier to understand and easier to apply modification accounting.by eliminating inconsistencies and providing clarification. This guidance is effective for all entities for annual periods, andfiscal years beginning after December 15, 2019 including interim periods within those annual periods, beginning after December 15, 2017. Earlyfiscal years. The Company adopted this guidance on January 1, 2020. The adoption is permitted. Although the Company is still evaluating the impact of this new accounting guidance the Company doesdid not anticipate it will have a material impact on itsthe Company’s financial condition, results of operations, or cash flows.
In March, 2017,August, 2018, the FASB issued new accounting guidance which amends the amortization period forremoved, modified, and added certain purchased callable debt securities held at a premium. Under current generally accepted accounting principles,disclosures related to Topic 820, Fair Value. The affected disclosures are related to transfers between fair value levels, level 3 assets, and investments in certain entities generally amortize the premium as an adjustment of yield over the contractual life of the instruments. Under the new guidance, the amortization period would be shortened to the earliest call date.that calculate net asset value. This guidance is effective for public business entities for fiscal years, and interim periods within thoseall fiscal years beginning after December 15, 2018. Early adoption is permitted.2019 including interim periods within those fiscal years. The Company is still evaluating the impact ofadopted this guidance on itsJanuary 1, 2020. The adoption of this new accounting guidance did not have a material impact on the Company’s financial condition, results of operations, andor cash flows. In January, 2017, the FASB issued updated guidance that simplifies how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e. Step 2 of the current goodwill impairment test). Under the new amendments, an entity may still first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized, if any. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective for public business entities’ annual or interim goodwill impairment testing in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performedThe Company adopted this guidance on testing dates after January 1, 2017. Although the Company is still evaluating the impact2020. The adoption of this new accounting guidance the Company doesdid not anticipate it will have a material impact on its financial condition, results of operations, or cash flows. In October, 2016, the FASB issued new accounting guidance regarding intra-entity transfers of assets other than inventory. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This is an exception to the principle in ASC 740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes. The new guidance eliminates the exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though thepre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. Upon adoption on January 1, 2018, there will be a cumulative
adjustment to retained earnings which the Company does not expect to be material to its overall financial condition.
In August, 2016, the FASB issued new accounting guidance regarding the classification of certain cash receipts and cash payments within the statements of cash flows. The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective for public business entities for fiscal periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Although the Company is still evaluating the impact of this new guidance, the Company does not anticipate it will have a material impact on itsCompany’s financial condition, results of operations, or cash flows.
In June, 2016, the FASB issued new accounting guidance addressing the measurement of expected credit losses on financial instruments. ForThe new guidance requires financial assets heldmeasured at amortized cost, basis,which includes but are not limited to premiums receivable and reinsurance receivables, to be presented at the new guidance replacesnet amount expected to be collected over the incurred loss impairment methodologylife of the asset using an allowance for expected credit losses. Changes in current GAAP with a methodology that reflectsthe allowance are charged to earnings. The measurement of expected credit losses should consider relevant information about past events, including historical experience, current information, as well as reasonable and requires considerationsupportable forecasts that affect the collectability of a broader range of information for credit loss estimates.the financial assets. For available for sale debt securities, credit losses should be measured similar to current GAAP;the old guidance; however, the new guidance requires that credit losses be presented as an allowance rather than as a write-down of the amortized cost basis of the impaired securities and allows for the reversal of credit losses in the current period net income. ThisIn addition, the Company made certain accounting policy elections related to accrued interest receivables which are described in Note 3. The Company adopted this new accounting guidance on January 1, 2020 using a modified-retrospective approach. The adoption of this new accounting guidance and the impact on the Company’s financial condition, results of operations, and cash flows is described primarily within Note 3 and Note 6. Recently Issued Accounting Guidance Not Yet Adopted In December, 2019, the FASB issued updated guidance related to the accounting for income taxes. The updated guidance is effectiveintended to simplify the accounting for public business entitiesincome taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The updated guidance is effective for fiscal years beginning after December 15, 2019, including2020 and interim periods within those fiscal years. Early applicationThe Company does not expect the adoption of this new accounting guidance is permitted as ofto have a material impact on the fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. This guidance will be applied using a modified-retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is still evaluating the impact of this guidance on itsCompany’s financial condition, results of operations, andor cash flows. In February, 2016, the FASB issued new accounting guidance regarding leases. The new guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Upon adoption, the Company expects to report higher assets and liabilities as a result of recognizingright-of-use assets and corresponding lease liabilities on the Consolidated Balance Sheets. The Company expects the new guidance to have minimal impact on the Consolidated Statement of Operations or Consolidated Statement of Cash Flows.
In January, 2016, the FASB issued new accounting guidance surrounding the accounting for financial instruments. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. In particular, the guidance requires equity investments, except for those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with the changes in fair value recognized in net income. It also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. This guidance is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application of this new guidance is permitted as of the beginning of the fiscal year of adoption. Upon adoption on January 1, 2018, the Company estimates that a cumulative effect adjustment, net of tax, of approximately $10.0 million will be reclassified from accumulated other comprehensive income and increase retained earnings. However, there will be no net impact to overall equity.
In May, 2014, the FASB issued new accounting guidance regarding the recognition of revenue from customers arising from the transfer of goods and services. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Long and short duration insurance contracts, which comprise the majority of the Company’s revenues, are excluded from this
accounting guidance. While insurance contracts are not within the scope of this guidance, the Company reviewed the requirement of the new guidance to determine whether its revenue recognition policy for fee income will be impacted by this updated guidance. Based on this review, the Company does not believe its accounting policies will be impacted by this new revenue recognition guidance. This guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.
23.24. | Summary of Quarterly Financial Information (Unaudited) |
An unaudited summary of the Company’s 20172020 and 20162019 quarterly performance is as follows: | | | | Year Ended December 31, 2017 | | | Year Ended December 31, 2020 | | | (Dollars in thousands, except per share data) | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | Net premiums earned | | $ | 113,126 | | | $ | 107,073 | | | $ | 108,619 | | | $ | 109,216 | | | Net investment income | | | 8,644 | | | | 8,840 | | | | 10,134 | | | | 11,705 | | | Net earned premiums | | | $ | 144,468 | | | $ | 141,847 | | | $ | 140,302 | | | $ | 141,082 | | Net investment income (loss) | | | | 10,129 | | | | (2,359 | ) | | | 11,746 | | | | 8,876 | | Net realized investment gains (losses) | | | 775 | | | | (662 | ) | | | (963 | ) | | | 2,426 | | | | (68,162 | ) | | | 38,507 | | | | 7,323 | | | | 7,670 | | Net losses and loss adjustment expenses | | | 62,561 | | | | 57,700 | | | | 82,395 | | | | 66,556 | | | | 77,647 | | | | 67,297 | | | | 97,148 | | | | 94,109 | | Acquisition costs and other underwriting expenses | | | 46,551 | | | | 43,457 | | | | 45,002 | | | | 48,723 | | | | 56,412 | | | | 53,578 | | | | 53,268 | | | | 52,349 | | Income (loss) before income taxes | | | 9,280 | | | | 7,753 | | | | (16,779 | ) | | | (10,304 | ) | | | (56,547 | ) | | | 44,556 | | | | (18,379 | ) | | | 1,259 | | Net income (loss) | | | 12,282 | | | | 10,089 | | | | (8,924 | ) | | | (22,998 | ) | | Per share data — Diluted: | | | | | | | | | | Net income (loss) | | $ | 0.70 | | | $ | 0.57 | | | $ | (0.51 | ) | | $ | (1.33 | ) | | Net income (loss) available to common shareholders | | | | (44,578 | ) | | | 37,551 | | | | (15,212 | ) | | | 1,081 | | Per share data - Diluted: | | | | | | | | | | | | | | | | | | Net income (loss) available to common shareholders | | | $ | (3.13 | ) | | $ | 2.61 | | | $ | (1.06 | ) | | $ | 0.07 | |
| | | | Year Ended December 31, 2016 | | | Year Ended December 31, 2019 | | | (Dollars in thousands, except per share data) | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | Net premiums earned | | $ | 121,636 | | | $ | 117,804 | | | $ | 119,553 | | | $ | 109,472 | | | Net earned premiums | | | $ | 122,089 | | | $ | 128,201 | | | $ | 133,312 | | | $ | 141,660 | | Net investment income | | | 9,746 | | | | 6,562 | | | | 8,795 | | | | 8,880 | | | | 7,219 | | | | 13,826 | | | | 11,348 | | | | 9,659 | | Net realized investment gains (losses) | | | (7,493 | ) | | | (3,492 | ) | | | 1,928 | | | | 30,778 | | | | 10,390 | | | | 3,590 | | | | (2,690 | ) | | | 24,052 | | Net losses and loss adjustment expenses | | | 64,784 | | | | 78,111 | | | | 72,162 | | | | 48,946 | | | | 58,321 | | | | 70,075 | | | | 73,583 | | | | 73,423 | | Acquisition costs and other underwriting expenses | | | 52,090 | | | | 48,542 | | | | 48,129 | | | | 47,889 | | | | 49,743 | | | | 50,534 | | | | 53,366 | | | | 54,760 | | Income (loss) before income taxes | | | 1,953 | | | | (11,468 | ) | | | 10,598 | | | | 46,535 | | | Net income (loss) | | | 7,125 | | | | (5,165 | ) | | | 9,535 | | | | 38,373 | | | Per share data — Diluted: | | | | | | | | | | Net income (loss) | | $ | 0.41 | | | $ | ( 0.30 | ) | | $ | 0.54 | | | $ | 2.18 | | | Income before income taxes | | | | 23,894 | | | | 15,849 | | | | 6,404 | | | | 35,610 | | Net income available to common shareholders | | | | 19,600 | | | | 14,663 | | | | 6,721 | | | | 29,031 | | Per share data - Diluted: | | | | | | | | | | | | | | | | | | Net income available to common shareholders | | | $ | 1.37 | | | $ | 1.02 | | | $ | 0.47 | | | $ | 2.02 | |
Retirement of Chief Executive Officer On March 4, 2018,January 19, 2021, the Company announced that Ms. Valko informed the Board that she would retire effective as of January 31, 2021. In connection with her retirement, Ms. Valko has resigned from her positions as chief executive officer of Global Indemnity Group, LLCand a member of the Board of Directors, in each case effective as of January 15, 2021, although Ms. Valko will continue to serve the Company in an advisory capacity. The size of the Board has been reduced from 7 to 6 directors, effective upon Ms. Valko’s resignation from the Board. In connection with Ms. Valko’s retirement, the Company has entered into a separation agreement (the “Separation Agreement”) with Ms. Valko. Among other provisions, the Separation Agreement provides for (a) a severance payment of $675,000 to be paid ratably through December 2021, (b) preservation of all vested stock options held by Ms. Valko as of the date of her retirement to remain exercisable until the earlier of (i) 24 months from the date of Ms. Valko’s retirement or (ii) the expiration date of the applicable option, (c) forfeiture or continued vesting, as applicable, of unvested stock options held by Ms. Valko in accordance with their terms, with any such options that vest remaining exercisable for a period 24 to 38 months from the date of Ms. Valko’s retirement depending upon the vesting date, (d) the grant of 300,000 fully vested options as provided in Ms. Valko’s current employment agreement and (e) eligibility for an annual bonus for 2020 and true-up of bonus awards, based on a true-up of underwriting results for the applicable year, in the fourth calendar year following the applicable bonus award for all bonus years that remain open as of the date of retirement, including pro rata payment of bonus awards for January 2021. The receipt of the severance payment and the extension of the term of the stock options are subject to Ms. Valko’s execution of a general release in favor of the Company. The Separation Agreement also includes perpetual confidentiality and mutual non-disparagement provisions, and non-competition and employee and customer non-solicitation provisions effective until January 31, 2023. The foregoing description of the Separation Agreement is qualified in its entirety by the full text of the Separation Agreement, which is filed as Exhibit 10.21 in Item 15 of Part IV of this report. Effective as of January 19, 2021, the Company named Jonathan E. Oltman as president of the Company’s insurance operations. Mr. Oltman joined the Company in 2014, serving most recently as executive vice president – commercial lines since February 2019. Until Ms. Valko’s successor as chief executive officer of the Company is duly appointed, Mr. Oltman will act as Global Indemnity Group, LLC’s principal executive officer. Mr. Oltman will report directly to the Board through its chairman on a day-to-day basis.
In connection with Mr. Oltman’s appointment, the Company and Mr. Oltman executed an agreement (the “Terms of Employment”) on January 19, 2021 setting forth the principal terms of Mr. Oltman’s employment with the Company. The Company expects to enter into definitive documentation with Mr. Oltman incorporating the provisions set forth in the Terms of Employment. The Terms of Employment provides for Mr. Oltman’s term of office as president of the Company’s insurance operations to run from January 19, 2021 through December 31, 2023. The Terms of Employment also provides for an annual base salary of $650,000 (“Base Salary”) and an annual bonus opportunity of $487,500 to $812,500 (the “Bonus Opportunity”), payable based on the achievement of certain underwriting results, as determined by the Board, for each year of Mr. Oltman’s term as president of the Company’s insurance operations, with 50% of the Bonus Opportunity payable in cash in the subsequent calendar year and 50% payable in Global Indemnity Group, LLC stock following a true-up of underwriting results for the applicable year in the fourth calendar year following the applicable bonus award. The Terms of Employment provides for a grant of 140,000 stock options to acquire Global Indemnity Group, LLC shares. One-third of the options will vest on April 1 of each of 2022, 2023 and 2024, subject to the achievement of certain underwriting results for the applicable year as determined by the Board and Mr. Oltman being a Company employee in good standing as of the applicable vesting date. The stock options will be subject to the terms of Global Indemnity Group, LLC’s stock option plans and ancillary agreements. The Terms of Employment provides that the Company may terminate Mr. Oltman’s employment at any time for any reason. In the event of Mr. Oltman’s termination by the Company without “cause” (as defined in the Terms of Employment), Mr. Oltman will receive as severance an aggregate amount equal to the lesser of (i) one month of Base Salary for each 12 months of employment and (ii) the Base Salary otherwise payable between the termination date and December 31, 2023 (such Base Salary payments, the “Severance Amount”). Payment of the Severance Amount is contingent upon compliance with the terms in the Terms of Employment, including Mr. Oltman’s execution of and not revoking a general release of claims in favor of the Company. The Terms of Employment includes perpetual confidentiality and mutual non-disparagement provisions, and two-year post-termination non-competition and employee and customer non-solicitation provisions. The foregoing description of the Terms of Employment is qualified in its entirety by the full text of the Terms of Employment, which is filed as Exhibit 10.24 in Item 15 of Part IV of this report. Commitment In January, 2021, the Company entered into a $25 million commitment to purchase an alternative investment vehicle that invests in performing, stressed or distressed securities and loans across the global fixed income markets. Distribution On February 14, 2021, Global Indemnity Group, LLC’s Board of Directors approved a dividenddistribution payment of $0.25 per ordinarycommon share to be paid on March 29, 201831, 2021 to all shareholders of record as of the close of business on March 21, 2018.22, 2021. On March 8, 2018, the Company settled its final reserve calculation which resulted in $41.5 million being due to Global Indemnity Group, Inc. in accordance with the Stock Purchase Agreement between Global Indemnity Group, Inc. and American Bankers Insurance Group, Inc. for the purchase of American Reliable. The settlement is comprised of (i) receipt of $38.8 million for loss and loss adjustment expenses paid on or after January 1, 2015 or payable as of December 31, 2017 with respect to losses incurred prior to January 1, 2015, (ii) receipt of $6.2 million for accrued interest and (iii) payment of $3.5 million for the difference between the agreed upon purchase price and actual settlement on January 1, 2015. These amounts are included in other assets on the consolidated balance sheets as of December 31, 2017.
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None Item 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures (as that term is defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’sCompany's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sCommission's rules and forms, and that such information is accumulated and communicated to the Company’sCompany's management, including its ChiefPrincipal Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’sCompany's management, with the participation of its ChiefPrincipal Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of disclosure controls and procedures as of December 31, 2017.2020. Based upon that evaluation and subject to the foregoing, the ChiefPrincipal Executive Officer and Chief Financial Officer concluded that, as of December 31, 2017,2020, the design and operation of the Company’sCompany's disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level. Management’s Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’sCompany's internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the consolidated financial statements of the Company in accordance with U.S. generally accepted accounting principles. The Company’sCompany's internal control over financial reporting includes those policies and procedures that: | • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company's management and Directors; and |
| • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the Company’sCompany's internal control over financial reporting as of December 31, 2017.2020. The standard measures adopted by management in making its evaluation are the measures in the Internal Control Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based upon its assessment, management has concluded that the Company’sCompany's internal control over financial reporting was effective at December 31, 2017,2020, and that there were no material weaknesses in the Company’sCompany's internal control over financial reporting as of that date. Ernst & Young, LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statements contained in this Form10-K, has issued its report on the effectiveness of the Company’sCompany's internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” on page 167.143. Changes in Internal Control over Financial Reporting There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Global Indemnity LimitedGroup, LLC Opinion on Internal Control over Financial Reporting We have audited Global Indemnity Limited’sGroup, LLC’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control — Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Global Indemnity LimitedGroup, LLC (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria.criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income, shareholders’changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes and the financial statement schedules listed in the Index at Item 1515(a)(2) and our report dated March 9, 201812, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Philadelphia, PAPennsylvania March 9, 2018 12, 2021
Item 9B. | OTHER INFORMATION |
CEO Employment Agreement.None
On March 6, 2018 Global Indemnity entered into a Chief Executive Agreement (the “Employment Agreement”) with Cynthia Y. Valko, the Chief Executive Officer (“CEO”). The Employment Agreement provides for an employment term of three years, from January 1, 2018 through December 31, 2020.
Under the Employment Agreement, Ms. Valko is eligible to receive a cash Return on Equity Bonus of up to $600,000 for each fiscal year of the Employment Agreement that Ms. Valko served as the CEO (the “ROE Bonus”). Ms. Valko is eligible to receive a preliminary ROE Bonus (the “Preliminary ROE Bonus”) for each such fiscal year if Global Indemnity’s return on equity percentage for such fiscal year exceeds 85% of the targeted return on equity percentage (as established by the Company’s Compensation Committee) for such fiscal year. If Ms. Valko is still employed by the Company and in good standing through the date of payment she will receive 50% of the Preliminary ROE Bonus, payable no later than April 1 of the calendar year immediately following the year to which such Preliminary ROE Bonus relates. Global Indemnity will retain the remaining 50% unpaid balance of the Preliminary ROE Bonus, which will be paid to Ms. Valko within 90 days after the end of the third full calendar year following a Bonus Year (as defined in the Employment Agreement), regardless of Ms. Valko’s then-current employment status with the Company, but subject to adjustment based on an actuarial assessment of incurred but not reported underwriting losses and loss adjustment expenses and actual underwriting losses and loss adjustment expenses.
Additionally, under the Employment Agreement, Ms. Valko is eligible to receive an annual cash Performance Incentive Bonus of up to $200,000, based on an assessment of her performance during the Bonus Year (as defined by the Employment Agreement) by the Company’s Compensation Committee, in its sole discretion, based upon the assessment of the Company’s Chairman of the Board of Directors, in his sole discretion.
Under the Employment Agreement, Ms. Valko is restricted from selling any A Ordinary Shares of Global Indemnity unless Ms. Valko retains vested Global Indemnity stock options and shares having an aggregate value of at least equal to the lesser of (i) $5,000,000 or (ii) $5,000,000 multiplied by a fraction, the numerator of which is the volume weighted trading price of Global Indemnity’s shares for the30-day period ending on the relevant measurement date and the denominator of which is $50, and Ms. Valko retains at least 75% of the Global Indemnity options and restricted shares granted to her. Ms. Valko must provide Global Indemnity’s Chairman with advance notice, and receive approval of, any proposed sale.
In addition, Ms. Valko will be granted 300,000 options (“Tranche 3 Options”) to buy Global Indemnity A Ordinary Shares with an exercise price of $50.00 per share. Tranche 3 Options vest 1/3 on December 31 of 2018, 2019 and 2020, if Ms. Valko remains employed and in good standing as of such date. Tranche 3 Options expire on the earlier of December 31, 2027 and 90 calendar days after Ms. Valko is neither employed by Global Indemnity nor a member of the Board of Directors. In 2014, Ms. Valko was granted 300,000 options to buy Global A Ordinary Shares (“Tranche 2 Options”). The Tranche 2 Options will vest on each December 31 of 2018, 2019 and 2020 in an amount based on Ms. Valko’s attainment of the ROE Bonus criteria described above.
In the event of Ms. Valko’s termination by the Company (other than for a Cause Event, as defined in the Employment Agreement), before the expiration of the term, she will receive one month of then-current Base Salary for every completed 12 months of employment prior to the date of termination.
The foregoing description of the Employment Agreement is qualified by reference to the full text of the Chief Executive Agreement, which is filed as Exhibit 10.41 to this Annual Report on Form10-K and incorporated herein by reference.
PART III Item 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s definitive proxy statement relating to the 20182021 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 20172020 (“20182021 Proxy Statement”). Item 11. | EXECUTIVE COMPENSATION |
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s 20182021 Proxy Statement. Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS |
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s 20182021 Proxy Statement. Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s 20182021 Proxy Statement. Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s 20182021 Proxy Statement.
PART IV Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time. The following documents are filed as part of this report: (1) The Financial Statements listed in the accompanying index on page 90 are filed as part of this report.
(2) The Financial Statement Schedules listed in the accompanying index on page 90 are filed as part of this report.
| (a)(1) | The Financial Statements listed in the accompanying index on page 74 are filed as part of this report. |
| (a)(2) | The Financial Statement Schedules listed in the accompanying index on page 74 are filed as part of this report. |
Exhibit No. | | Description | Exhibit
No. | | Description | 2.1 3.1 | | American Reliable SPA dated as of October 16, 2014 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form8-K dated October 21, 2014 (FileNo. 001-34809)).
| | | 3.1 | | Certificate of Incorporation of Global Indemnity LimitedShare Designation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form8-K12B dated November 7, 2016August 28, 2020 (FileNo. 001-34809)). | | | | 3.2 | | Certificate of Incorporation of Change on NameSecond Amended and Restated LLC Agreement of Global Indemnity LimitedGroup, LLC (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form8-K12B dated November 7, 2016August 28, 2020 (FileNo. no. 001-34809)).
| | | | 3.3 4.1+ | | Amended and Restated Memorandum and ArticlesDescription of Association of Global Indemnity Limited (incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)).Securities
| | | | 4.1 4.2 | | Specimen Share Certificate (evidencing the common shares of Global Indemnity Limited) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)).
| | | 4.2 | | Indenture, dated as of August 12, 2015, by and between the Company and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form8-K dated August 12, 2015) (FileNo. 001-34809)). | | | | 4.3 | | First Supplemental Indenture, dated November 7, 2016, among Global Indemnity Limited, Global Indemnity plc and Wells Fargo Bank, National Association, as Trustee, to the Indenture dated as of August 12, 2015 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report onForm 8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | | 4.4 | | Officers’ Certificate, dated August 12, 2015 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form8-K dated August 12, 2015 (FileNo. 001-34809)). | | | | 4.5 | | Form of 7.75% Subordinated Notes due 2045 (included in Exhibit 4.2) (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form8-K dated August 12, 2015 (FileNo. 001-34809)).
| | | 4.6 | | Second Supplemental Indenture, dated as of March 23, 2017, among Global Indemnity Limited, Wells Fargo Bank, National Association, and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form8-K dated March 23, 2017(File (File No. 001-34809)). |
| | | | | | 4.7 4.6 | | Form of 7.875% Subordinated Notes due 2047 (included in Exhibit 4.6) (incorporated by reference to Exhibit 4.44.7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (File No. 001-34809)). | | | | 4.7 | | Third Supplemental Indenture, dated as of April 25, 2018, by and among the Company, Wells Fargo Bank, National Association, and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form8-K dated March 23, 2017April 25, 2018 (FileNo. 001-34809)). | | | | 10.1* 4.8 | | Fourth Supplemental Indenture, dated as of August 28, 2020, among Global Indemnity Limited, GBLI Holdings, LLC, New CayCo, Wells Fargo Bank, National Association, as trustee and U.S. Bank, National Association, as trustee, to the Indenture dated as of August 12, 2015 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 4.9 | | Fifth Supplemental Indenture, dated as of August 28, 2020, among New CayCo, GBLI Holdings, LLC, Global Indemnity Group, LLC, Wells Fargo Bank, National Association, as trustee and U.S. Bank, National Association, as trustee, to the Indenture dated as of August 12, 2015 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.1* | | Second Amended and Restated Management Agreement, dated May 6, 2020, by and among Global Indemnity Limited and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2020 (File No. 001-34809)). | | | | 10.2* | | Third Amended and Restated Management Agreement, dated as of August 28, 2020, by and between Global Indemnity Group, LLC and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). |
| | | 10.3* | | Management Agreement, dated as of September 5, 2003, by and among United National Group, Ltd., Fox Paine & Company, LLC and The AMC Group, L.P. with related Indemnity Letter (incorporated by reference to Exhibit 10.3 of Amendment No. 1 to the Company’s Registration Statement onForm S-1 (RegistrationNo. 333-108857) filed on October 28, 2003) (File(File No. 000-50511)). | | | | 10.2* 10.4* | | Amendment No. 1 to the Management Agreement, dated as of May 25, 2006, by and among United America Indemnity, Ltd., Fox Paine & Company, LLC and Wind River Holdings, L.P., formerly The AMC Group, L.P. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form8-K filed on June 1, 2006) (FileNo. 000-50511)).
| | | 10.3* | | Letter Agreement, dated March 16, 2011, assigning the 2003 Management Agreement (as amended) and related indemnity agreement, by and among United America Indemnity, Ltd., Global Indemnity (Cayman) Ltd. and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.26 of the Company’s annual report on Form10-K for the fiscal year ended December 31, 2010 (FileNo. 000-34809)). | | | 10.4* | | Guaranties, dated March 15, 2011, provided by each of United America Indemnity, Ltd., Global Indemnity Reinsurance Company, Ltd., and Global Indemnity Group, Inc., in each case in favor of Fox Paine & Company, LLC, relating to the obligations of Global Indemnity (Cayman) Ltd. under the Letter Agreement, dated March 15, 2011 (incorporated by reference to Exhibit 10.27 of the Company’s annual report on Form10-K for the fiscal year ended December 31, 2010 (FileNo. 000-34809)). | | | 10.5* | | Amendment No. 3 to the Management Agreement, dated as of April 10, 2011, by and among Global Indemnity (Cayman) Ltd. and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.5 of the Company’s annual report on Form10-K for the fiscal year ended December 31, 2012 (FileNo. 001-34809)). | | | 10.6* | | Amended and Restated Management Agreement, dated as of October 31, 2013, by and among Global Indemnity (Cayman) Ltd. and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form10-Q for the quarter ended September 30, 2013(File No. 001-34809)). | | | 10.7* | | Confirmation Letter, dated as of November 7, 2016, between Global Indemnity Limited, Global Indemnity plc, Global Indemnity (Cayman) Limited and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | 10.8* | | Reaffirmation Agreements, dated as of October 31, 2013, provided by each of United America Indemnity, Ltd., Global Indemnity Reinsurance Company, Ltd., and Global Indemnity Group, Inc. reaffirming the March 15, 2011 Guaranty Agreements (incorporated by reference to Exhibit 10.2 of the Company’s quarterly report on Form10-Q for the quarter ended September 30, 2013(File No. 001-34809)). | | | 10.9* | | Reaffirmation Agreement, dated as of November 7, 2016, by Global Indemnity Group, Inc. (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | 10.10* | | Reaffirmation Agreement, dated as of November 7, 2016, by Global Indemnity Reinsurance Company, Ltd. (incorporated by reference to Exhibit 10.5 of the Company’s Current Report onForm 8K-12B dated November 7, 2016 (FileNo. 001-34809)). |
| | | | | 10.11* | | Amendment No. 1 and the Global Indemnity plc Share Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form8-K dated May 28, 2015 (FileNo. 001-34809)). | | | 10.12* | | Global Indemnity Limited Share Incentive Plan, as amended and restated and effective as of November 7, 2016 (incorporated by reference to Exhibit 10.15 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | | 10.13* 10.5* | | Global Indemnity plc AnnualLimited 2018 Share Incentive Award Program, amended and restated effective July 2, 2010Plan (incorporated by reference to Exhibit 10.410.2 of the Company’s current Report on Form 8-K dated June 14, 2018 (File No. 001-34809)). | | | | 10.6* | | Amended and Restated Global Indemnity Group, LLC 2018 Share Incentive Plan, dated as of August 28, 2020 (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form8-K12B dated July 2, 2010August 28, 2020 (FileNo. no. 001-34809)). | | | | 10.14* 10.7* | | Deed Poll of Assumption for United America Indemnity, Ltd. Annual Incentive Award Program by Global Indemnity plc, dated July 2, 2010 (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form8-K12B dated July 2, 2010 (FileNo. 001-34809)).
| | | 10.15* | | Global Indemnity Limited Annual Incentive Awards Program, as amended and restated and effective as of November 7, 2016 (incorporated by reference to Exhibit 10.16 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | | 10.16* 10.8* | | Amended and Restated Global Indemnity Group, LLC Annual Incentive Awards Program, dated as of August 28, 2020 (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.9* | | Amended and Restated Shareholders Agreement, dated July 2, 2010, by and among Global Indemnity plc (as successor to United America Indemnity, Ltd.) and the signatories thereto (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form8-K12B dated July 2, 2010(File (File No. 001-34809)). | | | | 10.17* 10.10* | | Assignment and Assumption Agreement relating to the Amended and Restated Shareholders Agreement, dated July 2, 2010 (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form8-K12B dated July 2, 2010 (FileNo. 001-34809)). | | | | 10.18* 10.11* | | Amendment to the Amended and Restated Shareholders Agreement, dated as of October 31, 2013, by and among Global Indemnity plc and the signatories thereto (incorporated by reference to Exhibit 10.3 of the Company’s quarterly report on Form10-Q for the fiscal quarter ended September 30, 2013 (FileNo. 001-34809)). | | | | 10.19* 10.12* | | Assignment and Assumption Agreement, dated as of November 7, 2016, between Global Indemnity Limited and Global Indemnity plc (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | | 10.20* 10.13* | | Indemnification Agreement between United America Indemnity, Ltd. and Fox Paine Capital Fund II International L.P., dated July 2, 2010 (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form8-K12b dated July 2, 2010 (FileNo. 001-34809)). | | | | 10.21* 10.14* | | Assignment and Assumption Agreement, dated as of November 7, 2016, between Global Indemnity Limited, Global Indemnity plc and Fox Paine Capital Fund II International L.P. (incorporated by reference to Exhibit 10.13 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | | 10.22* | | Form of Indemnification Agreement between United America Indemnity, Ltd. and certain directors and officers of Global Indemnity plc, dated July 2, 2010 (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on form8-K12B dated July 2, 2010 (FileNo. 001-34809)). | 10.15* | | 10.23* | | Form of Assignment and Assumption Agreement, dated as of , 2016, between Global Indemnity Limited, Global Indemnity plc, United America Indemnity, Ltd. and certain directors and officers of who may become a party thereto (incorporated by reference to Exhibit 10.14 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)).
| | | 10.24* | | Employment Agreement, as amended, for William J. Devlin, Jr., dated October 24, 2005 (incorporated by reference to exhibit 10.14 of the Company’s amended Annual Report onForm 10-K/A for the fiscal year ended December 31, 2011 dated September 5, 2012(File No. 001-34809)). |
| | | | | 10.25* | | Amendment to Executive Employment Agreement with William J. Devlin, Jr., dated November 7, 2016 (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form8-K12B (FileNo. 001-34809)). | | | 10.26* | | Amendment to the Executive Employment Agreement with William J. Devlin, Jr., dated August 8, 2017 ((incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form10-Q for the quarter ended June 30, 2017 (FileNo. 001-34809)). | | | 10.27* | | Executive Employment Agreement, dated as of June 8, 2009, between Penn-America Insurance Company and Matthew B. Scott (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2009 (FileNo. 000-50511)). | | | 10.28* | | Amendment to Executive Employment Agreement with Matthew B. Scott, dated November 7, 2016 (incorporated by reference to Exhibit 10.11 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | 10.29* | | Executive Employment Agreement, dated as of December 8, 2009, between United America Indemnity, Ltd. and Thomas M. McGeehan (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2009 (FileNo. 000-50511)). | | | | 10.30* 10.16* | | Amendment to Executive Employment Agreement with Thomas M. McGeehan, dated November 7, 2016 (incorporated by reference to exhibitExhibit 10.10 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | | 10.31* 10.17* | | Amendment to the Executive Employment Agreement with Thomas M. McGeehan, dated as of August 28, 2020 (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File no. 001-34809)). | | | | 10.18* | | Cynthia Valko Chief Executive Agreement (incorporated by reference to Exhibit 10.41 of the Company’s Annual Report on Form 10-K dated March 9, 2018 (File No. 001-34809)). | | | | 10.19* | | Amendment to Executive Employment Agreement with Cynthia Y. Valko, dated November 7, 2016as of August 28, 2020 (incorporated by reference to exhibit 10.7Exhibit 10.3 of the Company’s Current Report on Form8-K12B dated November 7, 2016August 28, 2020 (FileNo. no. 001-34809)). | | | |
10.32* 10.20* | | Chief Executive Employment Term Sheet with Stephen Green, dated February 18, 2015 (incorporated by reference to exhibit 10.20 of the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2014 (FileNo. 001-34809)). | | | 10.33* | | Amendment to the Executive Employment Term Sheet with Stephen Green, dated November 7, 2016 (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (FileNo. 001-34809)). | | | 10.34* | | Amendment to the Executive Employment Agreement with Stephen Green, dated August 8, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form10-Q for the quarter ended June 30, 2017 (FileNo. 001-34809)). | | | 10.35 | | Redemption Agreement, dated October 29, 2015, by and between Global Indemnity plc and the parties listed on Annex A thereto (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form8-K dated October 29, 2015) (FileNo. 001-34809)). | | | 10.36 | | Amended and Restated Additional Redemption Agreement, dated as of November 7, 2016, between Global Indemnity Limited, Global Indemnity plc and other parties listed thereinCynthia Y. Valko effective January 1, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form8-K12B 8-K dated November 7, 2016December 14, 2020 (FileNo. 001-34809)). | | | | 10.37 10.21+ | | Assignment and AssumptionSeparation Agreement with Cynthia Y. Valko effective January 15, 2021.
| | | | 10.22* | | Executive Employment Term Sheet with Stephen Green, dated effective as of November 7, 2016, among Global Indemnity Limited, Global Indemnity plc, Global Indemnity Group, Inc., American Bankers Insurance Group, Inc. and Assurant, Inc.January 1, 2020 (incorporated by reference to Exhibit 10.610.4 of the Company’s Current Report on Form8K-12B 8-K12B dated November 7, 2016August 28, 2020 (FileNo. 001-34809)). | | | | 10.38 10.23* | | Deed Poll,Amendment to the Executive Employment Term Sheet with Stephen Green, dated as of November 7, 2016, by Global Indemnity LimitedAugust 28, 2020 (incorporated by reference to Exhibit 10.1210.5 of the Company’s Current Report on Form8-K12B dated November 7, 2016(FileAugust 28, 2020 (File No. 001-34809)).
|
| | | | | | 10.39 10.24+ | | Terms of Employment with Jonathan E. Oltman effective January 19, 2021. | | | | 10.25 | | Institutional Services Customer Agreement dated as of December 12, 2016 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form10-Q for the quarter ended March 31, 2017 (FileNo. 001-34809)). | | | | 10.40 10.26 | | Confidentiality Agreement between Fox Paine & Company, LLC and Global Indemnity Limited, dated September 17, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form10-Q for the quarter ended September 30, 2017 (FileNo. 001-34809)). | | | | 10.41*+ 10.27 | | Cynthia Valko Chief Executive Agreement.Preferred Interest Purchase Agreement, dated as of August 27, 2020, by and between Global Indemnity Group, LLC and Wyncote LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K12B dated August 28, 2020 (File No. 001-34809)).
| | | | 21.1+ | | List of Subsidiaries. | | | | 22.1+ | | List of Co-Issuer Subsidiaries. | | | | 23.1+ | | Consent of Ernst and Young LLP.Independent Registered Public Accounting Firm. | | | | 31.1+ | | Certification of ChiefPrincipal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | 31.2+ | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | 32.1+ | | Certification of ChiefPrincipal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | 32.2+ | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | 101.1+101.INS | | The following financial information from Global Indemnity’s Annual Report on Form10-K for the Year Ended December 31, 2017 formatted in XBRL: (i) Consolidated Balance Sheets for the years ended December 31, 2017 and 2016; (ii) Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015; (vi) Notes to Consolidated Financial Statements; and (vii) Financial Statement Schedules. |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | + | | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | | + | | Filed or furnished herewith. |
* | | | * | | Management contract or compensatory plan or arrangement required to be filed as an exhibit to thisForm 10-K. |
None.
SIGNATURES SIGNATURES
Pursuant to the requirements of the Section 13 or 15 (d) of the Securities Exchange Act of 1934, Global Indemnity has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLOBAL INDEMNITY LIMITEDGROUP, LLC | | | By: | | /s/ Cynthia Y. ValkoJonathan E. Oltman | Name: | | Cynthia Y. ValkoJonathan E. Oltman
| Title: | | ChiefPrincipal Executive Officer
| Date: | | March 9, 201812, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated below on March 9, 2018.12, 2021. | | | SIGNATURE | | TITLE | | | | /s/ Saul A. Fox Saul A. Fox
| | Chairman and Director | Saul A. Fox | | | | | | /s/ Cynthia Y. Valko Cynthia Y. ValkoJonathan E. Oltman
| | ChiefPrincipal Executive Officer (Principal Executive Officer) and Director
| Jonathan E. Oltman | | | | | | /s/ Thomas M. McGeehan Thomas M. McGeehan
| | Chief Financial Officer (Principal Financial and Accounting Officer) | Thomas M. McGeehan | | | | | | /s/ Seth J. Gersch | | Director | Seth J. Gersch | | Director
| | | /s/ John H. Howes
John H. Howes
| | Director
| | | /s/ Bruce Lederman Bruce Lederman
| | Director | Bruce Lederman | | | /s/ Raphael de Balmann
Raphael de Balmann
| | Director
| | | /s/ Joseph W. Brown | | Director | Joseph W. Brown | | | | | | /s/ James D. Wehr | | Director | James D. Wehr | | | /s/ David J. W. Bruce
David J. W. Bruce
| | Director
| | | /s/ Jason B. Hurwitz | | Director | Jason B. Hurwitz | | Director
| | | /s/ Arik Rashkes
Arik Rashkes
| | Director
|
GLOBAL INDEMNITY LIMITEDGROUP, LLC SCHEDULE I —-- SUMMARY OF INVESTMENTS —-- OTHER THAN INVESTMENTS IN RELATED PARTIES (In thousands) | | | | As of December 31, 2017 | | | As of December 31, 2020 | | | | | Cost* | | | Value | | | Amount
Included in the
Balance Sheet | | | Cost * | | | Value | | | Amount Included in the Balance Sheet | | Type of Investment: | | | | | | | | | | | | | | | | | | | Fixed maturities: | | | | | | | | | | | | | | | | | | | United States government and government agencies and authorities | | $ | 105,311 | | | $ | 104,680 | | | $ | 104,680 | | | $ | 195,444 | | | $ | 197,480 | | | $ | 197,480 | | States, municipalities, and political subdivisions | | | 94,947 | | | | 95,114 | | | | 95,114 | | | | 58,140 | | | | 61,243 | | | | 61,243 | | Mortgage-backed and asset-backed securities | | | 494,825 | | | | 492,846 | | | | 492,846 | | | | 573,311 | | | | 587,330 | | | | 587,330 | | Public utilities | | | 23,467 | | | | 23,504 | | | | 23,504 | | | | 23,638 | | | | 25,250 | | | | 25,250 | | All other corporate bonds | | | 524,594 | | | | 525,293 | | | | 525,293 | | | | 298,476 | | | | 319,883 | | | | 319,883 | | | | | | | | | | | | | Total fixed maturities | | | 1,243,144 | | | | 1,241,437 | | | | 1,241,437 | | | | 1,149,009 | | | | 1,191,186 | | | | 1,191,186 | | | | | | | | | | | | | Equity securities: | | | | | | | | | | | | | | | | | | | Common stocks: | | | | | | | | Public utilities | | | 9,444 | | | | 9,748 | | | | 9,748 | | | | 0 | | | | 0 | | | | 0 | | Industrial and miscellaneous | | | 115,471 | | | | 130,481 | | | | 130,481 | | | | 98,990 | | | | 98,990 | | | | 98,990 | | | | | | | | | | | | | Total equity securities | | | 124,915 | | | | 140,229 | | | | 140,229 | | | | 98,990 | | | | 98,990 | | | | 98,990 | | | | | | | | | | | | | Other long-term investments | | | 77,820 | | | | 77,820 | | | | 77,820 | | | | 97,018 | | | | 97,018 | | | | 97,018 | | | | | | | | | | | | | Total investments | | $ | 1,445,879 | | | $ | 1,459,486 | | | $ | 1,459,486 | | | $ | 1,345,017 | | | $ | 1,387,194 | | | $ | 1,387,194 | | | | | | | | | | | | |
* | Original cost of equity securities; original cost of fixed maturities adjusted for amortization of premiums and accretion of discounts; original cost forof equity securities and other long-term investments adjusted for income or loss earned on investments in accordance with equity method of accounting. All amounts are shown net of impairment losses. |
GLOBAL INDEMNITY LIMITEDGROUP, LLC SCHEDULE II —– Condensed Financial Information of Registrant (Parent Only) Balance Sheets (Dollars in thousands, except share data) | | | | Years Ended December 31, | | | | | | 2017 | | 2016 | | | ASSETS | | | | | | December 31, 2020 | | Fixed maturities | | $ | 13,118 | | | $ | 3,770 | | | $ | 86,434 | | Equity securities, at fair value | | | | 60,379 | | Other invested assets | | | | 60,000 | | Total investments | | | | 206,813 | | Cash and cash equivalents | | | 11,089 | | | 91 | | | | 1,402 | | Intercompany note receivable (1) | | | — | | | 750,397 | | | | 11,283 | | Interest receivable – affiliate | | | | 57 | | Equity in unconsolidated subsidiaries (1) | | | 1,207,590 | | | 292,195 | | | | 495,138 | | Receivable for securities (1) | | | — | | | 1 | | | Due from affiliates | | | 4,618 | | | | — | | | Receivable for securities | | | | 2 | | Other assets | | | 20,681 | | | 59 | | | | 6,569 | | | | | | | | | | Total assets | | $ | 1,257,096 | | | $ | 1,046,513 | | | $ | 721,264 | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | Liabilities: | | | | | | | | | Debt | | $ | 222,483 | | | $ | 96,497 | | | Intercompany notes payable (1) | | | 290,498 | | | 141,998 | | | Interest payable | | | 3,152 | | | 990 | | | Due to affiliates (1) | | | 12,465 | | | 8,759 | | | $ | 1,440 | | Other liabilities | | | 10,104 | | | 318 | | | | 1,500 | | | | | | | | | | Total liabilities | | | 538,702 | | | 248,562 | | | | 2,940 | | | | | | | | | | Commitments and contingencies | | | — | | | | — | | | | 0 | | Shareholders’ equity: | | | | | | | | | Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A ordinary shares issued: 10,102,927 and 13,436,548, respectively; A ordinary shares outstanding: 10,073,376 and 13,436,548, respectively; B ordinary shares issued and outstanding: 4,133,366 and 4,133,366, respectively | | | 2 | | | 2 | | | Preferred shares, $0.0001 par value, 100,000,000 shares authorized, none issued and outstanding | | | — | | | | — | | | Series A cumulative fixed rate preferred shares, $1,000 par value; 100,000,000 shares authorized, shares issued and outstanding: 4,000 shares, liquidation preference: $1,000 per share | | | | 4,000 | | Common shares, par value: no par at December 31, 2020, 900,000,000 common shares authorized; class A common shares issued: 10,263,722; class A common shares outstanding: 10,263,722; class B common shares issued and outstanding: 4,133,366 | | | | 0 | | Additionalpaid-in capital | | | 434,730 | | | 430,283 | | | | 445,051 | | Accumulated other comprehensive income, net of tax | | | 8,983 | | | (618 | ) | | | 34,308 | | Retained earnings | | | 275,838 | | | 368,284 | | | | 234,965 | | A ordinary shares in treasury, at cost: 29,551 and 0 shares, respectively | | | (1,159 | ) | | | — | | | | | | | | | | | Total shareholders’ equity | | | 718,394 | | | 797,951 | | | | | | | | | | | Total shareholders' equity | | | | 718,324 | | Total liabilities and shareholders’ equity | | $ | 1,257,096 | | | $ | 1,046,513 | | | $ | 721,264 | | | | | | | | | |
(1) | This item has been eliminated in the Company’s Consolidated Financial Statements. |
See Notes to Consolidated Financial Statements included in Item 8.
GLOBAL INDEMNITY LIMITED SCHEDULE II —– Condensed Financial Information of Registrant (Parent Only) Balance Sheets (Dollars in thousands, except share data) ASSETS | | December 31, 2019 | | Fixed maturities | | $ | 30,938 | | Other invested assets | | | 13,530 | | Total investments | | | 44,468 | | Cash and cash equivalents | | | 977 | | Equity in unconsolidated subsidiaries (1) | | | 1,218,491 | | Other assets | | | 9,394 | | Total assets | | $ | 1,273,330 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | Liabilities: | | | | | Due to affiliates (1) | | $ | 3,612 | | Intercompany notes payable (1) | | | 520,498 | | Interest payable - affiliates (1) | | | 20,343 | | Other liabilities | | | 2,068 | | Total liabilities | | | 546,521 | | Commitments and contingencies | | | 0 | | Shareholders’ equity: | | | | | Common shares, $0.0001 par value: 900,000,000 common shares authorized; class A common shares issued: 10,282,277; class A common shares outstanding: 10,167,056; class B common shares issued and outstanding: 4,133,366 | | | 2 | | Preferred shares, $0.0001 par value, 100,000,000 shares authorized, none issued and outstanding | | | 0 | | Additional paid-in capital | | | 442,403 | | Accumulated other comprehensive income, net of tax | | | 17,609 | | Retained earnings | | | 270,768 | | Class A common shares in treasury, at cost: 115,221 shares | | | (3,973 | ) | Total shareholders' equity | | | 726,809 | | Total liabilities and shareholders’ equity | | $ | 1,273,330 | |
| (1) | This item has been eliminated in the Company’s Consolidated Financial Statements.
|
GLOBAL INDEMNITY GROUP, LLC SCHEDULE II – Condensed Financial Information of Registrant (continued) (Parent Only) Statement of Operations and Comprehensive Income (Dollars in thousands) | | | | | | Year Ended December 31, 2020 (1) | | | | | Years Ended
December 31, | | | | | | 2017 | | 2016 | | | Revenues: | | | | | | Revenues: | | | | | | Net investment income | | $ | 361 | | | $ | 28 | | | $ | 2,876 | | Intercompany interest income (2) | | | | 57 | | Net realized investment losses | | | (368 | ) | | | — | | | | (1,444 | ) | | | | | | | | | Other income | | | | 1 | | Total revenues | | | (7 | ) | | 28 | | | | 1,490 | | Expenses: | | | | | | | | | Intercompany interest expense (1) | | | 2,477 | | | 198 | | | Intercompany interest expense (2) | | | | 550 | | Interest expense | | | 15,872 | | | 1,172 | | | | 218 | | Other expenses | | | 16,801 | | | 661 | | | | | | | | | | | Corporate and other operating expenses | | | | 23,641 | | Loss on extinguishment of debt | | | | 3,060 | | Loss before equity in earnings of unconsolidated subsidiaries | | | (35,157 | ) | | (2,003 | ) | | | (25,979 | ) | Equity in earnings of unconsolidated subsidiaries (1) | | | 25,606 | | | 51,871 | | | | | | | | | | | Net income | | | (9,551 | ) | | 49,868 | | | | | | | | | | | Equity in earnings of unconsolidated subsidiaries (2) | | | | 4,973 | | Net loss | | | | (21,006 | ) | Other comprehensive income (loss), net of tax: | | | | | | | | | Unrealized holding gains (losses) | | | 43 | | | (17 | ) | | Equity in other comprehensive loss of unconsolidated subsidiaries (1) | | | 9,558 | | | (4,679 | ) | | | | | | | | | | Other comprehensive loss, net of tax | | | 9,601 | | | (4,696 | ) | | | | | | | | | | Comprehensive income, net of tax | | $ | 50 | | | $ | 45,172 | | | | | | | | | | | Unrealized holdings losses arising during the period | | | | (4,581 | ) | Equity in other comprehensive loss of unconsolidated subsidiaries (2) | | | | 21,657 | | Recognition of previously unrealized holding gains | | | | (377 | ) | Other comprehensive income, net of tax | | | | 16,699 | | Comprehensive loss, net of tax | | | $ | (4,307 | ) |
(1) | Includes activity for Global Indemnity Limited from January 1, 2020 to August 27, 2020 and activity for Global Indemnity Group, LLC from August 28, 2020 to December 31, 2020 |
(2) | This item has been eliminated in the Company’s Consolidated Financial Statements. |
See Notes to Consolidated Financial Statements included in Item 8.
GLOBAL INDEMNITY PLCLIMITED SCHEDULE II —– Condensed Financial Information of Registrant (continued) (Parent Only) StatementsStatement of Operations and Comprehensive Income
(Dollars in thousands) | | Years Ended December 31, | | | | 2019 | | | 2018 | | Revenues: | | | | | | | | | Net investment income | | $ | 2,295 | | | $ | 658 | | Net realized investment gain (losses) | | | 574 | | | | (154 | ) | Total revenues | | | 2,869 | | | | 504 | | Expenses: | | | | | | | | | Intercompany interest expense (1) | | | 844 | | | | 7,034 | | Interest expense | | | 264 | | | | 5,960 | | Other expenses | | | 6,692 | | | | 11,317 | | Loss before equity in earnings of unconsolidated subsidiaries | | | (4,931 | ) | | | (23,807 | ) | Equity in earnings of unconsolidated subsidiaries (1) | | | 74,946 | | | | (32,889 | ) | Net income (loss) | | | 70,015 | | | | (56,696 | ) | Other comprehensive income (loss), net of tax: | | | | | | | | | Unrealized holding gains (losses) | | | 872 | | | | (499 | ) | Equity in other comprehensive income (loss) of unconsolidated subsidiaries (1) | | | 38,520 | | | | (19,841 | ) | Reclassification adjustment for (gains) losses included in net income (loss) | | | (552 | ) | | | 154 | | Other comprehensive income (loss), net of tax | | | 38,840 | | | | (20,186 | ) | Comprehensive income (loss), net of tax | | $ | 108,855 | | | $ | (76,882 | ) |
| | | | | | | | Year Ended
December 31, 2015 | | Revenues: | | | | | Total revenues | | $ | — | | Expenses: | | | | | Intercompany interest expense (1) | | | 1,296 | | Other expenses | | | 8,203 | | | | | | | Loss before equity in earnings of unconsolidated subsidiaries | | | (9,499 | ) | Equity in earnings of unconsolidated subsidiaries (1) | | | 50,968 | | | | | | | Net income | | | 41,469 | | | | | | | Other comprehensive income (loss), net of tax: | | | | | Equity in other comprehensive loss of unconsolidated subsidiaries (1) | | | (19,306 | ) | | | | | | Other comprehensive loss, net of tax | | | (19,306 | ) | | | | | | Comprehensive income, net of tax | | $ | 22,163 | | | | | | |
(1) | This item has been eliminated in the Company’s Consolidated Financial Statements. |
See Notes to Consolidated Financial Statements included in Item 8.
GLOBAL INDEMNITY LIMITEDGROUP, LLC SCHEDULE II — Condensed Financial Information of Registrant —– (continued)
(Parent Only) Statements of Cash Flows (Dollars in thousands) | | | | | | | | | | | | Years Ended
December 31, | | | | | 2017 | | | 2016 | | Net cash provided by (used in) operating activities | | $ | (24,927 | ) | | $ | 1 | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Proceeds from disposition of subsidiaries | | | — | | | | 456 | | Dividend received from subsidiary | | | 100,000 | | | | — | | Capital contribution to a subsidiary | | | (96,000 | ) | | | (450 | ) | Proceeds from sale of fixed maturities | | | 12,389 | | | | 84 | | Proceeds from maturity of fixed maturities | | | 10,000 | | | | — | | Purchase of fixed maturities | | | (32,044 | ) | | | — | | | | | | | | | | | Net cash provided by (used in) investing activities | | | (5,655 | ) | | | 90 | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Redemption of ordinary shares | | | (83,015 | ) | | | — | | Proceeds from issuance of subordinated notes | | | 130,000 | | | | — | | Debt issuance cost | | | (4,246 | ) | | | — | | Purchase of A ordinary shares | | | (1,159 | ) | | | — | | | | | | | | | | | Net cash provided by financing activities | | | 41,580 | | | | — | | | | | | | | | | | Net change in cash and equivalents | | | 10,998 | | | | 91 | | Cash and cash equivalents at beginning of period | | | 91 | | | | — | | | | | | | | | | | Cash and cash equivalents at end of period | | $ | 11,089 | | | $ | 91 | | | | | | | | | | |
| | Year Ended December 31, 2020 (1) | | Net cash used in operating activities | | $ | (23,602 | ) | Cash flows from investing activities: | | | | | Proceeds from sale of fixed maturities | | | 126,834 | | Proceeds from sale of equity securities | | | 137,533 | | Proceeds from maturity of fixed maturities | | | 423 | | Proceeds from other invested assets | | | 1,700 | | Purchases of fixed maturities | | | (202,664 | ) | Purchases of equity securities | | | (168,795 | ) | Purchases of other invested assets | | | (60,000 | ) | Net cash used in investing activities | | | (164,969 | ) | Cash flows from financing activities: | | | | | Distributions paid to common shareholders | | | (14,252 | ) | Distributions paid to preferred shareholders | | | (133 | ) | Issuance of series A cumulative fixed rate preferred shares | | | 4,000 | | Dividends from subsidiaries | | | 226,000 | | Capital contribution | | | (26,466 | ) | Purchase of class A common shares | | | (153 | ) | Net cash provided by financing activities | | | 188,996 | | Net change in cash and equivalents | | | 425 | | Cash and cash equivalents at beginning of period | | | 977 | | Cash and cash equivalents at end of period | | $ | 1,402 | |
(1) | Includes activity for Global Indemnity Limited from January 1, 2020 to August 27, 2020 and activity for Global Indemnity Group, LLC from August 28, 2020 to December 31, 2020 |
See Notes to Consolidated Financial Statements included in Item 8.
GLOBAL INDEMNITY PLCLIMITED SCHEDULE II —– Condensed Financial Information of Registrant —– (continued) (Parent Only) StatementStatements of Cash Flows
(Dollars in thousands) | | | | | | | | Year Ended
December 31, 2015 | | Net cash provided by operating activities | | $ | 95,891 | | | | | | | Cash flows from financing activities: | | | | | Proceeds from issuance of subordinated notes | | | 100,000 | | Debt issuance cost | | | (3,659 | ) | Purchases of A ordinary shares | | | (333 | ) | Tax benefit on share-based compensation expense | | | 10 | | Redemption of ordinary shares | | | (189,770 | ) | | | | | | Net cash used for financing activities | | | (93,752 | ) | | | | | | Net change in cash and equivalents | | | 2,139 | | Cash and cash equivalents at beginning of period | | | 46 | | | | | | | Cash and cash equivalents at end of period | | $ | 2,185 | | | | | | |
| | Years Ended December 31, | | | | 2019 | | | 2018 | | Net cash provided by (used in) operating activities | | $ | 2,632 | | | $ | (20,178 | ) | Cash flows from investing activities: | | | | | | | | | Proceeds from sale of fixed maturities | | | 48,393 | | | | 32,980 | | Proceeds from sale of equity securities | | | 10,900 | | | | 0 | | Proceeds from maturity of fixed maturities | | | 0 | | | | 5,431 | | Proceeds from other invested assets | | | 4,363 | | | | 1,500 | | Purchase of fixed maturities | | | (10,548 | ) | | | (33,327 | ) | Purchase of equity securities | | | (41,815 | ) | | | 0 | | Net cash provided by investing activities | | | 11,293 | | | | 6,584 | | Cash flows from financing activities: | | | | | | | | | Proceeds from notes to affiliates | | | 0 | | | | 230,000 | | Debt restructuring | | | 0 | | | | (230,000 | ) | Dividends paid to shareholders | | | (14,222 | ) | | | (14,027 | ) | Dividends from subsidiaries | | | 0 | | | | 20,620 | | Purchase of class A common shares | | | (947 | ) | | | (1,867 | ) | Net cash provided by (used in) financing activities | | | (15,169 | ) | | | 4,726 | | Net change in cash and equivalents | | | (1,244 | ) | | | (8,868 | ) | Cash and cash equivalents at beginning of period | | | 2,221 | | | | 11,089 | | Cash and cash equivalents at end of period | | $ | 977 | | | $ | 2,221 | |
See Notes to Consolidated Financial Statements included in Item 8.
GLOBAL INDEMNITY LIMITEDGROUP, LLC SCHEDULE III —-- SUPPLEMENTARY INSURANCE INFORMATION (Dollars in thousands) | | | | | | | | | | | | | | | | | Segment | | Deferred Policy
Acquisition Costs | | | Future
Policy Benefits,
Losses, Claims And
Loss Expenses | | | Unearned
Premiums | | | Other Policy
and Benefits
Payable | | At December 31, 2017: | | | | | | | | | | | | | | | | | Commercial Lines | | $ | 21,222 | | | $ | 419,042 | | | $ | 102,191 | | | $ | — | | Personal Lines | | | 27,563 | | | | 120,255 | | | | 137,704 | | | | — | | Reinsurance Operations | | | 12,862 | | | | 95,367 | | | | 45,502 | | | | — | | At December 31, 2016: | | | | | | | | | | | | | | | | | Commercial Lines | | $ | 19,755 | | | $ | 458,645 | | | $ | 94,698 | | | $ | — | | Personal Lines | | | 28,381 | | | | 127,350 | | | | 157,464 | | | | — | | Reinsurance Operations | | | 9,765 | | | | 65,047 | | | | 34,822 | | | | — | | At December 31, 2015: | | | | | | | | | | | | | | | | | Commercial Lines | | $ | 20,784 | | | $ | 524,607 | | | $ | 100,027 | | | $ | — | | Personal Lines | | | 31,900 | | | | 94,359 | | | | 169,669 | | | | — | | Reinsurance Operations | | | 3,833 | | | | 61,081 | | | | 16,589 | | | | — | |
Segment | | Deferred Policy Acquisition Costs | | | Future Policy Benefits, Losses, Claims And Loss Expenses | | | Unearned Premiums | | | Other Policy and Benefits Payable | | At December 31, 2020: | | | | | | | | | | | | | | | | | Commercial Specialty | | $ | 29,033 | | | $ | 424,994 | | | $ | 139,016 | | | $ | 0 | | Specialty Property | | | 14,682 | | | | 45,268 | | | | 69,211 | | | | 0 | | Farm, Ranch & Stable | | | 8,786 | | | | 44,841 | | | | 42,499 | | | | 0 | | Reinsurance Operations | | | 12,694 | | | | 147,708 | | | | 40,769 | | | | 0 | | At December 31, 2019: | | | | | | | | | | | | | | | | | Commercial Specialty | | $ | 27,415 | | | $ | 390,148 | | | $ | 134,433 | | | $ | 0 | | Specialty Property | | | 18,249 | | | | 50,334 | | | | 81,922 | | | | 0 | | Farm, Ranch & Stable | | | 9,612 | | | | 45,601 | | | | 44,048 | | | | 0 | | Reinsurance Operations | | | 15,401 | | | | 144,098 | | | | 54,458 | | | | 0 | | At December 31, 2018: | | | | | | | | | | | | | | | | | Commercial Specialty | | $ | 23,059 | | | $ | 417,175 | | | $ | 110,704 | | | $ | 0 | | Specialty Property | | | 18,161 | | | | 82,722 | | | | 88,809 | | | | 0 | | Farm, Ranch & Stable | | | 8,897 | | | | 50,923 | | | | 40,265 | | | | 0 | | Reinsurance Operations | | | 11,559 | | | | 129,211 | | | | 42,134 | | | | 0 | |
| | | | | | | | | | | | | | | | | Segment | | Premium
Revenue | | | Benefits, Claims,
Losses And
Settlement
Expenses | | | Amortization of
Deferred Policy
Acquisition Costs | | | Net
Written
Premium | | For the year ended December 31, 2017: | | | | | | | | | | | | | | | | | Commercial Lines | | $ | 178,798 | | | $ | 62,834 | | | $ | 42,008 | | | $ | 186,448 | | Personal Lines | | | 215,983 | | | | 165,798 | | | | 56,616 | | | | 209,799 | | Reinsurance Operations | | | 43,253 | | | | 40,580 | | | | 10,340 | | | | 53,933 | | | | | | | | | | | | | | | | | | | Total | | $ | 438,034 | | | $ | 269,212 | | | $ | 108,964 | | | $ | 450,180 | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2016: | | | | | | | | | | | | | | | | | Commercial Lines | | $ | 189,342 | | | $ | 75,401 | | | $ | 42,361 | | | $ | 182,956 | | Personal Lines | | | 237,555 | | | | 174,528 | | | | 61,416 | | | | 228,183 | | Reinsurance Operations | | | 41,568 | | | | 14,074 | | | | 10,540 | | | | 59,801 | | | | | | | | | | | | | | | | | | | Total | | $ | 468,465 | | | $ | 264,003 | | | $ | 114,317 | | | $ | 470,940 | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2015: | | | | | | | | | | | | | | | | | Commercial Lines | | $ | 198,404 | | | $ | 98,471 | | | $ | 43,821 | | | $ | 198,404 | | Personal Lines | | | 253,948 | | | | 163,045 | | | | 31,291 | | | | 253,157 | | Reinsurance Operations | | | 51,791 | | | | 13,852 | | | | 11,058 | | | | 49,683 | | | | | | | | | | | | | | | | | | | Total | | $ | 504,143 | | | $ | 275,368 | | | $ | 86,170 | | | $ | 501,244 | | | | | | | | | | | | | | | | | | |
Segment | | Premium Revenue | | | Benefits, Claims, Losses And Settlement Expenses | | | Amortization of Deferred Policy Acquisition Costs | | | Net Written Premium | | For the year ended December 31, 2020: | | | | | | | | | | | | | | | | | Commercial Specialty | | $ | 285,694 | | | $ | 155,271 | | | $ | 65,406 | | | $ | 292,216 | | Specialty Property | | | 131,474 | | | | 94,540 | | | | 33,835 | | | | 121,111 | | Farm, Ranch & Stable | | | 76,166 | | | | 47,151 | | | | 18,473 | | | | 74,163 | | Reinsurance Operations | | | 74,365 | | | | 39,239 | | | | 23,201 | | | | 60,677 | | Total | | $ | 567,699 | | | $ | 336,201 | | | $ | 140,915 | | | $ | 548,167 | | For the year ended December 31, 2019: | | | | | | | | | | | | | | | | | Commercial Specialty | | $ | 237,758 | | | $ | 108,911 | | | $ | 56,339 | | | $ | 258,719 | | Specialty Property | | | 140,232 | | | | 75,426 | | | | 37,811 | | | | 140,670 | | Farm, Ranch & Stable | | | 71,312 | | | | 42,700 | | | | 18,307 | | | | 74,416 | | Reinsurance Operations | | | 75,960 | | | | 48,365 | | | | 19,872 | | | | 88,284 | | Total | | $ | 525,262 | | | $ | 275,402 | | | $ | 132,329 | | | $ | 562,089 | | For the year ended December 31, 2018: | | | | | | | | | | | | | | | | | Commercial Specialty | | $ | 218,357 | | | $ | 114,476 | | | $ | 49,715 | | | $ | 226,827 | | Specialty Property | | | 128,768 | | | | 122,709 | | | | 37,854 | | | | 127,470 | | Farm, Ranch & Stable | | | 69,248 | | | | 41,180 | | | | 17,536 | | | | 70,217 | | Reinsurance Operations | | | 51,402 | | | | 56,260 | | | | 12,883 | | | | 48,033 | | Total | | $ | 467,775 | | | $ | 334,625 | | | $ | 117,988 | | | $ | 472,547 | |
| | | | | | | | | Unallocated Corporate Items | | Net
Investment
Income | | | Corporate
and Other
Operating
Expenses | | For the year ended December 31, 2017 | | $ | 39,323 | | | $ | 25,714 | | For the year ended December 31, 2016 | | | 33,983 | | | | 17,338 | | For the year ended December 31, 2015 | | | 34,609 | | | | 24,448 | |
Unallocated Corporate Items | | Net Investment Income | | | Corporate and Other Operating Expenses | | For the year ended December 31, 2020: | | $ | 28,392 | | | $ | 41,998 | | For the year ended December 31, 2019: | | | 42,052 | | | | 18,888 | | For the year ended December 31, 2018: | | | 46,342 | | | | 29,766 | |
GLOBAL INDEMNITY LIMITEDGROUP, LLC SCHEDULE IV —-- REINSURANCE EARNED PREMIUMS (Dollars in thousands) | | | | | | | | | | | | Direct Amount | | | Ceded to Other Companies | | | Assumed from Other Companies | | | Net Amount | | | Percentage of Amount Assumed to Net | | | | | Direct
Amount | | | Ceded to Other
Companies | | | Assumed from
Other Companies | | | Net Amount | | | Percentage
of Amount
Assumed to Net | | | For the year ended December 31, 2017: | | | | | | | | | | | | For the year ended December 31, 2020: | | | | | | | | | | | | | | | | | | | | | | Property & Liability Insurance | | $ | 440,109 | | | $ | 79,886 | | | $ | 77,811 | | | $ | 438,034 | | | | 17.8 | % | | $ | 560,658 | | | $ | 62,271 | | | $ | 69,312 | | | $ | 567,699 | | | 12.2% | | For the year ended December 31, 2016: | | | | | | | | | | | | For the year ended December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | Property & Liability Insurance | | $ | 466,750 | | | $ | 96,552 | | | $ | 98,267 | | | $ | 468,465 | | | | 21.0 | % | | $ | 527,018 | | | $ | 78,649 | | | $ | 76,893 | | | $ | 525,262 | | | 14.6% | | For the year ended December 31, 2015: | | | | | | | | | | | | For the year ended December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | Property & Liability Insurance | | $ | 452,441 | | | $ | 92,852 | | | $ | 144,554 | | | $ | 504,143 | | | | 28.7 | % | | $ | 483,229 | | | $ | 83,610 | | | $ | 68,156 | | | $ | 467,775 | | | 14.6% | |
GLOBAL INDEMNITY LIMITEDGROUP, LLC SCHEDULE V—V - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Dollars in thousands) | Description | | Balance at
Beginning of
Period | | Charged
(Credited) to Costs
and Expenses | | Charged
(Credited)
to Other
Accounts | | Other
Deductions | | Balance at
End of Period | | | Balance at Beginning of Period | | | Charged (Credited) to Costs and Expenses | | | Charged (Credited) to Other Accounts | | | Other Deductions | | | Balance at End of Period | | For the year ended December 31, 2017: | | | | | | | | | | | | For the year ended December 31, 2020: | | For the year ended December 31, 2020: | | | | | | | | | | | | | | | | | | Investment asset valuation reserves: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Mortgage loans | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Real estate | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Premiums, accounts and notes receivable | | $ | 1,928 | | | $ | 251 | | | $ | — | | | $ | — | | | $ | 2,179 | | | $ | 2,754 | | | $ | 146 | | | $ | 0 | | | $ | 0 | | | $ | 2,900 | | Deferred tax asset valuation allowance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Reinsurance receivables | | 8,040 | | | | — | | | | — | | | | — | | | 8,040 | | | | 8,992 | | | | 0 | | | | 0 | | | | 0 | | | | 8,992 | | For the year ended December 31, 2016: | | | | | | | | | | | | For the year ended December 31, 2019: | | For the year ended December 31, 2019: | | | | | | | | | | | | | | | | | | Investment asset valuation reserves: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Mortgage loans | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Real estate | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Premiums, accounts and notes receivable | | $ | 1,646 | | | $ | 282 | | | $ | — | | | $ | — | | | $ | 1,928 | | | $ | 2,272 | | | $ | 482 | | | $ | 0 | | | $ | 0 | | | $ | 2,754 | | Deferred tax asset valuation allowance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Reinsurance receivables | | 9,675 | | | (1,635 | ) | | | — | | | | — | | | 8,040 | | | | 8,040 | | | | 952 | | | | 0 | | | | 0 | | | | 8,992 | | For the year ended December 31, 2015: | | | | | | | | | | | | For the year ended December 31, 2018: | | For the year ended December 31, 2018: | | | | | | | | | | | | | | | | | | Investment asset valuation reserves: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Mortgage loans | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Real estate | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Premiums, accounts and notes receivable | | $ | 1,518 | | | $ | 128 | | | $ | — | | | $ | — | | | $ | 1,646 | | | $ | 2,179 | | | $ | 93 | | | $ | 0 | | | $ | 0 | | | $ | 2,272 | | Deferred tax asset valuation allowance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Reinsurance receivables | | 9,350 | | | 325 | | | | — | | | | — | | | 9,675 | | | | 8,040 | | | | 0 | | | | 0 | | | | 0 | | | | 8,040 | |
GLOBAL INDEMNITY LIMITEDGROUP, LLC SCHEDULE VI —-- SUPPLEMENTARY INFORMATION FOR PROPERTY CASUALTY UNDERWRITERS (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | Deferred
Policy
Acquisition
Costs | | | Reserves for
Unpaid Claims
and Claim
Adjustment
Expenses | | | Discount If
Any Deducted | | | Unearned
Premiums | | Consolidated Property & Casualty Entities: | | | | | | | | | | | | | | | | | As of December 31, 2017 | | $ | 61,647 | | | $ | 634,664 | | | $ | 1,200 | | | $ | 285,397 | | As of December 31, 2016 | | | 57,901 | | | | 651,042 | | | | 2,000 | | | | 286,984 | | As of December 31, 2015 | | | 56,517 | | | | 680,047 | | | | 3,000 | | | | 286,285 | |
| | Deferred Policy Acquisition Costs | | | Reserves for Unpaid Claims and Claim Adjustment Expenses | | | Discount If Any Deducted | | | Unearned Premiums | | Consolidated Property & Casualty Entities: | | | | | | | | | | | | | | | | | As of December 31, 2020 | | $ | 65,195 | | | $ | 662,811 | | | $ | 0 | | | $ | 291,495 | | As of December 31, 2019 | | | 70,677 | | | | 630,181 | | | | 400 | | | | 314,861 | | As of December 31, 2018 | | | 61,676 | | | | 680,031 | | | | 800 | | | | 281,912 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earned
Premiums | | | Net
Investment
Income | | | Claims and Claim Adjustment
Expense Incurred Related To | | | Amortization Of
Deferred Policy
Acquisition Costs | | | Paid Claims
and Claim
Adjustment
Expenses | | | Premiums
Written | | | | | | Current Year | | | Prior Year | | | | | Consolidated Property & Casualty Entities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2017 | | $ | 438,034 | | | $ | 39,323 | | | $ | 323,112 | | | $ | (53,900 | ) | | $ | 108,964 | | | $ | 271,756 | | | $ | 450,180 | | For the year ended December 31, 2016 | | | 468,465 | | | | 33,983 | | | | 321,255 | | | | (57,252 | ) | | | 114,317 | | | | 317,369 | | | | 470,940 | | For the year ended December 31, 2015 | | | 504,143 | | | | 34,609 | | | | 310,066 | | | | (34,698 | ) | | | 86,170 | | | | 332,417 | | | | 501,244 | |
| | Earned | | | Net Investment | | | Claims and Claim Adjustment Expense Incurred Related To | | | Amortization Of Deferred Policy | | | Paid Claims and Claim Adjustment | | | Premiums | | | | Premiums | | | Income | | | Current Year | | | Prior Year | | | Acquisition Costs | | | Expenses | | | Written | | Consolidated Property & Casualty Entities: | | | | | | | | | | | | | | | | | | | | | | For the year ended December 31, 2020: | | $ | 567,699 | | | $ | 28,392 | | | $ | 367,739 | | | $ | (31,538 | ) | | $ | 140,908 | | | $ | 309,456 | | | $ | 548,167 | | For the year ended December 31, 2019: | | | 525,262 | | | | 42,052 | | | | 308,211 | | | | (32,809 | ) | | | 132,329 | | | | 292,183 | | | | 562,089 | | For the year ended December 31, 2018: | | | 467,775 | | | | 46,342 | | | | 363,423 | | | | (28,798 | ) | | | 117,988 | | | | 301,357 | | | | 472,547 | |
Note: All of the Company’sCompany's insurance subsidiaries are 100% owned and consolidated. S-11 S-10
|
|
|
|
|
|
|
|
|
|
|
|