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, 2023. Financial Highlights Results of Operations for Six Months • Net income of $21.5 million, or $1.55 per share diluted, in 2024 is $9.6 million higher than the same period in 2023. • Net earned premiums of $189.4 million (Property: 42% and Casualty: 58%) in 2024 is lower than net earned premiums of $269.2 million (Property 32% and Casualty 68%) in 2023 primarily due to the run off of Non-Core business. • Underwriting income was $8.8 million in 2024 which is higher than $3.2 million in underwriting income for the same period in 2023 due to strong underwriting results for the Company's Penn-America segment. • Penn-America accident year combined ratio was 94.8% in 2024 compared to 96.8% for the same period in 2023. Consolidated accident year combined ratio was 95.8% in 2024 compared to 99.1% for the same period in 2023. • Net investment income of $29.8 million in 2024 was 18.3% better than the same period in 2023. Book yield on the fixed maturities portfolio increased to 4.5% at June 30, 2024 from 3.8% at June 30, 2023. • Operating cash flows was $36.9 million in 2024 compared to $14.2 million for the same period in 2023. 2024 Second Quarter Consolidated Financial Condition • On August 1, 2024, AM Best affirmed the Financial Strength Rating of A (Excellent) for the U.S. operating subsidiaries of Global Indemnity Group, LLC. • Total cash and investments of $1.4 billion at June 30, 2024 increased 3.2% compared to December 31, 2023; fixed maturities and cash comprise 97% of total investments. • Total assets of $1.7 billion at June 30, 2024 and December 31, 2023. • No debt at June 30, 2024 and December 31, 2023. • Since the Company's initial public offering in 2003, the total capital returned to shareholders was $619.3 million, comprising $522.2 million of share repurchases and $97.1 million of distributions / dividends. This includes $9.8 million of distributions during 2024. • Shareholders' equity increased 2.9% from December 31, 2023 to $667.5 million at June 30, 2024. • Dividends paid per share increased 40% to $0.70 in 2024 compared to the same period in 2023. • Book value per common share increased 2.2% from December 31, 2023 to $48.56 at June 30, 2024. 30 Results of Operations The Company realized net income of $10.1 million and $9.3 million during the quarters ended June 30, 2024 and 2023, respectively, and realized net income of $21.5 million and $11.8 million during the six months ended June 30, 2024 and 2023, respectively. Net investment income increased by $2.1 million and $4.6 million during the quarter and six months ended June 30, 2024 as compared to the same periods in 2023. This increase in net investment income was primarily due to strategies employed by the Company to take advantage of rising interest rates which resulted in a 18% increase in book yield on the fixed maturities portfolio to 4.5% at June 30, 2024 from 3.8% at June 30, 2023. The weighted average duration of the fixed maturities portfolio was 1.0 years as of June 30, 2024. The Company generated underwriting income of $8.8 million for the six months ended June 30, 2024 compared to underwriting income of $3.2 million for the same period in 2023. This increase in underwriting income is driven by strong underwriting results within the Company's Penn-America segment mainly due to a 3.0 point improvement in its current accident year loss ratio. Underwriting income for the quarter was $3.5 million in 2024 compared to $4.3 million in 2023. This decrease was predominantly due to a decline in earned premium volume related to Non-Core Operations. Overall, the combined ratio for the quarter improved to 96.6 in 2024 from 96.9 in 2023. The following table summarizes the Company’s results for the quarters and six months ended June 30, 2024 and 2023: Quarters Ended June 30, % Six Months Ended June 30, % (Dollars in thousands) 2024 2023 Change 2024 2023 Change Gross written premiums $ 100,706 $ 110,100 (8.5 %) $ 194,194 $ 233,085 (16.7 %) Net written premiums $ 97,751 $ 105,996 (7.8 %) $ 189,836 $ 221,857 (14.4 %) Net earned premiums $ 92,814 $ 129,156 (28.1 %) $ 189,393 $ 269,228 (29.7 %) Other income 357 282 26.6 % 702 636 10.4 % Total revenues 93,171 129,438 (28.0 %) 190,095 269,864 (29.6 %) Losses and expenses: Net losses and loss adjustment expenses 53,662 78,082 (31.3 %) 107,046 166,083 (35.5 %) Acquisition costs and other underwriting expenses 35,968 47,101 (23.6 %) 74,237 100,579 (26.2 %) Underwriting income 3,541 4,255 (16.8 %) 8,812 3,202 175.2 % Net investment income 15,311 13,216 15.9 % 29,831 25,224 18.3 % Net realized investment gains (losses) 205 (761 ) (126.9 %) 1,052 (2,281 ) (146.1 %) Corporate and other operating expenses (6,366 ) (4,990 ) 27.6 % (12,739 ) (11,358 ) 12.2 % Interest expense (17 ) (12 ) 41.7 % (17 ) (12 ) 41.7 % Income before income taxes 12,674 11,708 8.3 % 26,939 14,775 82.3 % Income tax expense 2,581 2,371 8.9 % 5,480 2,944 86.1 % Net income $ 10,093 $ 9,337 8.1 % $ 21,459 $ 11,831 81.4 % Underwriting Ratios: Loss ratio (1) : 57.8 % 60.5 % 56.5 % 61.7 % Expense ratio (2) 38.8 % 36.4 % 39.2 % 37.3 % Combined ratio (3) 96.6 % 96.9 % 95.7 % 99.0 % (1) The loss ratio is a GAAP financial measure that is generally viewed in the insurance industry as an indicator of underwriting profitability and is calculated by dividing net losses and loss adjustment expenses by net earned premiums. (2) The expense ratio is a GAAP financial measure that is calculated by dividing the sum of acquisition costs and other underwriting expenses by net earned premiums. (3) The combined ratio is a GAAP financial measure and is the sum of the Company’s loss and expense ratios. 31 Premiums The following table summarizes the change in premium volume by business segment: Quarters Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 % Change 2024 2023 % Change Gross written premiums (1) Penn-America $ 100,552 $ 95,027 5.8 % $ 194,600 $ 190,439 2.2 % Non-Core Operations 154 15,073 (99.0 %) (406 ) 42,646 (101.0 %) Total gross written premiums $ 100,706 $ 110,100 (8.5 %) $ 194,194 $ 233,085 (16.7 %) Ceded written premiums Penn-America $ 2,950 $ 3,434 (14.1 %) $ 4,402 $ 7,698 (42.8 %) Non-Core Operations 5 670 (99.3 %) (44 ) 3,530 (101.2 %) Total ceded written premiums $ 2,955 $ 4,104 (28.0 %) $ 4,358 $ 11,228 (61.2 %) Net written premiums (2) Penn-America $ 97,602 $ 91,593 6.6 % $ 190,198 $ 182,741 4.1 % Non-Core Operations 149 14,403 (99.0 %) (362 ) 39,116 (100.9 %) Total net written premiums $ 97,751 $ 105,996 (7.8 %) $ 189,836 $ 221,857 (14.4 %) Net earned premiums Penn-America $ 89,353 $ 92,685 (3.6 %) $ 178,485 $ 183,297 (2.6 %) Non-Core Operations 3,461 36,471 (90.5 %) 10,908 85,931 (87.3 %) Total net earned premiums $ 92,814 $ 129,156 (28.1 %) $ 189,393 $ 269,228 (29.7 %) (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. Gross written premiums decreased by 8.5% and 16.7% for the quarter and six months ended June 30, 2024 as compared to same periods in 2023. The decrease in gross written premiums is mainly due to a reduction in premiums within Non-Core Operations for lines of business that have been de-emphasized or no longer written. In addition, within Penn-America, the gross written premiums for Programs decreased primarily due to actions taken in 2023 to improve underwriting results through increased rates and form changes. These reductions in premiums were partially offset by continued growth of 10.5% and 8.8% in aggregate for Penn-America's Wholesale Commercial, InsurTech, and Assumed Reinsurance divisions during the quarter and six months ended June 30, 2024, respectively. The growth in Wholesale Commercial and InsurTech is driven by premium rate increases, new agency appointments, organic growth of existing agents, and new products. The growth in Assumed Reinsurance is primarily due to new treaties entered into during 2023 and 2024 and increased participation or organic growth from existing treaties. 32 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 June 30, Point Six Months Ended June 30, Point (Dollars in thousands) 2024 2023 Change 2024 2023 Change Penn-America 97.1 % 96.4 % 0.7 97.7 % 96.0 % 1.7 Non-Core Operations 96.8 % 95.6 % 1.2 89.2 % 91.7 % (2.5 ) Total 97.1 % 96.3 % 0.8 97.8 % 95.2 % 2.6 The net premium retention for the quarter and six months ended June 30, 2024 increased by 0.8 points and 2.6 points, respectively, as compared to the same periods in 2023. Penn-America's retention increased by 0.7 points and 1.7 points for the quarter and six months ended June 30, 2024, respectively, primarily due to the termination of two quota share agreements and lower cost on the Company's catastrophe reinsurance treaty. Cessions on Non-Core Operations were significantly reduced due to sale of manufactured home and dwelling business in 2021 and the Farm, Ranch and Stable business in 2022. See Note 2 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2023 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 Penn-America segment decreased by 3.6% and 2.6% for the quarter and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 primarily due to the reduction in premiums written for Programs as a result of underwriting actions taken in 2023 to improve underwriting profitability partially offset by continued premium growth in Penn-America's InsurTech and Assumed Reinsurance divisions. Property net earned premiums were $39.1 million and $35.4 million for the quarters ended June 30, 2024 and 2023, respectively, and $79.0 million and $73.0 million for the six months ended June 30, 2024 and 2023, respectively. Casualty net earned premiums were $50.2 million and $57.2 million for the quarters ended June 30, 2024 and 2023, respectively, and $99.5 million and $110.3 million for the six months ended June 30, 2024 and 2023, respectively. Net earned premiums within the Non-Core Operations segment decreased by 90.5% and 87.3% for the quarter and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 primarily due to the non-renewal of a casualty treaty as well as a reduction in earned premiums due to the sale of Farm, Ranch & Stable renewal rights on August 8, 2022. There were no property earned premiums for the quarter and six months ended June 30, 2024. Property earned premiums were $4.4 million and $13.2 million for the quarter and six months ended June 30, 2023, respectively. Casualty net earned premiums were $3.6 million and $32.1 million for the quarters ended June 30, 2024 and 2023, respectively, and $10.9 million and $72.8 million for the six months ended June 30, 2024 and 2023, respectively. 33 Reserves Amounts recorded for unpaid losses and loss adjustment expenses represent management’s best estimate at June 30, 2024. 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 $844.2 million and $773.8 million, respectively, as of June 30, 2024. A breakout of the Company’s gross and net reserves, as of June 30, 2024, is as follows: Gross Reserves (Dollars in thousands) Case IBNR (1) Total Penn-America $ 135,841 $ 299,677 $ 435,518 Non-Core Operations 118,360 290,328 408,688 Total $ 254,201 $ 590,005 $ 844,206 Net Reserves (2) (Dollars in thousands) Case IBNR (1) Total Penn-America $ 135,590 $ 287,463 $ 423,053 Non-Core Operations 83,144 267,617 350,761 Total $ 218,734 $ 555,080 $ 773,814 (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 $107.1 million for claims occurring during the six months ended June 30, 2024: Severity Change (Dollars in thousands) -10% -5% 0% 5% 10% Frequency Change -5% (15,533 ) (10,445 ) (5,356 ) (268 ) 4,821 -3% (13,605 ) (8,409 ) (3,214 ) 1,982 7,178 -2% (12,641 ) (7,392 ) (2,143 ) 3,107 8,356 -1% (11,677 ) (6,374 ) (1,071 ) 4,232 9,534 0% (10,713 ) (5,356 ) — 5,356 10,713 1% (9,749 ) (4,339 ) 1,071 6,481 11,891 2% (8,784 ) (3,321 ) 2,143 7,606 13,069 3% (7,820 ) (2,303 ) 3,214 8,731 14,248 5% (5,892 ) (268 ) 5,356 10,981 16,605 The Company’s net reserves for losses and loss adjustment expenses of $773.8 million as of June 30, 2024 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. 34 Underwriting Results Penn-America The components of income from the Company’s Penn-America segment and corresponding underwriting ratios are as follows: Quarters Ended June 30, % Six Months Ended June 30, % (Dollars in thousands) 2024 2023 Change 2024 2023 Change Gross written premiums $ 100,552 $ 95,027 5.8 % $ 194,600 $ 190,439 2.2 % Net written premiums $ 97,602 $ 91,593 6.6 % $ 190,198 $ 182,741 4.1 % Net earned premiums $ 89,353 $ 92,685 (3.6 %) $ 178,485 $ 183,297 (2.6 %) Other income 344 266 29.3 % 683 533 28.1 % Total revenues 89,697 92,951 (3.5 %) 179,168 183,830 (2.5 %) Losses and expenses: Net losses and loss adjustment expenses 51,126 52,427 (2.5 %) 100,035 111,705 (10.4 %) Acquisition costs and other underwriting expenses 33,898 34,392 (1.4 %) 68,825 69,101 (0.4 %) Underwriting income (loss) $ 4,673 $ 6,132 (23.8 %) $ 10,308 $ 3,024 240.9 % Underwriting Ratios: Loss ratio: Current accident year 57.7 % 55.6 % 2.1 56.3 % 59.3 % (3.0 ) Prior accident year (0.5 %) 1.0 % (1.5 ) (0.3 %) 1.6 % (1.9 ) Calendar year loss ratio 57.2 % 56.6 % 0.6 56.0 % 60.9 % (4.9 ) Expense ratio 38.0 % 37.1 % 0.9 38.6 % 37.7 % 0.9 Combined ratio 95.2 % 93.7 % 1.5 94.6 % 98.6 % (4.0 ) Accident year combined ratio (1) 95.7 % 92.6 % 94.8 % 96.8 % (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. 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 June 30, 2024 and 2023 and $0.7 million and $0.5 million for six months ended June 30, 2024 and 2023, respectively. Other income is primarily comprised of fee income. Loss Ratio The calendar year loss ratio for the quarter and six months ended June 30, 2024 was 57.2% (includes a decrease of $0.5 million, or 0.5 percentage points), and was 56.0% (includes a decrease of $0.4 million, or 0.3 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, 2023 was 56.6% (includes an increase of $0.9 million, or 1.0 percentage points), and was 60.9% (includes an increase of $3.1 million, or 1.6 percentage points), respectively, related to reserve development on prior accident years. Please see Note 7 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. 35 The current accident year loss ratio increased by 2.1 points from 55.6% for the quarter ended June 30, 2023 to 57.7% for the quarter ended June 30, 2024 and improved by 3.0 points from 59.3% for the six months ended June 30, 2023 to 56.3% for the six months ended June 30, 2024. The current accident year losses and loss ratio is summarized as follows: Quarters Ended June 30, Quarters Ended June 30, (Dollars in thousands) 2024 2023 % Change 2024 2023 Point Change Property losses Non-catastrophe $ 18,461 $ 16,113 14.6 % 47.2 % 45.5 % 1.7 Catastrophe 3,518 4,087 (13.9 %) 9.0 % 11.5 % (2.5 ) Property losses 21,979 20,200 8.8 % 56.2 % 57.0 % (0.8 ) Casualty losses 29,612 31,343 (5.5 %) 59.0 % 54.7 % 4.3 Total accident year losses $ 51,591 $ 51,543 0.1 % 57.7 % 55.6 % 2.1 • The current accident year non-catastrophe property loss ratio increased by 1.7 points during the quarter ended June 30, 2024 as compared to the same period in 2023 reflecting higher claims severity in the calendar quarter compared to last year. • The current accident year catastrophe loss ratio improved by 2.5 points during the quarter ended June 30, 2024 as compared to the same period in 2023 recognizing lower claims frequency in the calendar quarter compared to last year. • The current accident year casualty loss ratio increased by 4.3 points during the quarter ended June 30, 2024 as compared to the same period in 2023 primarily due to higher claims severity in the calendar quarter compared to last year. Six Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 % Change 2024 2023 Point Change Property losses Non-catastrophe $ 35,191 $ 38,639 (8.9 %) 44.5 % 52.9 % (8.4 ) Catastrophe 6,787 7,392 (8.2 %) 8.6 % 10.1 % (1.5 ) Property losses 41,978 46,031 (8.8 %) 53.1 % 63.0 % (9.9 ) Casualty losses 58,481 62,587 (6.6 %) 58.8 % 56.8 % 2.0 Total accident year losses $ 100,459 $ 108,618 (7.5 %) 56.3 % 59.3 % (3.0 ) • The current accident year non-catastrophe property loss ratio improved by 8.4 points during the six months ended June 30, 2024 as compared to the same period in 2023 reflecting lower claims frequency and severity in the first six months compared to last year. • The current accident year catastrophe loss ratio improved by 1.5 points during the six months ended June 30, 2024 as compared to the same period in 2023 recognizing lower claims frequency in the first six months compared to last year. • The current accident year casualty loss ratio increased by 2.0 points during the six months ended June 30, 2024 as compared to the same period in 2023 due to higher claims severity in the first six months compared to last year. Expense Ratios The expense ratio for the Company’s Penn-America segment increased by 0.9 points from 37.1% for the quarter ended June 30, 2023 to 38.0% for the quarter ended June 30, 2024 and increased by 0.9 points from 37.7% for the six months ended June 30, 2023 to 38.6% for the six months ended June 30, 2024. The increase in the expense ratio is predominantly due to a reduction of earned premiums in 2024 as well as a one time recovery of expenses related to employee medical benefits in 2023 which did not repeat. 36 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 Penn-America 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 (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) $ 18,461 47.2 % $ 16,113 45.5 % $ 35,191 44.5 % $ 38,639 52.9 % Effect of prior accident year (577 ) (1.5 %) (660 ) (1.9 %) (472 ) (0.6 %) (2,222 ) (3.0 %) Non catastrophe property losses and ratio (2) $ 17,884 45.7 % $ 15,453 43.6 % $ 34,719 43.9 % $ 36,417 49.9 % Catastrophe losses and ratio excluding the effect of prior accident year (1) $ 3,518 9.0 % $ 4,087 11.5 % $ 6,787 8.6 % $ 7,392 10.1 % Effect of prior accident year 191 0.5 % 332 0.9 % 147 0.2 % 1,309 1.8 % Catastrophe losses and ratio (2) $ 3,709 9.5 % $ 4,419 12.4 % $ 6,934 8.8 % $ 8,701 11.9 % Total property losses and ratio excluding the effect of prior accident year (1) $ 21,979 56.2 % $ 20,200 57.0 % $ 41,978 53.1 % $ 46,031 63.0 % Effect of prior accident year (386 ) (1.0 %) (328 ) (1.0 %) (325 ) (0.4 %) (913 ) (1.2 %) Total property losses and ratio (2) $ 21,593 55.2 % $ 19,872 56.0 % $ 41,653 52.7 % $ 45,118 61.8 % Casualty Total casualty losses and ratio excluding the effect of prior accident year (1) $ 29,612 59.0 % $ 31,343 54.7 % $ 58,481 58.8 % $ 62,587 56.8 % Effect of prior accident year (79 ) (0.2 %) 1,212 2.1 % (99 ) (0.1 %) 4,000 3.6 % Total casualty losses and ratio (2) $ 29,533 58.8 % $ 32,555 56.8 % $ 58,382 58.7 % $ 66,587 60.4 % Total Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) $ 51,591 57.7 % $ 51,543 55.6 % $ 100,459 56.3 % $ 108,618 59.3 % Effect of prior accident year (465 ) (0.5 %) 884 1.0 % (424 ) (0.3 %) 3,087 1.6 % Total net losses and loss adjustment expense and total loss ratio (2) $ 51,126 57.2 % $ 52,427 56.6 % $ 100,035 56.0 % $ 111,705 60.9 % (1) Non-GAAP measure / ratio (2) Most directly comparable GAAP measure / ratio 37 Non-Core Operations The components of income (loss) from the Company’s Non-Core Operations segment and corresponding underwriting ratios are as follows: Quarters Ended June 30, % Six Months Ended June 30, % (Dollars in thousands) 2024 2023 Change 2024 2023 Change Gross written premiums $ 154 $ 15,073 (99.0 %) $ (406 ) $ 42,646 (101.0 %) Net written premiums $ 149 $ 14,403 (99.0 %) $ (362 ) $ 39,116 (100.9 %) Net earned premiums $ 3,461 $ 36,471 (90.5 %) $ 10,908 $ 85,931 (87.3 %) Other income 13 16 (18.8 %) 19 103 (81.6 %) Total revenues 3,474 36,487 (90.5 %) 10,927 86,034 (87.3 %) Losses and expenses: Net losses and loss adjustment expenses 2,536 25,655 (90.1 %) 7,011 54,378 (87.1 %) Acquisition costs and other underwriting expenses 2,070 12,709 (83.7 %) 5,412 31,478 (82.8 %) Underwriting income (loss) $ (1,132 ) $ (1,877 ) (39.7 %) $ (1,496 ) $ 178 NM Underwriting Ratios: Loss ratio: Current accident year 62.2 % 72.6 % (10.4 ) 61.1 % 66.8 % (5.7 ) Prior accident year 11.1 % (2.3 %) 13.4 3.2 % (3.5 %) 6.7 Calendar year loss ratio 73.3 % 70.3 % 3.0 64.3 % 63.3 % 1.0 Expense ratio 59.8 % 34.9 % 24.9 49.6 % 36.6 % 13.0 Combined ratio 133.1 % 105.2 % 27.9 113.9 % 99.9 % 14.0 Accident year combined ratio (1) 122.0 % 109.3 % 110.7 % 103.8 % NM - not meaningful (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. Premiums See “Results of Operations” above for a discussion on consolidated premiums. Other Income The Company recognized income of less than $0.1 million for each of the quarters ended June 30, 2024 and 2023 and income of less than $0.1 million and $0.1 million for the six months ended June 30, 2024 and 2023, respectively. Other income is primarily comprised of fee income net of bank fees. Loss Ratio The calendar year loss ratio for the quarter and six months ended June 30, 2024 was 73.3% (includes an increase of $0.4 million, or 11.1 percentage points), and was 64.3% (includes an increase of $0.3 million, or 3.2 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, 2023 was 70.3% (includes a decrease of $0.8 million, or 2.3 percentage points), and was 63.3% (includes a decrease of $3.0 million, or 3.5 percentage points), respectively, related to reserve development on prior accident years. Please see Note 7 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. 38 The current accident year loss ratio improved by 10.4 points from 72.6% for the quarter ended June 30, 2023 to 62.2 for the quarter ended June 30, 2024 and improved by 5.7 points from 66.8% for the six months ended June 30, 2023 to 61.1% for the six months ended June 30, 2024. The current accident year losses and loss ratio is summarized as follows: Quarters Ended June 30, Quarters Ended June 30, (Dollars in thousands) 2024 2023 % Change 2024 2023 Point Change Property losses Non-catastrophe $ 39 $ 3,412 (98.9 %) (42.1 %) 77.9 % (120.0 ) Catastrophe 5 1,013 (99.5 %) (5.4 %) 23.1 % (28.5 ) Property losses 44 4,425 (99.0 %) (47.5 %) 101.0 % (148.5 ) Casualty losses 2,109 22,063 (90.4 %) 59.3 % 68.7 % (9.4 ) Total accident year losses $ 2,153 $ 26,488 (91.9 %) 62.2 % 72.6 % (10.4 ) Six Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 % Change 2024 2023 Point Change Property losses Non-catastrophe $ 56 $ 7,115 (99.2 %) (180.6 %) 54.0 % (234.6 ) Catastrophe 9 3,178 (99.7 %) (29.0 %) 24.1 % (53.1 ) Property losses 65 10,293 (99.4 %) (209.6 %) 78.1 % (287.7 ) Casualty losses 6,603 47,121 (86.0 %) 60.4 % 64.8 % (4.4 ) Total accident year losses $ 6,668 $ 57,414 (88.4 %) 61.1 % 66.8 % (5.7 ) • The current accident year casualty loss ratio improved by 9.4 points and 4.4 points during the quarter and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 reflecting mix of business changes. Expense Ratio The expense ratio for the Company’s Non-Core Operations increased by 24.9 points from 34.9% for the quarter ended June 30, 2023 to 59.8% for the quarter ended June 30, 2024 and increased by 13.0 points from 36.6% for the six months ended June 30, 2023 to 49.6% for the six months ended June 30, 2024 primarily due to lower earned premiums as a result of exiting various lines of business. 39 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 Non-Core Operations 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 (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) $ 39 (42.1 %) $ 3,412 77.9 % $ 56 (180.6 %) $ 7,115 54.0 % Effect of prior accident year (274 ) 294.6 % (1,060 ) (24.2 %) (515 ) NM (1,945 ) (14.8 %) Non catastrophe property losses and ratio (2) $ (235 ) 252.5 % $ 2,352 53.7 % $ (459 ) NM $ 5,170 39.2 % Catastrophe losses and ratio excluding the effect of prior accident year (1) $ 5 (5.4 %) $ 1,013 23.1 % $ 9 (29.0 %) $ 3,178 24.1 % Effect of prior accident year 235 (252.7 %) (4,408 ) (100.7 %) 221 NM (3,787 ) (28.7 %) Catastrophe losses and ratio (2) $ 240 (258.1 %) $ (3,395 ) (77.6 %) $ 230 NM $ (609 ) (4.6 %) Total property losses and ratio excluding the effect of prior accident year (1) $ 44 (47.5 %) $ 4,425 101.0 % $ 65 (209.6 %) $ 10,293 78.1 % Effect of prior accident year (39 ) 41.9 % (5,468 ) (124.9 %) (294 ) NM (5,732 ) (43.5 %) Total property losses and ratio (2) $ 5 (5.6 %) $ (1,043 ) (23.9 %) $ (229 ) NM $ 4,561 34.6 % Casualty Total casualty losses and ratio excluding the effect of prior accident year (1) $ 2,109 59.3 % $ 22,063 68.7 % $ 6,603 60.4 % $ 47,121 64.8 % Effect of prior accident year 422 11.9 % 4,635 14.4 % 637 5.8 % 2,696 3.7 % Total casualty losses and ratio (2) $ 2,531 71.2 % $ 26,698 83.1 % $ 7,240 66.2 % $ 49,817 68.5 % Total Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) $ 2,153 62.2 % $ 26,488 72.6 % $ 6,668 61.1 % $ 57,414 66.8 % Effect of prior accident year 383 11.1 % (833 ) (2.3 %) 343 3.2 % (3,036 ) (3.5 %) Total net losses and loss adjustment expense and total loss ratio (2) $ 2,536 73.3 % $ 25,655 70.3 % $ 7,011 64.3 % $ 54,378 63.3 % NM - not meaningful (1) Non-GAAP measure / ratio (2) Most directly comparable GAAP measure / ratio 40 Unallocated Corporate Items The Company’s fixed income portfolio, excluding cash, continues to maintain high quality with an AA- average rating and a duration of 1.0 years. Net Investment Income Quarters Ended June 30, % Six Months Ended June 30, % (Dollars in thousands) 2024 2023 Change 2024 2023 Change Gross investment income (1) $ 15,823 $ 13,567 16.6 % $ 30,846 $ 25,947 18.9 % Investment expenses (512 ) (351 ) 45.9 % (1,015 ) (723 ) 40.4 % Net investment income $ 15,311 $ 13,216 15.9 % $ 29,831 $ 25,224 18.3 % (1) Excludes realized gains and losses Net investment income increased by 15.9% and 18.3% for the quarter and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. This increase in net investment income was primarily due to strategies employed by the Company to take advantage of rising interest rates which resulted in a 18% increase in book yield on the fixed maturities portfolio to 4.5% at June 30, 2024 from 3.8% at June 30, 2023. At June 30, 2024, the Company held asset-backed, mortgage-backed, commercial mortgage-backed and collateralized mortgage obligations with a market value of $303.7 million. Excluding the asset-backed, mortgage-backed, commercial mortgage-backed and collateralized mortgage obligations, the average duration of the Company’s fixed maturities portfolio was 0.8 years as of June 30, 2024, compared with 1.2 years as of June 30, 2023. 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 4.5% as of June 30, 2024, compared to 3.8% as of June 30, 2023. The embedded book yield on the $19.4 million of taxable municipal bonds in the Company’s portfolio was 2.9% at June 30, 2024, compared to an embedded book yield of 3.0% on the Company’s taxable municipal bonds of $30.6 million at June 30, 2023. Net Realized Investment Gains (Losses) The components of net realized investment gains (losses) for the quarters and six months ended June 30, 2024 and 2023 were as follows: Quarters Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Equity securities $ 212 $ (174 ) $ 1,084 $ (1,088 ) Fixed maturities (7 ) (587 ) (32 ) (1,193 ) Net realized investment gains (losses) $ 205 $ (761 ) $ 1,052 $ (2,281 ) 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, 2024 and 2023. Corporate and Other Operating Expenses Corporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees, management fees and advisory fees, salaries and benefits for holding company personnel, development costs for new products, impairment losses, and taxes incurred which are not directly related to operations. Corporate and other operating expenses were $6.4 million and $5.0 million during the quarters ended June 30, 2024 and 2023, respectively, and $12.7 million and $11.4 million during the six months ended June 30, 2024 and 2023, respectively. This increase was primarily due to an increase in professional fees. 41 Income Tax Expense Income tax expense was $2.6 million and $2.4 million for the quarters ended June 30, 2024 and 2023, respectively, and $5.5 million and $2.9 million for the six months ended June 30, 2024 and 2023, respectively. The increase in income tax expense is primarily due to higher taxable income during the quarter and six months ended June 30, 2024 as compared to the same periods in 2023. See Note 6 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 The factors described above resulted in net income of $10.1 million and $9.3 million for the quarters ended June 30, 2024 and 2023, respectively, and net income of $21.5 million and $11.8 million for the six months ended June 30, 2024 and 2023, 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, 2023. There have been no significant changes to any of these policies or underlying methodologies during the current year. 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 current 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 current 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 intercompany 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. 42 As of June 30, 2024, the Company also had future funding commitments of $14.2 million related to one of the Company's investments in a limited partnership. Since the investment period has concluded, the Company does not expect any capital calls will be made prospectively. The future liquidity of Global Indemnity Group, LLC is dependent on the ability of its subsidiaries to generate income to pay dividends and to pay intercompany debt due to Global Indemnity Group, LLC. The future liquidity of GBLI Holdings, LLC is dependent on the ability of its subsidiaries to generate income to pay dividends as well as receiving reimbursements from its subsidiaries for utilization of net operating losses. 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 2023 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 21 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2023 Annual Report on Form 10-K for further information on dividend limitations related to the Insurance Companies. There were no dividends declared or paid by the Company's insurance subsidiaries during the quarter and six months ended June 30, 2024. 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 may also be used to pay distributions to shareholders of the Company. The Company’s reconciliation of net income 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 $36.9 million and $14.2 million for the six months ended June 30, 2024 and 2023, respectively. The increase in operating cash flows of approximately $22.8 million from the prior year was primarily a net result of the following items: Six Months Ended June 30, (Dollars in thousands) 2024 2023 Change Net premiums collected $ 199,646 $ 237,847 $ (38,201 ) Net losses paid (108,643 ) (141,431 ) 32,788 Underwriting and corporate expenses (72,568 ) (105,981 ) 33,413 Net investment income 21,010 23,748 (2,738 ) Net federal income taxes paid (2,494 ) — (2,494 ) Interest paid (17 ) (12 ) (5 ) Net cash provided by operating activities $ 36,934 $ 14,171 $ 22,763 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. 43 Liquidity The Board of Directors approved a distribution payment of $0.35 per common share to all shareholders of record on the close of business on March 21, 2024 and June 21, 2024. Distributions paid to common shareholders were $9.8 million during the six months ended June 30, 2024. In addition, distributions of $0.2 million were paid to Global Indemnity Group, LLC’s preferred shareholder during the six months ended June 30, 2024. Investment Portfolio On July 31, 2023, the Company provided the Global Debt Fund, LP with a formal withdrawal request to fully redeem the partnership interest. Partial redemption proceeds of $4.3 million were received during the six months ended June 30, 2024. The Global Debt Fund, LP had a fair market value of $21.6 million at June 30, 2024. 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, 2024. Please see Item 7 of Part II in the Company’s 2023 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, 2024. Please see Item 7 of Part II in the Company’s 2023 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 2023 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. Item 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, credit risk, illiquidity, foreign exchange rates and commodity prices. The Company’s consolidated balance sheets includes the estimated fair values of assets that are subject to market risk. The Company’s primary market risks are interest rate risk and credit risks associated with investments in fixed maturities, equity price risk associated with investments in equity securities, and foreign exchange risk associated with premium received that is denominated in foreign currencies. The Company has no commodity risk. 44 There have been no material changes to the Company’s market risk since December 31, 2023. The Company’s investment grade fixed income portfolio continues to maintain high quality with an AA- average rating and a duration of 1.0 years. Please see Item 7A of Part II in the Company’s 2023 Annual Report on Form 10-K for information regarding the Company’s market risk.