Global Indemnity Group, LLC 10-Q

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes of the Company included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to the Company’s plans and strategy, constitutes forward-looking statements that involve risks and uncertainties. Please see "Cautionary Note Regarding Forward-Looking Statements" at the end of this Item 2 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein. 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. Financial Highlights 2023 Third Quarter Results of Operations • Net income of $7.7 million, or $0.56 per share basic and $0.55 per share diluted • Net earned premium of $111.7 million; Property: 31% and Casualty: 69% • 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. Book yield on the fixed maturities portfolio was 4.0%. • Net realized investment losses of $0.1 million • Operating cash flows of $36.8 million 2023 Third 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 $606.1 million, comprising $522.2 million of share repurchases and $83.9 million of distributions / dividends. This includes $3.5 million of distributions during the third quarter of 2023. • Shareholders' equity of $630.7 million • Book value per common share of $46.27 Results of Operations 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 35 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 September 30, % Nine Months Ended September 30, % (Dollars in thousands) 2023 2022 Change 2023 2022 Change Gross written premiums $ 98,926 $ 175,827 (43.7 %) $ 332,011 $ 563,633 (41.1 %) Net written premiums $ 95,623 $ 142,835 (33.1 %) $ 317,480 $ 469,475 (32.4 %) Net earned premiums $ 111,695 $ 153,644 (27.3 %) $ 380,923 $ 458,216 (16.9 %) Other income 299 316 (5.4 %) 935 839 11.4 % Total revenues 111,994 153,960 (27.3 %) 381,858 459,055 (16.8 %) Losses and expenses: Net losses and loss adjustment expenses 65,116 88,459 (26.4 %) 231,199 265,772 (13.0 %) Acquisition costs and other underwriting expenses 46,202 60,876 (24.1 %) 146,781 178,666 (17.8 %) Underwriting income 676 4,625 (85.4 %) 3,878 14,617 (73.5 %) Net investment income 14,200 8,389 69.3 % 39,424 16,911 133.1 % Net realized investment gains (losses) (133 ) 2,234 (106.0 %) (2,414 ) (33,067 ) (92.7 %) Other income (sale of farm business) — 30,000 (100.0 %) — 30,000 (100.0 %) Corporate and other operating expenses (5,280 ) (14,064 ) (62.5 %) (16,638 ) (21,718 ) (23.4 %) Interest expense — — — (12 ) (3,004 ) (99.6 %) Loss on extinguishment of debt — — — — (3,529 ) (100.0 %) Income before income taxes 9,463 31,184 (69.7 %) 24,238 210 NM Income tax expense 1,763 7,438 (76.3 %) 4,707 3,399 38.5 % Net income (loss) $ 7,700 $ 23,746 (67.6 %) $ 19,531 $ (3,189 ) NM Underwriting Ratios: Loss ratio (3) : 58.3 % 57.6 % 60.7 % 58.0 % Expense ratio (4) 41.4 % 39.6 % 38.5 % 39.0 % Combined ratio (5) 99.7 % 97.2 % 99.2 % 97.0 % (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 36 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. (3) 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. (4) The expense ratio is a GAAP financial measure that is calculated by dividing the sum of acquisition costs and other underwriting expenses by net earned premiums. (5) The combined ratio is a GAAP financial measure and is the sum of the Company’s loss and expense ratios. NM – not meaningful Premiums The following table summarizes the change in premium volume by business segment: Quarters Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 % Change 2023 2022 % Change Gross written premiums (1) Commercial Specialty $ 87,029 $ 96,056 (9.4 %) $ 277,884 $ 303,914 (8.6 %) Reinsurance Operations (3) 11,864 43,055 (72.4 %) 50,124 130,575 (61.6 %) Continuing Lines 98,893 139,111 (28.9 %) 328,008 434,489 (24.5 %) Exited Lines 33 36,716 (99.9 %) 4,003 129,144 (96.9 %) Total gross written premiums $ 98,926 $ 175,827 (43.7 %) $ 332,011 $ 563,633 (41.1 %) Ceded written premiums Commercial Specialty $ 2,926 $ 2,884 1.5 % $ 10,651 $ 12,912 (17.5 %) Reinsurance Operations (3) — — — — — — Continuing Lines 2,926 2,884 1.5 % 10,651 12,912 (17.5 %) Exited Lines 377 30,108 (98.7 %) 3,880 81,246 (95.2 %) Total ceded written premiums $ 3,303 $ 32,992 (90.0 %) $ 14,531 $ 94,158 (84.6 %) Net written premiums (2) Commercial Specialty $ 84,103 $ 93,172 (9.7 %) $ 267,233 $ 291,002 (8.2 %) Reinsurance Operations (3) 11,864 43,055 (72.4 %) 50,124 130,575 (61.6 %) Continuing Lines 95,967 136,227 (29.6 %) 317,357 421,577 (24.7 %) Exited Lines (344 ) 6,608 (105.2 %) 123 47,898 (99.7 %) Total net written premiums $ 95,623 $ 142,835 (33.1 %) $ 317,480 $ 469,475 (32.4 %) Net earned premiums Commercial Specialty $ 83,679 $ 98,597 (15.1 %) $ 270,269 $ 283,791 (4.8 %) Reinsurance Operations (3) 26,671 35,046 (23.9 %) 91,103 108,506 (16.0 %) Continuing Lines 110,350 133,643 (17.4 %) 361,372 392,297 (7.9 %) Exited Lines 1,345 20,001 (93.3 %) 19,551 65,919 (70.3 %) Total net earned premiums $ 111,695 $ 153,644 (27.3 %) $ 380,923 $ 458,216 (16.9 %) (1) Gross written premiums represent the amount received or to be received for insurance policies written without reduction for reinsurance costs, ceded premiums, or other deductions. (2) Net written premiums equal gross written premiums less ceded written premiums. (3) External business only, excluding business assumed from affiliates. 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. The reduction in Continuing Lines is primarily due to the non-renewal of a casualty treaty within Reinsurance Operations, the non-renewal of a restaurant book of business within Commercial Specialty, and actions taken within Commercial Specialty to improve underwriting results by not renewing underperforming business. These decreases were partially offset by increased pricing within Commercial Specialty. 37 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. Net Retention The ratio of net written premiums to gross written premiums is referred to as the Company’s net premium retention. The Company’s net premium retention is summarized by segments as follows: Quarters Ended September 30, Point Nine Months Ended September 30, Point (Dollars in thousands) 2023 2022 Change 2023 2022 Change Commercial Specialty 96.6 % 97.0 % (0.4 ) 96.2 % 95.8 % 0.4 Reinsurance Operations 100.0 % 100.0 % — 100.0 % 100.0 % — Continuing Lines 97.0 % 97.9 % (0.9 ) 96.8 % 97.0 % (0.2 ) Exited Lines NM 18.0 % NM 3.1 % 37.1 % (34.0 ) Total 96.7 % 81.2 % 15.5 95.6 % 83.3 % 12.3 NM – 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. 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 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 $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. 38 Reserves 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 $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 (Dollars in thousands) Case IBNR (1) Total Commercial Specialty $ 175,625 $ 344,010 $ 519,635 Reinsurance Operations 24,472 202,814 227,286 Continuing Lines 200,097 546,824 746,921 Exited Lines 52,477 62,405 114,882 Total $ 252,574 $ 609,229 $ 861,803 Net Reserves (2) (Dollars in thousands) Case IBNR (1) Total Commercial Specialty $ 157,872 $ 313,458 $ 471,330 Reinsurance Operations 24,472 202,814 227,286 Continuing Lines 182,344 516,272 698,616 Exited Lines 33,607 54,560 88,167 Total $ 215,951 $ 570,832 $ 786,783 (1) Losses incurred but not reported, including the expected future emergence of case reserves. (2) Does not include reinsurance receivables on paid losses. Each reserve category has an implicit frequency and severity for each accident year as a result of the various assumptions made. If the actual levels of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s best estimate. For most of its reserve categories, the Company believes that frequency can be predicted with greater accuracy than severity. Therefore, the Company believes management’s best estimate is more likely influenced by changes in severity than frequency. The following table, which the Company believes reflects a reasonable range of variability around its best estimate based on historical loss experience and management’s judgment, reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on the Company’s current accident year net loss estimate of $231.2 million for claims occurring during the nine months ended September 30, 2023: Severity Change (Dollars in thousands) -10% -5% 0% 5% 10% Frequency Change -5% (33,524 ) (22,542 ) (11,560 ) (578 ) 10,404 -3% (29,362 ) (18,149 ) (6,936 ) 4,277 15,490 -2% (27,281 ) (15,953 ) (4,624 ) 6,705 18,034 -1% (25,201 ) (13,756 ) (2,312 ) 9,132 20,577 0% (23,120 ) (11,560 ) — 11,560 23,120 1% (21,039 ) (9,364 ) 2,312 13,988 25,663 2% (18,958 ) (7,167 ) 4,624 16,415 28,206 3% (16,878 ) (4,971 ) 6,936 18,843 30,749 5% (12,716 ) (578 ) 11,560 23,698 35,836 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. 39 Underwriting Results Commercial Specialty 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 September 30, % Nine Months Ended September 30, % (Dollars in thousands) 2023 2022 Change 2023 2022 Change Gross written premiums $ 87,029 $ 96,056 (9.4 %) $ 277,884 $ 303,914 (8.6 %) Net written premiums $ 84,103 $ 93,172 (9.7 %) $ 267,233 $ 291,002 (8.2 %) Net earned premiums $ 83,679 $ 98,597 (15.1 %) $ 270,269 $ 283,791 (4.8 %) Other income 275 272 1.1 % 808 791 2.1 % Total revenues 83,954 98,869 (15.1 %) 271,077 284,582 (4.7 %) Losses and expenses: Net losses and loss adjustment expenses 63,624 56,833 11.9 % 182,405 163,296 11.7 % Acquisition costs and other underwriting expenses 32,671 37,817 (13.6 %) 102,169 106,886 (4.4 %) Underwriting income (loss) $ (12,341 ) $ 4,219 NM $ (13,497 ) $ 14,400 (193.7 %) Quarters Ended September 30, Point Nine Months Ended September 30, Point 2023 2022 Change 2023 2022 Change Underwriting Ratios: Loss ratio: Current accident year 58.7 % 58.9 % (0.2 ) 59.7 % 58.1 % 1.6 Prior accident year 17.3 % (1.3 %) 18.6 7.8 % (0.6 %) 8.4 Calendar year loss ratio 76.0 % 57.6 % 18.4 67.5 % 57.5 % 10.0 Expense ratio 39.0 % 38.4 % 0.6 37.8 % 37.7 % 0.1 Combined ratio 115.0 % 96.0 % 19.0 105.3 % 95.2 % 10.1 Accident year combined ratio (2) 97.6 % 97.2 % 97.4 % 95.8 % (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. 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. NM – not meaningful 40 Reconciliation of non-GAAP financial measures and ratios The table below reconciles the non-GAAP measures or ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP measure or ratio. The Company believes the non-GAAP measures or ratios are useful to investors when evaluating the Company's underwriting performance as trends within Commercial Specialty 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. Quarters Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in thousands) Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio Property Non catastrophe property losses and ratio excluding the effect of prior accident year (1) $ 11,665 34.2 % $ 16,879 47.2 % $ 50,341 46.8 % $ 52,372 49.1 % Effect of prior accident year 1,009 3.0 % (1,907 ) (5.3 %) (1,686 ) (1.6 %) (3,214 ) (3.0 %) Non catastrophe property losses and ratio (2) $ 12,674 37.2 % $ 14,972 41.9 % $ 48,655 45.2 % $ 49,158 46.1 % Catastrophe losses and ratio excluding the effect of prior accident year (1) $ 5,170 15.2 % $ 3,959 11.1 % $ 12,585 11.7 % $ 9,165 8.6 % Effect of prior accident year 1,216 3.6 % 155 0.4 % 3,067 2.9 % (73 ) (0.1 %) Catastrophe losses and ratio (2) $ 6,386 18.8 % $ 4,114 11.5 % $ 15,652 14.6 % $ 9,092 8.5 % Total property losses and ratio excluding the effect of prior accident year (1) $ 16,835 49.4 % $ 20,838 58.3 % $ 62,926 58.5 % $ 61,537 57.7 % Effect of prior accident year 2,225 6.5 % (1,752 ) (4.9 %) 1,381 1.3 % (3,287 ) (3.1 %) Total property losses and ratio (2) $ 19,060 55.9 % $ 19,086 53.4 % $ 64,307 59.8 % $ 58,250 54.6 % Casualty Total casualty losses and ratio excluding the effect of prior accident year (1) $ 32,274 65.1 % $ 37,210 59.2 % $ 98,507 60.6 % $ 103,378 58.3 % Effect of prior accident year 12,290 24.8 % 537 0.9 % 19,591 12.0 % 1,668 0.9 % Total casualty losses and ratio (2) $ 44,564 89.9 % $ 37,747 60.1 % $ 118,098 72.6 % $ 105,046 59.2 % Total Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) $ 49,109 58.7 % $ 58,048 58.9 % $ 161,433 59.7 % $ 164,915 58.1 % Effect of prior accident year 14,515 17.3 % (1,215 ) (1.3 %) 20,972 7.8 % (1,619 ) (0.6 %) Total net losses and loss adjustment expense and total loss ratio (2) $ 63,624 76.0 % $ 56,833 57.6 % $ 182,405 67.5 % $ 163,296 57.5 % (1) Non-GAAP measure / ratio (2) Most directly comparable GAAP measure / ratio Premiums See “Results of Operations” above for a discussion on consolidated premiums. Other Income 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. 41 Loss Ratio The current accident year losses and loss ratio is summarized as follows: Quarters Ended September 30, % Nine Months Ended September 30, % (Dollars in thousands) 2023 2022 Change 2023 2022 Change Property losses Non-catastrophe $ 11,665 $ 16,879 (30.9 %) $ 50,341 $ 52,372 (3.9 %) Catastrophe 5,170 3,959 30.6 % 12,585 9,165 37.3 % Property losses 16,835 20,838 (19.2 %) 62,926 61,537 2.3 % Casualty losses 32,274 37,210 (13.3 %) 98,507 103,378 (4.7 %) Total accident year losses $ 49,109 $ 58,048 (15.4 %) $ 161,433 $ 164,915 (2.1 %) Quarters Ended September 30, Point Nine Months Ended September 30, Point 2023 2022 Change 2023 2022 Change Current accident year loss ratio: Property Non-catastrophe 34.2 % 47.2 % (13.0 ) 46.8 % 49.1 % (2.3 ) Catastrophe 15.2 % 11.1 % 4.1 11.7 % 8.6 % 3.1 Property loss ratio 49.4 % 58.3 % (8.9 ) 58.5 % 57.7 % 0.8 Casualty loss ratio 65.1 % 59.2 % 5.9 60.6 % 58.3 % 2.3 Total accident year loss ratio 58.7 % 58.9 % (0.2 ) 59.7 % 58.1 % 1.6 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 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. 42 Reinsurance Operations The components of income from the Company’s Reinsurance Operations segment and corresponding underwriting ratios are as follows: Quarters Ended September 30, % Nine Months Ended September 30, % (Dollars in thousands) 2023 (1) 2022 (1) Change 2023 (1) 2022 (1) Change Gross written premiums $ 11,864 $ 43,055 (72.4 %) $ 50,124 $ 130,575 (61.6 %) Net written premiums $ 11,864 $ 43,055 (72.4 %) $ 50,124 $ 130,575 (61.6 %) Net earned premiums $ 26,671 $ 35,046 (23.9 %) $ 91,103 $ 108,506 (16.0 %) Total revenues 26,671 35,046 (23.9 %) 91,103 108,506 (16.0 %) Losses and expenses: Net losses and loss adjustment expenses 13,673 20,316 (32.7 %) 54,448 64,168 (15.1 %) Acquisition costs and other underwriting expenses 10,553 13,013 (18.9 %) 34,106 39,527 (13.7 %) Underwriting income $ 2,445 $ 1,717 42.4 % $ 2,549 $ 4,811 (47.0 %) Quarters Ended September 30, Point Nine Months Ended September 30, Point 2023 2022 Change 2023 2022 Change Underwriting Ratios: Loss ratio: Current accident year (2) 61.3 % 61.5 % (0.2 ) 61.6 % 61.4 % 0.2 Prior accident year (10.0 %) (3.5 %) (6.5 ) (1.8 %) (2.3 %) 0.5 Calendar year loss ratio (3) 51.3 % 58.0 % (6.7 ) 59.8 % 59.1 % 0.7 Expense ratio 39.6 % 37.1 % 2.5 37.4 % 36.4 % 1.0 Combined ratio 90.9 % 95.1 % (4.2 ) 97.2 % 95.5 % 1.7 Accident year combined ratio (4) 98.2 % 99.3 % 98.3 % 97.8 % (1) External business only, excluding business assumed from affiliates (2) Non-GAAP ratio (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 The table above reconciles the non-GAAP ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP ratio. The Company believes the non-GAAP ratios are useful to investors when evaluating the Company's underwriting performance as trends within Reinsurance Operations may be obscured by prior accident year adjustments. These non-GAAP ratios should not be considered as a substitute for its most directly comparable GAAP ratio and does not reflect the overall underwriting profitability of the Company. Premiums See “Results of Operations” above for a discussion on consolidated premiums. Loss Ratio 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. 43 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 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. Exited Lines The components of income (loss) from the Company’s Exited Lines segment and corresponding underwriting ratios are as follows: Quarters Ended September 30, % Nine Months Ended September 30, % (Dollars in thousands) 2023 2022 Change 2023 2022 Change Gross written premiums $ 33 $ 36,716 (99.9 %) $ 4,003 $ 129,144 (96.9 %) Net written premiums $ (344 ) $ 6,608 (105.2 %) $ 123 $ 47,898 (99.7 %) Net earned premiums $ 1,345 $ 20,001 (93.3 %) $ 19,551 $ 65,919 (70.3 %) Other income 24 44 (45.5 %) 127 48 164.6 % Total revenues 1,369 20,045 (93.2 %) 19,678 65,967 (70.2 %) Losses and expenses: Net losses and loss adjustment expenses (12,181 ) 11,310 (207.7 %) (5,654 ) 38,308 (114.8 %) Acquisition costs and other underwriting expenses 2,978 10,046 (70.4 %) 10,506 32,253 (67.4 %) Underwriting income (loss) $ 10,572 $ (1,311 ) 906.4 % $ 14,826 $ (4,594 ) 422.7 % Quarters Ended September 30, Point Nine Months Ended September 30, Point 2023 2022 Change 2023 2022 Change Underwriting Ratios: Loss ratio: Current accident year (21.5 %) 59.3 % (80.8 ) 69.8 % 66.5 % 3.3 Prior accident year (884.2 %) (2.8 %) (881.4 ) (98.7 %) (8.4 %) (90.3 ) Calendar year loss ratio (905.7 %) 56.5 % (962.2 ) (28.9 %) 58.1 % (87.0 ) Expense ratio 221.4 % 50.2 % 171.2 53.7 % 48.9 % 4.8 Combined ratio (684.3 %) 106.7 % (791.0 ) 24.8 % 107.0 % (82.2 ) Accident year combined ratio (1) 169.9 % 106.6 % 122.9 % 109.9 % (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. 44 Reconciliation of non-GAAP financial measures and ratios The table below reconciles the non-GAAP measures or ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP measure or ratio. The Company believes the non-GAAP measures or ratios are useful to investors when evaluating the Company's underwriting performance as trends within Exited 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. Quarters Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Dollars in thousands) Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio Property Non catastrophe property losses and ratio excluding the effect of prior accident year (1) $ (215 ) (36.1 %) $ 7,313 49.5 % $ 6,858 51.7 % $ 26,909 52.5 % Effect of prior accident year (7,339 ) (1,231.4 %) (310 ) (2.1 %) (8,976 ) (67.6 %) (3,562 ) (7.0 %) Non catastrophe property losses and ratio (2) $ (7,554 ) (1,267.5 %) $ 7,003 47.4 % $ (2,118 ) (15.9 %) $ 23,347 45.5 % Catastrophe losses and ratio excluding the effect of prior accident year (1) $ 63 10.6 % $ 1,922 13.0 % $ 3,218 24.2 % $ 9,401 18.4 % Effect of prior accident year (2,705 ) (453.9 %) (244 ) (1.7 %) (6,880 ) (51.8 %) (1,363 ) (2.7 %) Catastrophe losses and ratio (2) $ (2,642 ) (443.3 %) $ 1,678 11.3 % $ (3,662 ) (27.6 %) $ 8,038 15.7 % Total property losses and ratio excluding the effect of prior accident year (1) $ (152 ) (25.5 %) $ 9,235 62.5 % $ 10,076 75.9 % $ 36,310 70.9 % Effect of prior accident year (10,044 ) (1,685.3 %) (554 ) (3.8 %) (15,856 ) (119.4 %) (4,925 ) (9.7 %) Total property losses and ratio (2) $ (10,196 ) (1,710.8 %) $ 8,681 58.7 % $ (5,780 ) (43.5 %) $ 31,385 61.2 % Casualty Total casualty losses and ratio excluding the effect of prior accident year (1) $ (137 ) (18.3 %) $ 2,626 50.3 % $ 3,566 56.8 % $ 7,539 51.3 % Effect of prior accident year (1,848 ) (246.7 %) 3 0.1 % (3,440 ) (54.8 %) (616 ) (4.2 %) Total casualty losses and ratio (2) $ (1,985 ) (265.0 %) $ 2,629 50.4 % $ 126 2.0 % $ 6,923 47.1 % Total Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) $ (289 ) (21.5 %) $ 11,861 59.3 % $ 13,642 69.8 % $ 43,849 66.5 % Effect of prior accident year (11,892 ) (884.2 %) (551 ) (2.8 %) (19,296 ) (98.7 %) (5,541 ) (8.4 %) Total net losses and loss adjustment expense and total loss ratio (2) $ (12,181 ) (905.7 %) $ 11,310 56.5 % $ (5,654 ) (28.9 %) $ 38,308 58.1 % (1) Non-GAAP measure / ratio (2) Most directly comparable GAAP measure / ratio Premiums See “Results of Operations” above for a discussion on consolidated premiums. 45 Other Income 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. Loss Ratio The current accident year losses and loss ratio is summarized as follows: Quarters Ended September 30, % Nine Months Ended September 30, % (Dollars in thousands) 2023 2022 Change 2023 2022 Change Property losses Non-catastrophe $ (215 ) $ 7,313 (102.9 %) $ 6,858 $ 26,909 (74.5 %) Catastrophe 63 1,922 (96.7 %) 3,218 9,401 (65.8 %) Property losses (152 ) 9,235 (101.6 %) 10,076 36,310 (72.3 %) Casualty losses (137 ) 2,626 (105.2 %) 3,566 7,539 (52.7 %) Total accident year losses $ (289 ) $ 11,861 (102.4 %) $ 13,642 $ 43,849 (68.9 %) Quarters Ended September 30, Point Nine Months Ended September 30, Point 2023 2022 Change (1) 2023 2022 Change Current accident year loss ratio: Property Non-catastrophe (36.1 %) 49.5 % (85.6 ) 51.7 % 52.5 % (0.8 ) Catastrophe 10.6 % 13.0 % (2.4 ) 24.2 % 18.4 % 5.8 Property loss ratio (25.5 %) 62.5 % (88.0 ) 75.9 % 70.9 % 5.0 Casualty loss ratio (18.3 )% 50.3 % (68.6 ) 56.8 % 51.3 % 5.5 Total accident year loss ratio (21.5 %) 59.3 % (80.8 ) 69.8 % 66.5 % 3.3 (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 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 46 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 The Company’s fixed income portfolio, excluding cash, continues to maintain high quality with an A+ average rating and a duration of 1.2 years. Net Investment Income Quarters Ended September 30, % Nine Months Ended September 30, % (Dollars in thousands) 2023 2022 Change 2023 2022 Change Gross investment income (1) $ 14,566 $ 8,856 64.5 % $ 40,513 $ 18,593 117.9 % Investment expenses (366 ) (467 ) (21.6 %) (1,089 ) (1,682 ) (35.3 %) Net investment income $ 14,200 $ 8,389 69.3 % $ 39,424 $ 16,911 133.1 % (1) Excludes realized gains and losses 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 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 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 nine months ended September 30, 2023 and 2022 were as follows: Quarters Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 2023 2022 Equity securities $ (15 ) $ (60 ) $ (1,103 ) $ (3,820 ) Fixed maturities (118 ) (259 ) (1,311 ) (12,135 ) Derivatives — 2,553 — 9,093 Other-than-temporary impairment losses (1) — — — (26,205 ) Net realized investment gains (losses) $ (133 ) $ 2,234 $ (2,414 ) $ (33,067 ) (1) In response to a rising interest rate environment, the Company took action early in April 2022 to shorten the duration of its fixed maturities portfolio. In connection with these actions, the Company identified fixed maturities securities with a weighted average life of five years or greater as having an intent to sell resulting in other-than-temporary impairment losses. The majority of which were sold in the 2nd quarter of 2022. 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, the Company's book yield rose over time. Book yield was approximately 2.2% at December 31, 2021 and 4.0% at September 30, 2023. 47 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 Corporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees, management fees & advisory fees, salaries and benefits for holding company personnel, development costs for new products, impairment losses, and taxes incurred which are not directly related to operations. 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 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 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 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 $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 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. 48 Liquidity and Capital Resources Sources and Uses of Funds Global Indemnity Group, LLC is a holding company. Its principal asset is its ownership of the shares of its direct and indirect subsidiaries, including those of its insurance companies: 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, 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. In order to meet its short term and long term needs, Global Indemnity Group, LLC’s principal sources of cash includes investment income, dividends from subsidiaries, other permitted disbursements from its direct and indirect subsidiaries, reimbursement for equity awards granted to employees and intercompany borrowings. The principal sources of funds at these direct and indirect subsidiaries include underwriting operations, investment income, proceeds from sales and redemptions of investments, capital contributions, intercompany borrowings, and dividends from subsidiaries. Funds are used principally by these operating subsidiaries to pay claims and operating expenses, to make debt payments, to purchase investments, and to make distribution payments. In addition, the Company periodically reviews opportunities related to business acquisitions, and as a result, liquidity may be needed in the future. GBLI Holdings, LLC is a holding company which is a wholly-owned subsidiary of Penn-Patriot Insurance Company. GBLI Holdings, LLC’s principal asset is its ownership of the shares of its direct and indirect subsidiaries which include United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, and Penn-Star Insurance Company. 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 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. Global Indemnity Group, LLC and GBLI Holdings, LLC’s insurance companies are restricted by statute as to the amount of dividends that they may pay without the prior approval of regulatory authorities. The dividend limitations imposed by state laws are based on the statutory financial results of each insurance company 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” 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. 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 nine months ended September 30, 2023. 49 Cash Flows Sources of operating funds consist primarily of net written premiums and investment income. Funds are used primarily to pay claims and operating expenses and to purchase investments. 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 operations is generally influenced by the following: • the fact that the Company collects premiums, net of commissions, in advance of losses paid; • the timing of the Company’s settlements with its reinsurers; and • the timing of the Company’s loss payments. 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: Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Change Net premiums collected $ 340,810 $ 423,744 $ (82,934 ) Net losses paid (201,660 ) (208,759 ) 7,099 Underwriting and corporate expenses (139,374 ) (191,126 ) 51,752 Net investment income 37,597 22,996 14,601 Net income taxes (paid) recovered (609 ) 19 (628 ) Interest paid (12 ) (5,125 ) 5,113 Net cash provided by operating activities $ 36,752 $ 41,749 $ (4,997 ) 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. Liquidity Stock Repurchase 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 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 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. 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 since inception of the stock repurchase program in October 2022. Restructuring 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 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 50 million. 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, 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 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. Off Balance Sheet Arrangements The Company has no off balance sheet arrangements. Cautionary Note Regarding Forward-Looking Statements Some of the statements under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report may include forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934, as amended, that reflect the Company’s current views with respect to future events and financial performance. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives, expectations or consequences of identified transactions or natural disasters, and statements about the future performance, operations, products and services of the companies. The Company’s business and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. See “Risk Factors” in Item 1A of Part I in the Company’s 2022 Annual Report on Form 10-K for risks, uncertainties and other factors that could cause actual results and experience to differ from those projected. The Company’s forward-looking statements speak only as of the date of this report or as of the date they were made. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. 51 Item 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK For the quarter ended September 30, 2023, global equities and U.S. equities fell approximately 3.3%. U.S. 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. The U.S. 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 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. 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.