What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-10 · 190 added, 149 removed, 331 unchanged (51% of the section changed)

4 unchanged sentences

For more information regarding the Company’s business and operations, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Developments

Stock Repurchase

From April 1, 2023 through May 1, 2023, an additional 200,000 shares with an average cost of $28.00 per share were repurchased as part of the share repurchase program.

Including these purchases, a total of 1,357,082 shares with average purchase price of $25.05 per share were repurchased under the share repurchase program that was initially authorized on October 21, 2022.

Distributions

The Board of Directors approved a distribution payment of $0.25 per common share to all shareholders of record on the close of business on March 24, 2023.

Distributions paid to common shareholders were $3.9 million during the quarter ended March 31, 2023.

In addition, distributions of $0.1 million were paid to Global Indemnity Group, LLC’s preferred shareholder during the quarter ended March 31, 2023.

The Company operates and manages its business through three business segments:

Commercial Specialty, Reinsurance Operations, and Exited Lines.

The Company’s Commercial Specialty products are distributed through approximately 365 wholesale general agent and wholesale broker offices.

The Company’s wholesale general agents have limited quoting and binding authority.

Commercial Specialty offers specialty property and casualty products designed for GBLI's Wholesale Commercial and InsurTech product offerings.

These product lines are offered primarily in the excess and surplus lines marketplace.

The Company’s Reinsurance Operations provides reinsurance and insurance solutions through brokers and primary writers including insurance and reinsurance companies.

It uses its capital capacity to write niche and casualty-focused treaties and business which meet the Company’s risk tolerance and return thresholds.

To support future growth in the Company's Commercial Specialty segment and provide capital for business initiatives including share repurchases, a decision was made to reduce writings in its Reinsurance Operations.

The Company anticipates that its Reinsurance Operations will comprise a smaller percentage of the Company's overall business prospectively.

The Company’s Exited Lines segment represents lines of business that are no longer being written or are in runoff.

Exited Lines includes specialty personal lines and property and casualty products such as manufactured home, dwelling, motorcycle, watercraft, certain homeowners business, property brokerage, property and catastrophe reinsurance treaties, several smaller casualty lines, and the farm, ranch and equine business.

These insurance products were distributed through wholesale general agents, wholesale brokers, and retail agents.

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.

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.

Actual results could differ from those estimates and assumptions.

The most critical accounting policies involve significant estimates and include those used in determining the liability for unpaid losses and loss adjustment expenses, recoverability of reinsurance receivables, investments, fair value measurements, goodwill and intangible assets, deferred acquisition costs, and taxation.

For a detailed discussion on each of these policies, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

There have been no significant changes to any of these policies or underlying methodologies during the current year.

Financial Highlights

2023 Second Quarter Results of Operations

Net income of $9.3 million, or $0.68 per share basic and $0.67 per share diluted

Net earned premium of $129.2 million;

31% and Casualty:

Continuing Lines accident year combined ratio of 94.9% for the quarter ended June 30, 2023 compared to 96.8% for the same period in 2022.

Continuing Lines' accident year combined ratio is comprised of the accident year ratios of the Company's Commercial Specialty and Reinsurance Operations segments.

o The accident year combined ratio was 93.7% for Commercial Specialty's and 98.9% for Reinsurance Operations during the quarter ended June 30, 2023.

o The accident year combined ratio was 96.4% for Commercial Specialty's and 97.9% for Reinsurance Operations during the quarter ended June 30, 2022.

Net investment income of $13.2 million.

Book yield on the fixed maturities portfolio was 3.8%.

Net realized investment losses of $0.8 million

Operating cash flows of $14.2 million

2023 Second Quarter Consolidated Financial Condition

Total investments of $1.3 billion;

fixed maturities and short-term securities comprise 96% of total investments

Total assets of $1.8 billion

No third party debt

Total capital returned to shareholders of $602.6 million, comprising $522.2 million of share repurchases and $80.4 million of distributions / dividends.

This includes $9.1 million of capital returned in the second quarter of 2023 which is comprised of $5.6 million of share repurchases and $3.5 million of distributions.

Shareholders' equity of $626.4 million

Book value per common share of $46.03

Results of Operations

The following table summarizes the Company’s results for the quarters ended March 31, 2023 and 2022:

During the quarter ended June 30, 2023, net income of $9.3 million was realized.

The $9.3 million of net income is significantly better than the $12.2 million net loss realized in the same period in 2022 and net income of $2.5 million from the quarter ended March 31, 2023.

Post March 31, 2023, actions have been taken to reduce exposures at commercial vacant properties.

The Continuing Lines accident year underwriting income (1) for the quarter ended June 30, 2023 was $6.5 million and the accident year combined ratio (1) was 94.9%.

Net investment income significantly increased in the second quarter of 2023 compared to the same period in 2022.

Book yield of the fixed income investment portfolio was 3.8% at June 30, 2023

compared to 2.2% at December 31, 2021.

Actions taken to focus on Continuing Lines and to reposition the investment portfolio in early 2022 are improving results.

The following table summarizes the Company’s results for the quarters and six months ended June 30, 2023 and 2022:

Quarters Ended

Six Months Ended

(Dollars in thousands)

6 unchanged sentences

Acquisition costs and other underwriting expenses

Underwriting income (loss)

Underwriting income

Net investment income

3 unchanged sentences

Interest expense

Loss on extinguishment of debt

Income (loss) before income taxes

5 unchanged sentences

Combined ratio (4)

not meaningful

(1) The Continuing Lines accident year underwriting income of $6.5 million is a non-GAAP measure which excludes the impact of prior accident year losses and loss adjustment expenses and prior accident year contingent commission expenses totaling $6.1 million.

The Company's most directly comparable GAAP measure is the Continuing Lines underwriting income of $0.4 million.

The Continuing Lines accident year combined ratio of 94.9% is a non-GAAP ratio which excludes the impact of prior accident year losses and loss adjustment expenses and prior accident year contingent commission expenses totaling 5.1%.

The Company's most directly comparable GAAP ratio is the Continuing Lines combined ratio of 100.0%.

The Company believes the non-GAAP measures or ratios are useful to investors when evaluating the Company's underwriting performance as trends within Continuing Lines 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.

(2) 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 earned premiums.

1 unchanged sentence

(4) The combined ratio is a GAAP financial measure and is the sum of the Company’s loss and expense ratios.

not meaningful

The following table summarizes the change in premium volume by business segment:

Quarters Ended

Six Months Ended

(Dollars in thousands)

22 unchanged sentences

(3) External business only, excluding business assumed from affiliates.

Gross written premiums decreased by 35.6% for the quarter ended March 31, 2023 as compared to same period in 2022.

Gross written premiums decreased by 44.1% and 39.9% for the quarter and six months ended June 30, 2023 as compared to same periods in 2022.

The decrease in gross written premiums is being driven by a reduction in premiums in both Continuing Lines as well as Exited Lines.

3 unchanged sentences

The Company anticipates that its Reinsurance Operations will comprise a smaller percentage of the Company's overall business prospectively.

Underwriting Ratios

Quarters Ended

Commercial Specialty

Reinsurance Operations

Continuing Lines

Total loss ratio

Expense ratio

Commercial Specialty

Reinsurance Operations

Continuing Lines

Total expense ratio

Combined ratio

Commercial Specialty

Reinsurance Operations

Continuing Lines

Total combined ratio

Net Retention

2 unchanged sentences

Quarters Ended

Six Months Ended

(Dollars in thousands)

2 unchanged sentences

Continuing Lines

The net premium retention for the quarter ended March 31, 2023 increased by 10.7 points as compared to the same period in 2022.

The net premium retention for the quarter and six months ended June 30, 2023 increased by 11.4 points and 11.1 points, respectively, as compared to the same periods in 2022.

While the Company still has ceding arrangements in place related to the sale of renewal rights, the Company's overall net retention is not significantly impacted in 2023 as Exited Lines' gross written premiums comprise a much smaller percentage of the Company's consolidated gross written premiums.

See Note 3 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2022 Annual Report on Form 10-K for additional information on the sale of renewal rights related to the Company’s manufactured and dwelling homes business and the Company's Farm, Ranch & Stable business.

Net earned premiums within the Commercial Specialty segment increased by 2.2% for the quarter ended March 31, 2023 as compared to the same period in 2022.

The increase in net earned premiums was primarily due to the growth in premiums written in the prior year as a result of organic growth from existing agents and pricing increases.

Property net earned premiums were $37.7 million and $34.3 million for the quarters ended March 31, 2023 and 2022, respectively.

Casualty net earned premiums were $55.5 million and $56.9 million for the quarters ended March 31, 2023 and 2022, respectively.

Net earned premiums within the Reinsurance Operations segment increased by 1.6% for the quarter ended March 31, 2023 as compared to the same period in 2022 primarily due to organic growth of existing casualty treaties experienced in prior years.

There were no property net earned premiums for the quarter ended March 31, 2023.

Property net earned premiums were less than $0.1 million for the quarter ended March 31, 2022.

Casualty net earned premiums were $34.8 million and $34.3 million for the quarters ended March 31, 2023 and 2022, respectively.

Net earned premiums within the Exited Lines segment decreased by 48.4% for the quarter ended March 31, 2023 as compared to the same period in 2022 primarily due to the sale of renewal rights related to the Company's Farm, Ranch & Stable business on August 8, 2022.

Net Earned Premiums

Net earned premiums within the Commercial Specialty segment decreased by 0.6% for the quarter ended June 30, 2023 as compared to the same period in 2022 primarily due to the reduction in premiums written in 2023 as a result of actions taken within Commercial Specialty to improve underwriting results by not renewing underperforming business as well as the non-renewal of a restaurant book of business.

Net earned premiums within the Commercial Specialty segment increased by 0.8% for the six months ended June 30, 2023 as compared to the same period in 2022.

This increase in net earned premiums was primarily due to the growth in premiums written in the prior year as a result of organic growth from existing agents and pricing increases.

Property net earned premiums were $35.8 million and $36.5 million for the quarters ended June 30, 2023 and 2022, respectively, and $73.5 million and $70.9 million for the six months ended June 30, 2023 and 2022, respectively.

Casualty net earned premiums were $57.6 million and $57.5 million for the quarters ended June 30, 2023 and 2022, respectively, and $113.1 million and $114.3 million for the six months ended June 30, 2023 and 2022, respectively.

Net earned premiums within the Reinsurance Operations segment decreased by 24.5% and 12.3% for the quarter and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 primarily due to the non-renewal of a casualty treaty.

There were no property net earned premiums for the quarters and six months ended June 30, 2023 and 2022.

Casualty net earned premiums were $29.6 million and $39.2 million for the quarters ended June 30, 2023 and 2022, respectively, and $64.4 million and $73.5 million for the six months ended June 30, 2023 and 2022, respectively.

Net earned premiums within the Exited Lines segment decreased by 72.7% and 60.4% for the quarter and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 primarily due to the sale of renewal rights related to the Company's Farm, Ranch & Stable business on August 8, 2022.

The decrease in net earned premiums is also due to exiting lines of business unrelated to the Company’s continuing businesses.

Property net earned premiums were $8.7 million and $18.8 million for the quarters ended March 31, 2023 and 2022, respectively.

Casualty net earned premiums were $3.4 million and $4.5 million for the quarters ended March 31, 2023 and 2022, respectively.

Management’s best estimate at March 31, 2023 was recorded as the loss reserve.

Property net earned premiums were $4.0 million and $17.6 million for the quarters ended June 30, 2023 and 2022, respectively, and $12.7 million and $36.4 million for the six months ended June 30, 2023 and 2022, respectively.

Casualty net earned premiums were $2.2 million and $5.0 million for the quarters ended June 30, 2023 and 2022, respectively, and $5.5 million and $9.5 million for the six months ended June 30, 2023 and 2022, respectively.

Management’s best estimate at June 30, 2023 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 $857.5 million and $783.9 million, respectively, as of March 31, 2023.

A breakout of the Company’s gross and net reserves, as of March 31, 2023, is as follows:

This resulted in carried gross and net reserves of $867.0 million and $793.0 million, respectively, as of June 30, 2023.

A breakout of the Company’s gross and net reserves, as of June 30, 2023, is as follows:

Gross Reserves

14 unchanged sentences

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 $88.0 million for claims occurring during the quarter ended March 31, 2023:

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 $166.0 million for claims occurring during the six months ended June 30, 2023:

Severity Change

1 unchanged sentence

Frequency Change

The Company’s net reserves for losses and loss adjustment expenses of $783.9 million as of March 31, 2023 relate to multiple accident years.

The Company’s net reserves for losses and loss adjustment expenses of $793.0 million as of June 30, 2023 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.

1 unchanged sentence

Commercial Specialty

Commercial Specialty's results for the quarter ended June 30, 2023 are reflective of actions taken to improve profitabilty.

Actions were taken to cease writing business which was not providing an acceptable return on capital.

As a result, accident year underwriting income (1) improved to $6.1 million for the quarter ended June 30, 2023 from an accident year underwriting loss (1) of $0.6 million for the quarter ended March 31, 2023.

The components of income (loss) from the Company’s Commercial Specialty segment and corresponding underwriting ratios are as follows:

Quarters Ended

Six Months Ended

(Dollars in thousands)

8 unchanged sentences

Quarters Ended

Six Months Ended

Underwriting Ratios:

4 unchanged sentences

Combined ratio

Accident year combined ratio (2)

(1) The Commercial Specialty accident year underwriting income (loss) of $6.1 million and ($0.6) million for the quarters ended June 30, 2023 and March 31, 2023, respectively, is a non-GAAP measure which excludes the impact of prior accident year losses and loss adjustment expenses and prior accident year contingent commission expenses totaling $5.1 million and $1.6 million for the quarters ended June 30, 2023 and March 31, 2023, respectively.

The Company's most directly comparable GAAP measure is the Commercial Specialty underwriting income (loss) of $1.0 million and ($2.2) million for the quarters ended June 30, 2023 and March 31, 2023, respectively.

The Company believes the non-GAAP measures are useful to investors when evaluating the Company's underwriting performance as trends within Commercial Specialty may be obscured by prior accident year adjustments.

These non-GAAP measures should not be considered as a substitute for its most directly comparable GAAP measure and does not reflect the overall underwriting profitability of the Company.

(2) The accident year combined ratio excludes the impact of prior accident year losses and loss adjustment expenses and prior accident year contingent commission expenses.

Reconciliation of non-GAAP financial measures and ratios

3 unchanged sentences

Quarters Ended

Six Months Ended

(Dollars in thousands)

18 unchanged sentences

above for a discussion on consolidated premiums.

Other income was $0.3 million for each of the quarters ended March 31, 2023 and 2022.

Other income was $0.3 million for each of the quarters ended June 30, 2023 and 2022 and $0.5 million for each of the six months ended June 30, 2023 and 2022.

Other income is primarily comprised of fee income.

1 unchanged sentence

Quarters Ended

Six Months Ended

(Dollars in thousands)

5 unchanged sentences

Quarters Ended

Six Months Ended

Current accident year loss ratio:

3 unchanged sentences

Total accident year loss ratio

The current accident year non-catastrophe property loss ratio increased by 9.4 points during the quarter ended March 31, 2023 as compared to the same period in 2022 reflecting higher claims severity mainly due to fire losses in the first accident quarter compared to last year.

The current accident year catastrophe loss ratio increased by 2.5 points during the quarter ended March 31, 2023 as compared to the same period in 2022 recognizing higher claims frequency in the first accident quarter compared to last year.

The current accident year casualty loss ratio increased by 2.2 points during the quarter ended March 31, 2023 as compared to the same period in 2022 reflecting higher claims severity in the first accident quarter compared to last year.

The calendar year loss ratio for the quarter ended March 31, 2023 includes an increase of $1.5 million, or 1.6 percentage points related to reserve development on prior accident years.

The calendar year loss ratio for the quarter ended March 31, 2022 includes an increase of $1.9 million, or 2.1 percentage points related to reserve development on prior accident years.

The current accident year non-catastrophe property loss ratio improved by 4.8 points during the quarter ended June 30, 2023 as compared to the same period in 2022 reflecting lower claims frequency in the second accident quarter compared to last year.

The current accident year non-catastrophe property loss ratio increased by 2.5 points during the six months ended June 30, 2023 as compared to the same period in 2022 reflecting higher claims severity mainly due to fire losses in the first accident quarter compared to last year.

The current accident year catastrophe loss ratio increased by 3.0 points during the quarter ended June 30, 2023 as compared to the same period in 2022 recognizing higher claims severity in the calendar quarter compared to last year.

The current accident year catastrophe loss ratio increased by 2.8 points during the six months ended June 30, 2023 as compared to the same period in 2022 recognizing higher claims frequency and severity in the first six months compared to last year.

The current accident year casualty loss ratio improved by 0.8 points during the quarter ended June 30, 2023 as compared to the same period in 2022 reflecting lower claims frequency in the calendar quarter compared to last year.

The current accident year casualty loss ratio increased by 0.7 points during the six months ended June 30, 2023 as compared to the same period in 2022 recognizing higher claims severity in the first six months compared to last year.

The calendar year loss ratio for the quarter and six months ended June 30, 2023 includes an increase of $5.0 million, or 5.3 percentage points, and an increase of $6.5 million, or 3.5 percentage points, respectively, related to reserve development on prior accident years.

The calendar year loss ratio for the quarter and six months ended June 30, 2022 includes a decrease of $2.3 million, or 2.4 percentage points, and a decrease of $0.4 million, or 0.2 percentage points, respectively, related to reserve development on prior accident years.

Please see Note 8 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.

Expense Ratios

The expense ratio for the Company’s Commercial Specialty segment increased by 1.3 points from 36.8% for the quarter ended March 31, 2022 to 38.1% for the quarter ended March 31, 2023 .

The increase in the expense ratio is primarily due to an increase in compensation cost and advertising expense.

The expense ratio for the Company’s Commercial Specialty segment improved by 1.4 points from 37.8% for the quarter ended June 30, 2022 to 36.4% for the quarter ended June 30, 2023 primarily due to a reduction in commission expenses and the recovery of medical premiums in 2023 due to lower than expected medical costs in 2022.

The expense ratio for the Company’s Commercial Specialty segment improved by 0.1 points from 37.3% for the six months ended June 30, 2022 to 37.2% for the six months ended June 30, 2023.

Reinsurance Operations

The components of income from the Company’s Reinsurance Operations segment and corresponding underwriting ratios are as follows:

The components of income (loss) from the Company’s Reinsurance Operations segment and corresponding underwriting ratios are as follows:

Quarters Ended

Six Months Ended

(Dollars in thousands)

6 unchanged sentences

Acquisition costs and other underwriting expenses

Underwriting income

Underwriting income (loss)

Quarters Ended

Six Months Ended

Underwriting Ratios:

4 unchanged sentences

Combined ratio

Accident year combined ratio (4)

(1) External business only, excluding business assumed from affiliates

1 unchanged sentence

(3) Most directly comparable GAAP ratio

(4) The accident year combined ratio excludes the impact of prior accident year losses and loss adjustment expenses and prior accident year contingent commission expenses.

Reconciliation of non-GAAP financial ratios

4 unchanged sentences

above for a discussion on consolidated premiums.

The Company recognized a loss of less than $0.1 million during each of the quarters ended March 31, 2023 and 2022.

Other loss is primarily comprised of foreign exchange gains and losses.

The current accident year loss ratio improved by 0.5 points during the quarter ended March 31, 2023 as compared to the same period in 2022 reflecting a mix of business change as more earned premium is from a treaty with a lower expected loss ratio compared to last year.

The calendar year loss ratios for the quarter ended March 31, 2023 did not include any reserve development on prior accident years.

The calendar year loss ratios for the quarter ended March 31, 2022 includes a decrease of less than $0.1 million or 0.1 percentage point related to reserve development on prior accident years.

The Company recognized other income of less than $0.1 million during each of the quarters ended June 30, 2023 and 2022.

There was no other income recognized during the six months ended June 30, 2023 and 2022.

Other income is primarily comprised of foreign exchange gains and losses.

The current accident year loss ratio increased by 1.3 points during the quarter ended June 30, 2023 as compared to the same period in 2022 primarily reflecting an increase in the excess professional liability expected loss ratio.

The current accident year loss ratio increased by 0.3 points during the six months ended June 30, 2023 as compared to the same period in 2022 primarily reflecting an increase in the excess professional liability expected loss ratio.

The calendar year loss ratios for the quarter and six months ended June 30, 2023 includes an increase of $1.0 million, or 3.4 percentage points, and an increase of $1.0 million, or 1.6 percentage points, respectively, related to reserve development on prior accident years.

The calendar year loss ratios for the quarter and six months ended June 30, 2022 includes a decrease of $1.2 million, or 3.1 percentage, and a decrease of $1.2 million, or 1.7 point percentage, respectively, related to reserve development on prior accident years.

Please see Note 8 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.

Expense Ratios

The expense ratio for the Company’s Reinsurance Operations segment increased 1.9 points from 34.9% for the quarter ended March 31, 2022 to 36.8% for the quarter ended March 31, 2023.

This increase in the expense ratio was primarily due to an increase in commission expense.

The components of income from the Company’s Exited Lines segment and corresponding underwriting ratios are as follows:

The expense ratio for the Company’s Reinsurance Operations segment improved 0.9 points from 37.2% for the quarter ended June 30, 2022 to 36.3% for the quarter ended June 30, 2023 primarily due to a reduction in staff and professional services to align expenses with business being written.

The expense ratio for the Company’s Reinsurance Operations segment increased 0.5 points from 36.1% for the six months ended June 30, 2022 to 36.6% for the six months ended June 30, 2023 primarily due to an increase in commission expense.

The components of income (loss) from the Company’s Exited Lines segment and corresponding underwriting ratios are as follows:

Quarters Ended

Six Months Ended

(Dollars in thousands)

2 unchanged sentences

Net earned premiums

Other income (loss)

Total revenues

2 unchanged sentences

Acquisition costs and other underwriting expenses

Underwriting income

Underwriting income (loss)

Quarters Ended

Six Months Ended

Underwriting Ratios:

4 unchanged sentences

Combined ratio

Accident year combined ratio (1)

(1) The accident year combined ratio excludes the impact of prior accident year losses and loss adjustment expenses and prior accident year contingent commission expenses.

not meaningful

Reconciliation of non-GAAP financial measures and ratios

3 unchanged sentences

Quarters Ended

Six Months Ended

(Dollars in thousands)

18 unchanged sentences

above for a discussion on consolidated premiums.

The Company recognized income of $0.1 million and $0.2 million for the quarters ended March 31, 2023 and 2022, respectively.

Other income is primarily comprised of fee income net of bank fees.

Other Income (Loss)

The Company recognized income of less than $0.1 million and a loss of $0.2 million for the quarters ended June 30, 2023 and 2022, respectively, and income of $0.1 million and income of less than $0.1 million for the six months ended June 30, 2023 and 2022, respectively.

Other income (loss) is primarily comprised of fee income net of bank fees.

The current accident year losses and loss ratio is summarized as follows:

Quarters Ended

Six Months Ended

(Dollars in thousands)

5 unchanged sentences

Quarters Ended

Six Months Ended

Current accident year loss ratio:

3 unchanged sentences

Total accident year loss ratio

The current accident year non-catastrophe property loss ratio improved by 12.6 points during the quarter ended March 31, 2023 as compared to the same period in 2022 reflecting lower claims severity in the first accident quarter compared to last year.

The current accident year catastrophe loss ratio increased by 13.3 points during the quarter ended March 31, 2023 as compared to the same period in 2022 primarily recognizing higher claims frequency in the first accident quarter compared to last year.

The current accident year casualty loss ratio increased by 13.6 points during the quarter ended March 31, 2023 as compared to the same period in 2022 primarily reflecting higher claims frequency in farm, ranch & stable lines for the first accident quarter compared to last year and growth in the brokerage divisions which had a higher expected loss ratio.

The calendar year loss ratio for the quarter ended March 31, 2023 includes a decrease of $1.5 million, or 12.2 percentage points related to reserve development on prior accident years.

The calendar year loss ratio for the quarter ended March 31, 2022 includes a decrease of $4.9 million, or 21.1 percentage points related to reserve development on prior accident years.

The current accident year non-catastrophe property loss ratio increased by 32.9 points during the quarter ended June 30, 2023 as compared to the same period in 2022 reflecting higher claims severity in the calendar quarter compared to last year.

The current accident year non-catastrophe property loss ratio increased by 2.0 points during the six months ended June 30, 2023 as compared to the same period in 2022 primarily reflecting higher claims severity in the first six months compared to last year.

The current accident year catastrophe loss ratio improved by 4.8 points during the quarter ended June 30, 2023 as compared to the same period in 2022 primarily recognizing lower claims severity in the calendar quarter compared to last year.

The current accident year catastrophe loss ratio increased by 4.4 points during the six months ended June 30, 2023 as compared to the same period in 2022 primarily recognizing higher claims frequency and severity in the first six months compared to last year.

The current accident year casualty loss ratio increased by 15.4 points during the quarter ended June 30, 2023 as compared to the same period in 2022 primarily reflecting higher claims severity in the calendar quarter compared to last year and growth in the brokerage divisions which had higher expected loss ratios.

The current accident year casualty loss ratio increased by 15.2 points during the six months ended June 30, 2023 as compared to the same period in 2022 primarily reflecting higher claims severity in the first six months compared to last year and growth in the brokerage divisions which had higher expected loss ratios.

The calendar year loss ratio for the quarter and six months ended June 30, 2023 includes a decrease of $5.9 million, or 96.2 percentage points, and a decrease of $7.4 million, or 40.6 percentage points, respectively, related to reserve development on prior accident years.

The calendar year loss ratio for the quarter and six months ended June 30, 2022 includes a decrease of

$0.1 million, or 0.3 percentage points, and an decrease of $5.0 million, or 10.9 percentage points, respectively, related to reserve development on prior accident years.

Please see Note 8 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.

Expense Ratio

The expense ratio for the Company’s Exited Lines decreased by 5.4 points from 48.0% for the quarter ended March 31, 2022 to 42.6% for the quarter ended March 31, 2023 due to restructuring actions which reduced expenses.

The expense ratio for the Company’s Exited Lines improved by 9.9 points from 48.7% for the quarter ended June 30, 2022 to 38.8% for the quarter ended June 30, 2023 and improved by 7.1 points from 48.4% for the six months ended June 30, 2022 to 41.3% for the six months ended June 30, 2023 due to restructuring actions which reduced expenses.

Unallocated Corporate Items

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Quarters Ended

Six Months Ended

(Dollars in thousands)

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(1) Excludes realized gains and losses

Gross investment income increased by 72.0% for the quarter ended March 31, 2023 as compared to the same period in 2022.

The increase was primarily due to an increase in yield within the fixed maturities portfolio due to the rise in rates.

Investment expenses decreased by 38.4% for the quarter ended March 31, 2023 as compared to the same period in 2022 due to decreased investment management expenses.

At March 31, 2023, the Company held agency mortgage-backed securities with a market value of $3.2 million.

Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 1.5 years as of March 31, 2023, compared with 3.2 years as of March 31, 2022.

Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities was 1.5 years and 2.8 years as of March 31, 2023 and March 31, 2022, respectively.

Gross investment income increased by 433.9% and 166.5% for the quarter and six months ended June 30, 2023, respectively, as compared to the same periods in 2022.

The increase was primarily due to an increase in yield within the fixed maturities portfolio due to the rise in rates and increased returns from alternative investments.

Investment expenses decreased by 42.6% and 40.5% for the quarter and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 due to decreased investment management expenses.

At June 30, 2023, the Company held agency mortgage-backed securities with a market value of $3.0 million.

Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 1.4 years as of June 30, 2023, compared with 1.8 years as of June 30, 2022.

Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities was 1.3 years and 1.7 years as of June 30, 2023 and June 30, 2022, respectively.

Changes in interest rates can cause principal payments on certain investments to extend or shorten which can impact duration.

The Company’s embedded book yield on its fixed maturities, not including cash, was 3.6% as of March 31, 2023, compared to 2.6% as of March 31, 2022.

The embedded book yield on the $31.9 million of taxable municipal bonds in the Company’s portfolio was 3.1% at March 31, 2023, compared to an embedded book yield of 3.2% on the Company’s taxable municipal bonds of $47.0 million at March 31, 2022.

The Company’s embedded book yield on its fixed maturities, not including cash, was 3.8% as of June 30, 2023, compared to 2.7% as of June 30, 2022.

The embedded book yield on the $30.6 million of taxable municipal bonds in the Company’s portfolio was 3.0% at June 30, 2023, compared to an embedded book yield of 3.1% on the Company’s taxable municipal bonds of $32.4 million at June 30, 2022.

Net Realized Investment Gains (Losses)

The components of net realized investment gains (losses) for the quarters ended March 31, 2023 and 2022 were as follows:

The components of net realized investment gains (losses) for the quarters and six months ended June 30, 2023 and 2022 were as follows:

Quarters Ended

Six Months Ended

(Dollars in thousands)

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Most of the proceeds from the sale of these securities were reinvested into fixed income investments with maturities of two years.

As a result of these actions, book yield increased from 2.2% at December 31, 2021 to 3.6% at March 31, 2023.

See Note 3 of the notes to the consolidated financial statements in Item 1 of Part I of this report for an analysis of total investment return on a pre-tax basis for the quarters ended March 31, 2023 and 2022.

As a result of these actions, the Company's book yield rose over time.

Book yield was approximately 2.2% at December 31, 2021 and 3.8% at June 30, 2023.

See Note 3 of the notes to the consolidated financial statements in Item 1 of Part I of this report for an analysis of total investment return on a pre-tax basis for the quarters and six months ended June 30, 2023 and 2022.

Corporate and Other Operating Expenses

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fees, management fees & advisory fees, salaries and benefits for holding company personnel, development costs for new products, impairment losses, and taxes incurred which are not directly related to operations.

Corporate and other operating expenses were $6.4 million and $4.7 million during the quarters ended March 31, 2023 and 2022, respectively.

Corporate and other operating expenses were $5.0 million and $3.0 million during the quarters ended June 30, 2023 and 2022, respectively.

Corporate and other operating expenses for the quarter ended June 30, 2022 were lower than normal due to the Company receiving an employee retention credit under the CARES Act of $2.7 million in May 2022.

Corporate and other operating expenses were $11.4 million and $7.7 million during the six months ended June 30, 2023 and 2022, respectively.

The increase in corporate and other operating expenses is primarily due to restructuring costs incurred in the first quarter of 2023.

In addition, corporate and other operating expenses for 2022 were lower than normal due to the Company receiving an employee retention credit under the CARES Act of $2.7 million in May 2022.

Interest Expense

Interest expense was $2.6 million during the quarter ended March 31, 2022.

There was no interest expense during the quarter ended March 31, 2023.

Interest expense was $0.4 million and $3.0 million during the quarter and six months ended June 30, 2022.

There was less than $0.1 million of interest expense during the quarter and six months ended June 30, 2023.

The reduction in interest expense was due to the redemption of the 7.875% Subordinated Notes due 2047 on April 15, 2022.

Income Tax Expense / Benefit

Income tax expense was $0.6 million for the quarter ended March 31, 2023 compared with income tax benefit of $3.4 million for the quarter ended March 31, 2022.

Income tax expense was $2.4 million for the quarter ended June 30, 2023 compared with income tax benefit of $0.6 million for the quarter ended June 30, 2022.

The increase in income tax expense is primarily due to higher taxable income in the Company's U.S.

Subsidiaries in 2023.

Income tax expense was $2.9 million for the six months ended June 30, 2023 compared with an income tax benefit of $4.0 million for the six months ended June 30, 2022.

The increase in income tax expense is primarily due to higher taxable income in the Company's U.S.

Subsidiaries in 2023.

See Note 7 of the notes to the consolidated financial statements in Item 1 of Part I of this report for a comparison of income tax between periods.

Net Income (Loss)

The factors described above resulted in a net income of $2.5 million and a net loss of $14.8 million for the quarters ended March 31, 2023 and 2022, respectively.

The factors described above resulted in net income of $9.3 million and a net loss of $12.2 million for the quarters ended June 30, 2023 and 2022, respectively, and net income of $11.8 million and a net loss of $26.9 million for the six months ended June 30, 2023 and 2022, respectively.

Critical Accounting Estimates and Policies

Actual results could differ from those estimates and assumptions.

For a detailed discussion on each of these policies, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

There have been no significant changes to any of these policies or underlying methodologies during the current year.

Liquidity and Capital Resources

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United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company, and Penn-Patriot Insurance Company.

Global Indemnity Group, LLC’s short term and long term liquidity needs include but are not limited to the payment of corporate expenses, debt service payments, distributions to shareholders, and share repurchases.

Global Indemnity Group, LLC’s short term and long term liquidity needs include but are not limited to the payment of corporate expenses, distributions to shareholders, and share repurchases.

The Company also has commitments in the form of operating leases, commitments to fund limited liability investments, and unpaid losses and loss expense obligations.

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GBLI Holdings, LLC is dependent on dividends from its subsidiaries as well as reimbursements from its subsidiaries for utilization of net operating losses and other tax attributes in order to meet its corporate expense obligations and intercompany financing obligations.

As of March 31, 2023, the Company also had future funding commitments of $14.2 million related to investments that are currently in their harvest period and it is unlikely that a capital call will be made.

As of June 30, 2023, the Company also had future funding commitments of $14.2 million related to investments that are currently in their harvest period and it is unlikely that a capital call will be made.

The future liquidity of both Global Indemnity Group, LLC and GBLI Holdings, LLC is dependent on the ability of its subsidiaries to generate income to pay dividends.

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The dividend limitations imposed by state laws are based on the statutory financial results of each insurance company 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 - Statutory Accounting

Principles”

See “Regulation - Statutory Accounting Principles”

in Item 1 of Part I of the Company’s 2022 Annual Report on Form 10-K.

Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes, reserve calculation assumptions and surplus notes.

Key differences relate to, among other

items, deferred acquisition costs, limitations on deferred income taxes, reserve calculation assumptions and surplus notes.

See Note 22 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2022 Annual Report on Form 10-K for further information on dividend limitations related to the Insurance Companies.

There were no dividend declared or paid during the quarter ended March 31, 2023.

There were no dividend declared or paid during the quarter and six months ended June 30, 2023.

Sources of operating funds consist primarily of net written premiums and investment income.

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As a result of the distribution policy, funds are also used to pay distributions to shareholders of the Company.

The Company’s reconciliation of net income (loss) to net cash provided by (used for) operations is generally influenced by the following:

The Company’s reconciliation of net income (loss) to net cash provided by operations is generally influenced by the following:

the fact that the Company collects premiums, net of commissions, in advance of losses paid;

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the timing of the Company’s loss payments.

Net cash provided by (used for) operating activities was $5.3 million and ($10.1) million for the quarters ended March 31, 2023 and 2022, respectively.

The increase in operating cash flows of approximately $15.4 million from the prior year was primarily a net result of the following items:

Quarters Ended

Net cash provided by operating activities was $14.2 million and $18.5 million for the six months ended June 30, 2023 and 2022, respectively.

The decrease in operating cash flows of approximately $4.3 million from the prior year was primarily a net result of the following items:

Six Months Ended June 30,

(Dollars in thousands)

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Interest paid

Net cash provided by (used for) operating activities

Net cash provided by operating activities

See the consolidated statements of cash flows in the consolidated financial statements in Item 1 of Part I of this report for details concerning the Company’s investing and financing activities.

Stock Repurchase

From April, 1, 2023 through May 1, 2023, an additional 200,000 shares were repurchased as part of the share repurchase program.

On October 21, 2022, Global Indemnity Group, LLC announced that up to $32 million of share repurchases were authorized.

On January 3, 2023, Global Indemnity Group, LLC announced that it authorized an increase in the aggregate stock purchases from $32 million to $60 million.

On June 8, 2023, the Company’s Board of Directors approved an additional increase in the existing share buyback authorization amount of $60 million to $135 million.

During the six months ended June 30, 2023, 450,000 shares were repurchased for approximately $12.1 million at an average purchase price of $26.83 per share.

As a result of these transactions, book value per share increased by $0.60 per share since December 31, 2022.

From the time of the initial announcement, a total of 1,357,082 shares were repurchased for approximately $34.0 million at an average purchase price of $25.05 per share.

138,151 shares that were acquired were reissued at an average price per share of $24.17.

As a result of these transactions, book value per share increased by $1.69 per share.

As a result of these transactions, book value per share increased by $1.69 per share since inception of the stock purchase program in October 2022.

Restructuring

The Company is restructuring its insurance operations in an effort to strengthen its market presence and enhance its focus on GBLI’s core Wholesale Commercial and InsurTech products.

The Company restructured its insurance operations to strengthen its market presence and enhance its focus on GBLI’s core Package Specialty and Targeted Specialty products.

The restructuring plan, which was initiated in the fourth quarter of 2022, was completed in the first quarter of 2023.

The Company incurred restructuring charges of $3.4 million in the fourth quarter of 2022 and $2.2 million in the first quarter of 2023 for a total of $5.6 million.

The Company incurred restructuring costs of $3.4 million during the fourth quarter of 2022 and $2.1 million during the six months ended June 30, 2023 for total restructuring costs of $5.5 million.

Post completion of the restructuring, the Company anticipates recurring annual expense savings of $16.0 million.

Distributions

The Board of Directors approved a distribution payment of $0.25 per common share to all shareholders of record on the close of business on March 24, 2023.

Distributions paid to common shareholders were $3.9 million during the quarter ended March 31, 2023.

In addition, distributions of $0.1 million were paid to Global Indemnity Group, LLC’s preferred shareholder during the quarter ended March 31, 2023.

Other than the items discussed in the preceding paragraphs, there have been no material changes to the Company’s liquidity during the quarter ended March 31, 2023.

The Board of Directors approved a distribution payment of $0.25 per common share to all shareholders of record on the close of business on March 24, 2023 and June 23, 2023.

Distributions paid to common shareholders were $7.5 million during the six months ended June 30, 2023.

In addition, distributions of $0.2 million were paid to Global Indemnity Group, LLC’s preferred shareholder during the six months ended June 30, 2023.

Other than the items discussed in the preceding paragraphs, there have been no material changes to the Company’s liquidity during the quarter and six months ended June 30, 2023.

Please see Item 7 of Part II in the Company’s 2022 Annual Report on Form 10-K for information regarding the Company’s liquidity.

Capital Resources

There have been no material changes to the Company’s capital resources during the quarter ended March 31, 2023.

There have been no material changes to the Company’s capital resources during the quarter and six months ended June 30, 2023.

Please see Item 7 of Part II in the Company’s 2022 Annual Report on Form 10-K for information regarding the Company’s capital resources.

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QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

For the quarter ended March 31, 2023, global equities rose approximately 8.0% with U.S equities modestly underperforming, gaining approximately 7.5%.

U.S fixed income gained approximately 3.0% with the average spread moving wider during the quarter.

In March, Federal Reserve Chair Jerome Powell provided hawkish testimony in his semi-annual assessment of the economy to Congress.

This was quickly followed by a shock to financial stability and confidence as we witnessed three bank failures that required swift and coordinated actions from monetary authorities.

These measures played a critical role in calming fears.

Just two weeks later, the Fed increased rates while making the clear delineation that it has the tools to manage financial stability while at the same time battling inflation.

This has all combined to leave market participants parsing each piece of economic data for indications of the next moves by the FOMC, resulting in continued large swings in interest rates.

For the quarter ended June 30, 2023, global equities rose approximately 6.9% with U.S.

equities outperforming, gaining approximately 8.7%.

fixed income lost approximately 0.8% with the average spread moving tighter during the quarter.

Market expectations were met in June as the FOMC voted to pause the current tightening cycle, but volatility quickly resumed as the revised dot plots and Federal Reserve Chair Jerome Powell’s hawkish comments demonstrated that this meeting was not the end of this cycle.

The combination of challenges that still exist in the banking industry, the Treasury’s need to replenish its General Account and the desire to observe additional economic data likely contributed to the more measured approach.

Short-dated Treasury yields have been on the rise, leading to the steepest curve inversion since the Fed began raising rates in March of 2022 and fueling concerns that the U.S.

will enter a recession later this year.

The Company’s investment grade fixed income portfolio continues to maintain high quality with an A average rating and a duration of 1.3 years.

Portfolio purchases were focused within US Treasury, asset backed, and investment grade credit securities.

These purchases were funded primarily through cash inflows, sales of US Treasury securities, as well as maturities and paydowns.

During the first quarter, the portfolio’s allocation to asset backed securities increased, while the portfolio’s exposure to US Treasury securities decreased.

Other than the changes described in the preceding paragraph, there have been no other material changes to the Company’s market risk since December 31, 2022.

Portfolio purchases were focused within US Treasury and asset backed securities.

These purchases were funded primarily through cash inflows, sales of US Treasury securities and CMBS, as well as maturities and paydowns.

During the second quarter, the portfolio’s allocation to US Treasury securities increased, while the portfolio’s exposure to investment grade credit and CMBS securities decreased.

Other than the changes described in the preceding paragraphs, there have been no other material changes to the Company’s market risk since December 31, 2022.

Please see Item 7A of Part II in the Company’s 2022 Annual Report on Form 10-K for information regarding the Company’s market risk.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis