What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 185 added, 152 removed, 369 unchanged (48% of the section changed)

5 unchanged sentences

Financial Highlights

2023 Second Quarter Results of Operations

2023 Third Quarter Results of Operations

Net income of $7.7 million, or $0.56 per share basic and $0.55 per share diluted

1 unchanged sentence

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.

Continuing Lines accident year combined ratio of 97.8% for the quarter ended September 30, 2023 compared to 97.7% for the same period in 2022.

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

o The accident year combined ratio was 97.6% for Commercial Specialty's and 98.2% for Reinsurance Operations during the quarter ended September 30, 2023.

o The accident year combined ratio was 97.2% for Commercial Specialty's and 99.3% for Reinsurance Operations during the quarter ended September 30, 2022.

Net investment income of $14.2 million.

2 unchanged sentences

Operating cash flows of $36.8 million

2023 Second Quarter Consolidated Financial Condition

2023 Third Quarter Consolidated Financial Condition

Total investments of $1.3 billion;

3 unchanged sentences

Total capital returned to shareholders of $606.1 million, comprising $522.2 million of share repurchases and $83.9 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.

This includes $3.5 million of distributions during the third quarter of 2023.

Shareholders' equity of $630.7 million

1 unchanged sentence

Results of Operations

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:

The Company realized net income of $7.7 million and $23.7 million during the quarter ended September 30, 2023 and 2022, respectively, and realized net income (loss) of $19.5 million and ($3.2) million during the nine months ended September 30, 2023 and 2022, respectively.

Excluding the net gain related to the sale of the Company’s Farm, Ranch, & Stable renewal rights, net income (loss) (1) would have been $7.3 million and ($19.6) million for the quarter and nine months ended September 30, 2022.

Net investment income increased by $5.8 million and $22.5 million during the quarter and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

This significant increase in investment income is the result of

actions taken to reposition the investment portfolio in early 2022.

Book yield for the fixed income investment portfolio was 4.0% at September 30, 2023 compared to 2.2% at December 31, 2021.

The Continuing Lines accident year underwriting income (2) was $2.7 million and $9.4 million for the quarter and nine months ended September 30, 2023, respectively, and the accident year combined ratio (2) was 97.8% and 97.6% for the quarter and nine months ended September 30, 2023, respectively.

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

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

8 unchanged sentences

Net investment income

Net realized investment losses

Other income (loss)

Net realized investment gains (losses)

Other income (sale of farm business)

Corporate and other operating expenses

1 unchanged sentence

Loss on extinguishment of debt

Income (loss) before income taxes

Income tax expense (benefit)

Income before income taxes

Income tax expense

Net income (loss)

3 unchanged sentences

Combined ratio (5)

(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.

(1) Net income (loss) excluding the net gain on the sale of the Company’s Farm, Ranch, & Stable renewal rights of $7.3 million and ($19.6) million for the quarter and nine months ended September 30, 2022, respectively, is a non-GAAP measure which excludes the impact of gross proceeds of $30.0 million, impairments and expenses related to the sale of $9.2 million, and tax expense of $4.4 million in both the quarter and nine months ended September 30, 2022.

The Company’s most directly comparable GAAP measure is net income (loss) of $23.7 million and ($3.2) million during the quarter and nine months ended September 30, 2022, respectively.

The Company believes the non-GAAP measure is useful to investors when evaluating the Company's performance as trends may be obscured by this one time transaction.

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

(2) The Continuing Lines accident year underwriting income of $2.7 million and $9.4 million for the quarter and nine months ended September 30, 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 $12.6 million and $20.3 million for the quarter and nine months ended September 30, 2023, respectively.

The Company's most directly comparable GAAP measure is the Continuing Lines underwriting income (loss) of ($9.9) million and ($10.9) million for the quarter and nine months ended September 30, 2023, respectively.

The Continuing Lines accident year combined ratio of 97.8% and 97.6% for the quarter and nine months ended September 30, 2023, respectively, 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 11.4% and 5.6% for the quarter and nine months ended September 30, 2023, respectively.

The Company's most directly comparable GAAP ratio is the Continuing Lines combined ratio of 109.2% and 103.2% for the quarter and nine months ended September 30, 2023, respectively.

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.

5 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

22 unchanged sentences

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

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.

Gross written premiums decreased by 43.7% and 41.1% for the quarter and nine months ended September 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.

7 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

Continuing Lines

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.

not meaningful

The net premium retention for the quarter and nine months ended September 30, 2023 increased by 15.5 points and 12.3 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.

1 unchanged sentence

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.

Net earned premiums within the Commercial Specialty segment decreased by 15.1% and 4.8% for the quarter and nine months ended September 30, 2023, respectively, as compared to the same periods 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.

Property net earned premiums were $34.1 million and $35.7 million for the quarters ended September 30, 2023 and 2022, respectively, and $107.6 million and $106.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Casualty net earned premiums were $49.6 million and $62.9 million for the quarters ended September 30, 2023 and 2022, respectively, and $162.7 million and $177.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Net earned premiums within the Reinsurance Operations segment decreased by 23.9% and 16.0% for the quarter and nine months ended September 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 nine months ended September 30, 2023 and 2022.

Casualty net earned premiums were $26.7 million and $35.0 million for the quarters ended September 30, 2023 and 2022, respectively, and $91.1 million and $108.5 million for the nine months ended September 30, 2023 and 2022, respectively.

Net earned premiums within the Exited Lines segment decreased by 93.3% and 70.3% for the quarter and nine months ended September 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 $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.

Property net earned premiums were $0.6 million and $14.8 million for the quarters ended September 30, 2023 and 2022, respectively, and $13.3 million and $51.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Casualty net earned premiums were $0.7 million and $5.2 million for the quarters ended September 30, 2023 and 2022, respectively, and $6.3 million and $14.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Management’s best estimate at September 30, 2023 was recorded as the loss reserves.

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 $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:

This resulted in carried gross and net reserves of $861.8 million and $786.8 million, respectively, as of September 30, 2023.

A breakout of the Company’s gross and net reserves, as of September 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 $166.0 million for claims occurring during the six months ended June 30, 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 $231.2 million for claims occurring during the nine months ended September 30, 2023:

Severity Change

1 unchanged sentence

Frequency Change

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.

The Company’s net reserves for losses and loss adjustment expenses of $786.8 million as of September 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.

Commercial Specialty's accident year underwriting income (1) was $2.3 million for the quarter ended September 30, 2023 as compared to $3.0 million for the same period in 2022.

Results for 2023 include $2.5 million of losses from the fires in Maui Hawaii.

Commercial Specialty's results for the quarter ended September 30, 2023 include $14.5 million in strengthening of prior accident year reserves.

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

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

8 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Underwriting Ratios:

5 unchanged sentences

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.

(1) The Commercial Specialty accident year underwriting income (loss) of $2.3 million and $3.0 million for the quarters ended September 30, 2023 and September 30, 2022, 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 $14.6 million and ($1.2) million for the quarters ended September 30, 2023 and September 30, 2022, respectively.

The Company's most directly comparable GAAP measure is the Commercial Specialty underwriting income (loss) of ($12.3) million and $4.2 million for the quarters ended September 30, 2023 and September 30, 2022, 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.

1 unchanged sentence

(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.

not meaningful

Reconciliation of non-GAAP financial measures and ratios

3 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(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 June 30, 2023 and 2022 and $0.5 million for each of the six months ended June 30, 2023 and 2022.

Other income was $0.3 million for each of the quarters ended September 30, 2023 and 2022 and $0.8 million for each of the nine months ended September 30, 2023 and 2022.

Other income is primarily comprised of fee income.

1 unchanged sentence

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

5 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Current accident year loss ratio:

3 unchanged sentences

Total accident year loss ratio

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.

The current accident year non-catastrophe property loss ratio improved by 13.0 points during the quarter ended September 30, 2023 as compared to the same period in 2022 mainly reflecting lower claims severity in the third accident quarter and calendar quarter compared to last year.

The current accident year non-catastrophe property loss ratio improved by 2.3 points during the nine months ended September 30, 2023 as compared to the same period in 2022 reflecting lower claims frequency compared to last year.

The current accident year catastrophe loss ratio increased by 4.1 points during the quarter ended September 30, 2023 as compared to the same period in 2022 recognizing higher claims frequency in the third accident quarter and calendar quarter compared to last year.

The current accident year catastrophe loss ratio increased by 3.1 points during the nine months ended September 30, 2023 as compared to the same period in 2022 recognizing higher claims frequency compared to last year.

The current accident year casualty loss ratio increased by 5.9 points during the quarter ended September 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 casualty loss ratio increased by 2.3 points during the nine months ended September 30, 2023 as compared to the same period in 2022 recognizing higher claims severity compared to last year.

The calendar year loss ratio for the quarter and nine months ended September 30, 2023 includes an increase of $14.5 million, or 17.3 percentage points, and an increase of $21.0 million, or 7.8 percentage points, respectively, related to reserve development on prior accident years.

The calendar year loss ratio for the quarter and nine months ended September 30, 2022 includes a decrease of $1.2 million, or 1.3 percentage points, and a decrease of $1.6 million, or 0.6 percentage points, respectively, related to reserve development on prior accident years.

Please see Note 9 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 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.

The expense ratio for the Company’s Commercial Specialty segment increased by 0.6 points from 38.4% for the quarter ended September 30, 2022 to 39.0% for the quarter ended September 30, 2023 and increased by 0.1 points from 37.7% for the nine months ended September 30, 2022 to 37.8% for the nine months ended September 30, 2023 primarily due to lower earned premiums.

Reinsurance Operations

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

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

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

6 unchanged sentences

Acquisition costs and other underwriting expenses

Underwriting income (loss)

Underwriting income

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Underwriting Ratios:

15 unchanged sentences

above for a discussion on consolidated premiums.

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.

The current accident year loss ratio improved by 0.2 points during the quarter ended September 30, 2023 as compared to the same period in 2022 primarily reflecting mix of business changes as well as expected loss ratios varying by treaty.

The current accident year loss ratio increased by 0.2 points during the nine months ended September 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 nine months ended September 30, 2023 includes a decrease of $2.7 million, or 10.0 percentage points, and a decrease of $1.7 million, or 1.8 percentage points, respectively, related to reserve development on prior accident years.

The calendar year loss ratios for the quarter and nine months ended September 30, 2022 includes a decrease of $1.2 million, or 3.5 percentage, and a decrease of $2.5 million, or 2.3 point percentage, respectively, related to reserve development on prior accident years.

Please see Note 9 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 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 expense ratio for the Company’s Reinsurance Operations segment increased by 2.5 points from 37.1% for the quarter ended September 30, 2022 to 39.6% for the quarter ended September 30, 2023 and increased by 1.0 points from 36.4% for the nine months ended September 30, 2022 to 37.4% for the nine months ended September 30, 2023 primarily due to an increase in commission expense related to prior accident years partially offset by a reduction in staff and professional services to align expenses with business being written.

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

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

Net earned premiums

Other income (loss)

Total revenues

4 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Underwriting Ratios:

6 unchanged sentences

(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

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

18 unchanged sentences

above for a discussion on consolidated premiums.

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 Company recognized income of less than $0.1 million for each of the quarters ended September 30, 2023 and 2022 and income of $0.1 million and income of less than $0.1 million for the nine months ended September 30, 2023 and 2022, respectively.

Other income 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

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

5 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Current accident year loss ratio:

3 unchanged sentences

Total accident year loss ratio

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.

(1) The point change for the quarter ended September 30, 2023 is primarily due to a significant reduction in premiums and current accident year losses due to exiting various lines of business.

The current accident year non-catastrophe property loss ratio improved by 0.8 points during the nine months ended September 30, 2023 as compared to the same period in 2022 primarily reflecting lower claims frequency compared to last year.

The current accident year catastrophe loss ratio increased by 5.8 points during the nine months ended September 30, 2023 as compared to the same period in 2022 primarily recognizing higher claims frequency compared to last year.

The current accident year casualty loss ratio increased by 5.5 points during the nine months ended September 30, 2023 as compared to the same period in 2022 mainly reflecting higher claims frequency and growth in the brokerage divisions which had higher expected loss ratios.

The calendar year loss ratio for the quarter and nine months ended September 30, 2023 includes a decrease of $11.9 million, or 884.2 percentage points, and a decrease of $19.3 million, or 98.7 percentage points, respectively, related to reserve development on prior accident years.

The calendar year loss ratio for the quarter and nine months ended September 30, 2022 includes a decrease of $0.6 million, or 2.8 percentage points, and an decrease of $5.5 million, or 8.4 percentage points, respectively, related to reserve development on prior accident years.

Please see Note 9 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 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.

The expense ratio for the Company’s Exited Lines increased by 171.2 points from 50.2% for the quarter ended September 30, 2022 to 221.4% for the quarter ended September 30, 2023 and increased by 4.8 points from 48.9% for the nine months ended

September 30, 2022 to 53.7% for the nine months ended September 30, 2023 primarily due to lower earned premiums as a result of restructuring actions.

Unallocated Corporate Items

2 unchanged sentences

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

3 unchanged sentences

(1) Excludes realized gains and losses

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.

Gross investment income increased by 64.5% and 117.9% for the quarter and nine months ended September 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.

Investment expenses decreased by 21.6% and 35.3% for the quarter and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022 due to decreased investment management expenses.

At September 30, 2023, the Company held agency mortgage-backed securities with a market value of $2.8 million.

Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 1.2 years as of September 30, 2023, compared with 1.7 years as of September 30, 2022.

Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities was 1.1 years and 1.7 years as of September 30, 2023 and September 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 3.8% 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.

The Company’s embedded book yield on its fixed maturities, not including cash, was 4.0% as of September 30, 2023, compared to 3.1% as of September 30, 2022.

The embedded book yield on the $26.2 million of taxable municipal bonds in the Company’s portfolio was 3.0% at September 30, 2023, compared to an embedded book yield of 3.0% on the Company’s taxable municipal bonds of $33.0 million at September 30, 2022.

Net Realized Investment Gains (Losses)

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

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

Quarters Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

8 unchanged sentences

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.

Book yield was approximately 2.2% at December 31, 2021 and 4.0% at September 30, 2023.

See Note 4 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 nine months ended September 30, 2023 and 2022.

Corporate and Other Operating Expenses

1 unchanged sentence

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 $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.

Corporate and other operating expenses were $5.3 million and $14.1 million during the quarters ended September 30, 2023 and 2022, respectively.

The reduction in corporate and other operating expenses was primarily due to the Company incurring $9.2 million of impairments and expenses related to the sale of the Company's Farm, Ranch & Stable renewal rights during the quarter ended September 30, 2022.

Corporate and other operating expenses were $16.6 million and $21.7 million during the nine months ended September 30, 2023 and 2022, respectively.

Corporate and other operating expenses for the nine months ended September 30, 2022 included $9.2 million of impairments and expenses related to the sale of the Company's Farm, Ranch & Stable renewal rights offset by a $2.7 million employee retention credit under the CARES Act that was received in May 2022.

Corporate and other operating expenses for the nine months ended September 30, 2023 includes $2.1 million in restructuring expenses.

Interest Expense

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.

Interest expense was less than $0.1 million and $3.0 million during the nine months ended September 30, 2023 and 2022, respectively.

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 $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.

Income Tax Expense

Income tax expense was $1.8 million for the quarter ended September 30, 2023 compared with income tax expense of $7.4 million for the quarter ended September 30, 2022.

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

Subsidiaries during the quarter ended September 30, 2023 as compared to the same period in 2022.

Income tax expense was $4.7 million for the nine months ended September 30, 2023 compared with an income tax expense of $3.4 million for the nine months ended September 30, 2022.

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

Subsidiaries in 2023.

Subsidiaries in 2023 during the nine months ended September 30, 2023 as compared to the same period in 2022.

See Note 8 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 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.

The factors described above resulted in net income of $7.7 million and $23.7 million for the quarters ended September 30, 2023 and 2022, respectively, and net income of $19.5 million and a net loss of $3.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Critical Accounting Estimates and Policies

18 unchanged sentences

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 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.

As of September 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.

3 unchanged sentences

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 and six months ended June 30, 2023.

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

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

5 unchanged sentences

the timing of the Company’s loss payments.

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.

Net cash provided by operating activities was $36.8 million and $41.7 million for the nine months ended September 30, 2023 and 2022, respectively.

The decrease in operating cash flows of approximately $5.0 million from the prior year was primarily a net result of the following items:

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands)

3 unchanged sentences

Net investment income

Net income taxes (paid) recovered

Interest paid

3 unchanged sentences

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 January 3, 2023, Global Indemnity Group, LLC announced that it authorized an increase in the aggregate stock repurchases 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.

During the nine months ended September 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.

1 unchanged sentence

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 since inception of the stock purchase program in October 2022.

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

Restructuring

1 unchanged sentence

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

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.

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

Post completion of the restructuring plan, 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 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.

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, June 23, 2023, and October 9, 2023.

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

In addition, distributions of $0.3 million were paid to Global Indemnity Group, LLC’s preferred shareholder during the nine months ended September 30, 2023.

Investment Portfolio

On July 31, 2023, the Company provided the Global Debt Fund, LP with a formal withdrawal request in full.

Withdrawal proceeds are expected to be received starting in 2024.

The Global Debt Fund, LP had a fair market value of $23.7 million at September 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 nine months ended September 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 and six months ended June 30, 2023.

There have been no material changes to the Company’s capital resources during the quarter and nine months ended September 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.

13 unchanged sentences

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

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.

For the quarter ended September 30, 2023, global equities and U.S.

equities fell approximately 3.3%.

fixed income lost approximately 3.2% with the average spread moving wider during the quarter.

The FOMC voted to maintain policy rates at current levels, but with a promise to remain vigilant in the battle against inflation that is nearly twice its 2% target.

economy has proven surprisingly resilient, aided by a consumer that has had the ability and willingness to spend at above-average levels for an extended period.

Strong growth has helped to push interest rates to levels not seen since 2007, particularly further out the curve.

This is coming at a time when the amount of U.S.

Treasury issuance is increasing to finance growing deficits.

While Congress was able to avert a government shutdown, the current political and fiscal challenges may further add to already elevated levels of volatility.

The Company’s investment grade fixed income portfolio continues to maintain high quality with an A+ average rating and a duration of 1.2 years.

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.

Portfolio purchases were focused within US Treasury securities.

These purchases were funded primarily through cash inflows, as well as maturities and paydowns.

During the third quarter, the portfolio’s allocation to US Treasury securities increased, while the portfolio’s exposure to investment grade credit 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.

1 unchanged sentence

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