GLOBAL INDEMNITY
2015 ANNUAL REPORT
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Registered Office
25/28 North Wall Quay
Dublin 1
Ireland
www.GlobalIndemnity.ie
info@GlobalIndemnity.ie
GLOBAL IN SCOPE.
UNITED IN VISION.
Global Indemnity plc (NASDAQ: GBLI) is a specialty property and
casualty insurance and reinsurance company with U.S. operations
in Philadelphia, PA. Global Indemnity provides underwriting,
claims and actuarial support to its multi-distribution field
enterprises. Our products and services are marketed through
several direct and indirect wholly owned subsidiary insurance and
reinsurance companies. Global Indemnity’s member companies
have earned a group rating of “A” (Excellent) by A.M. Best.
Independent Auditors
Ernst & Young
One Commerce Square
Suite 700
2005 Market Street
Philadelphia, PA 19103
Registrar & Transfer Agent
Computershare
250 Royall Street
Canton, MA 02021
781-575-3120
800-962-4284
Stock Trading
A Ordinary Shares of
Global Indemnity plc on NASDAQ
under the ticker symbol “GBLI”
Annual General Meeting
The 2016 Annual Meeting is
scheduled for 1:00 p.m., Irish Time,
on Wednesday, June 15, 2016, at
25/28 North Wall Quay,
Dublin 1, Ireland.
ANNUAL REPORT 2015
DEAR FELLOW
SHAREHOLDERS:
As we reported last year, 2015 was the start of
for 2014, and book value per share grew
an exciting new chapter for Global Indemnity
with the acquisition of American Reliable
from $35.86 in 2014 to $42.98 primarily
due to a share redemption executed in the
Insurance Company®. In addition to Global’s
fourth quarter.
specialty commercial lines and reinsurance
product offerings, the acquisition expanded
our distribution relationships, enabling us to
provide specialty and agricultural products to
the personal lines segments. With the addition
of American Reliable, gross written premiums
for 2015 were $590 million, which more than
doubled Global Indemnity’s 2014 premiums.
We spent much of our time in 2015 on the
integration of American Reliable; we
consolidated many of the corporate functions
such as technology, legal and finance to achieve
expense reductions. We are pleased to report
much of the integration is complete, and we
expect overall expense benefits to continue to
be reflected in our future results.
Our commercial and reinsurance segments
continued to encounter challenging pricing
pressure. Although these lines continued
to be profitable, our growth in these lines
was muted for 2015; personal lines
continued its small single-digit growth,
but profitability suffered due to the historic
wildfires in California.
On the investment side, we continued to invest
conservatively; at year-end, our investment
portfolio stood at approximately $1.5 billion
with 86% invested in short duration fixed
income investments with an average quality
of AA- and 7% invested in publicly traded
equities of Fortune 500-type companies and
2% in alternatives.
As we look to the future, although headwinds
still exist in the marketplace due to soft pricing
and very low interest rates, we are better
positioned with our “three-pronged” strategy
(Commercial, Personal and International
Reinsurance), which allows us to shift
resources where there is the best potential
for ProfitableGrowth.
With the integration behind us, we can now
take advantage of cross-selling opportunities
with American Reliable, realize expense
benefits and offer expanded product
opportunities to our partners, general agents
and brokers.
Operating income (excluding acquisition costs
related to the American Reliable acquisition),
was $49.4 million, compared to $45.3 million
Saul A. Fox
Chairman
Global Indemnity plc
Cynthia Y. Valko
Chief Executive Officer
Global Indemnity plc
1
FINDING—AND SEIZING—
OPPORTUNITY
A worldwide company with operating units in the United
States and Bermuda, Global Indemnity has thrived by
providing specialty property and casualty coverage
to markets typically overlooked or underserved by
traditional insurance and reinsurance companies.
Our company pursues its overarching goal of
ProfitableGrowth through a “three-pronged” strategy
that comprises Commercial Lines, Personal Lines and
International Reinsurance. This disciplined approach
and solid balance sheet have earned Global Indemnity
its well-established reputation and group rating of “A”
(Excellent) by A. M. Best.
THINKING—AND ACTING—AS ONE
“The strength of the team is each
individual member. The strength of
each member is the team.”
- Phil Jackson, former Coach & President, New York Knicks
Many companies strive to create a sustaining culture
within their organizations. At Global Indemnity, however,
our culture of “Successful Together,” extends well beyond
our office walls. Not just internal management and
staff, but the company’s entire family of agents and
partners are unified by four core principles: Acting
with integrity. Treating others with respect. Committing
to ProfitableGrowth. Delivering excellence in service
and support.
With a philosophy of sharing both goals and
achievements, it’s not surprising that Global Indemnity
enjoys exceptionally strong and stable producer
relationships throughout a multi-channel distribution
network that encompasses all 50 states.
BUILDING UPON SUCCESS
In 2014, Global Indemnity took advantage of the
opportunity to acquire American Reliable Insurance
Company® (ARIC). At the time, our company believed
that this action would enable us to develop a new
product line, expand our workforce and increase
premium production.
We are pleased to report that these expectations are
continuing to be met with success. In addition, the two
corporate infrastructures have been smoothly merged,
and Global Indemnity is now offering more products—
from Personal Lines to Reinsurance.
LOOKING FOR MORE
The ARIC acquisition has also had the effect of both
broadening Global Indemnity’s footprint in the market
and allowing us to explore newer and emerging
opportunities in the small business excess and surplus
markets with greater freedom and flexibility.
As a result, the company has also been able to widen
our agent base, further expanding our distribution.
We also remain committed to seeking out new niches
and underserved markets, and to increasing our
investment in advanced technology that creates
efficiencies and increases productivity. By automating
our product offerings, we are able to deliver our products
to producers—and our customers—more rapidly.
Our continued focus on minimizing risk through prudent
underwriting, together with expert claims management
and controlled expenditures, have been keys to our
financial performance.
THINKING AHEAD
Global Indemnity’s record of steady growth is not an
effect of circumstance or good fortune; it is the result of
having the foresight to create a sound strategy for the
long term, and the discipline to adhere to it for the long
haul. These qualities served us well in 2015; we expect
them to make us even more productive and profitable
in the years to come.
2
Stock Price as of December 31, 2015
Exchange/Symbol: GBLI
Closing Price: $29.02
52-Week Range: $22.96 - $29.93
Market Capitalization: $506.3M
Price/Book Ratio: 0.68
ANNUAL REPORT 2015
2015
FINANCIAL
HIGHLIGHTS
(Dollars in thousands, except per share and ratio data) 2012 2013 2014 2015
Gross Written Premium
$244,053 $290,723 $291,253 $590,233
Income Statement
Net Earned Premiums
238,862 248,722 268,519 504,143
Net Investment Income
47,557 37,209 28,821 34,609
Net Realized Gains/(Loss)
6,755 27,412 35,860 (3,374)
Other Income/(Loss)
(158) 5,791 555 3,400
Total Revenues
Total Expenses
Net Income
293,016 319,134 333,755 538,778
258,259 257,444 270,899 497,309
34,757 61,690 62,856 41,469
Earnings Per Share (Diluted)
$1.30 $2.45 $2.48 $1.69
Net Operating Income
29,309 40,453 43,194 44,026
Operating Income Per Share (Diluted) $1.10 $1.61 $1.71 $1.80
Balance Sheet
Total Assets
1,903,703 1,911,779 1,930,033 1,957,294
Shareholders’ Equity
806,618 873,280 908,290 749,926
Book Value Per Share
$32.15 $34.65 $35.86 $42.98
GAAP Ratios
Combined Ratio
104.2 96.0 92.0 94.5
Market Capitalization (As of year-end) 555,293 637,621 718,559 506,315
(1)
(1) On November 12, 2015 the Company redeemed $190 million of its Common Stock.
Combined Ratio
Book Value Per Share
104.2
96.0
92.0
94.5
150.0
120.0
90.0
60.0
30.0
0.0
$34.65
$35.86
$32.15
$42.98
$40
$30
$20
$10
$0
2012
2013
2014
2015
2012
2013
2014
2015
3
GLOBAL IN SCOPE. UNITED IN VISION.
Our continued success as a global company is a result of what we term a “three-pronged” strategy that includes
Commercial Lines, Personal Lines and International Reinsurance. Our seven insurance and reinsurance operating
units provide both admitted and non-admitted specialty property and casualty insurance in the United States,
in addition to reinsurance services internationally. Global Indemnity’s product lines—distributed through a broad
network—are varied and growing. In addition, we continue to maintain a strong capital reserve. This combined
approach enables us to take positive steps toward our singular goal: ProfitableGrowth.
1 COMMERCIAL
LINES
™
PENN-AMERICA
GROUP®
DIAMOND STATE
GROUP®
UNITED NATIONAL
GROUP®
J.H. FERGUSON
& ASSOCIATES, LLCTM
Penn-America Group offers
property and casualty
products specifically
for small commercial
businesses. The firm’s
distribution network
consists of a select team
of general agents with
specific binding authority.
Diamond State Group
distributes commercial
property, general liability
and professional lines
products—as well as
commercial auto
products—in 50 states and
DC through a specially
selected nexus of skilled
wholesale brokers.
United National Group
concentrates primarily on
specific classes with a focus
on the program market.
Program administrators
distribute property and
general liability products
throughout the U.S.
J.H. Ferguson is one of the
nation’s leading property
and casualty insurance
wholesalers. Specializing in
vacant properties, builders
risk, renovations, and
tenant-occupied dwellings,
the firm utilizes
web-based technology—
VacantExpress.com®.
penn-america.com
diamondstategroup.com
unitednat.com
jhferg.com
4
ANNUAL REPORT 2015
Each of our U.S. operating units hold admitted business and surplus lines qualifications in all of the 50 states
and the District of Columbia. The fact that Global Indemnity retains “A” (Excellent) A.M. Best ratings
reinforces long-standing relationships with existing customers and helps us attract prospective partners
and potential clients. That rating is also a source of pride among our 460 employees who are responsible
for achieving and maintaining it.
2 PERSONAL
LINES
3 INTERNATIONAL
REINSURANCE
OPERATIONS
COLLECTIBLES INSURANCE
SERVICES, LLCTM
AMERICAN RELIABLE
INSURANCE COMPANY®
GLOBAL INDEMNITY
REINSURANCE COMPANY LTD.
Collectibles Insurance
Services, LLC was founded
by collectors as a specialty
retail agency that provides
coverage for a wide variety
of popular collectibles such
as comic books, sports
cards and memorabilia,
stamps, and toys.
Distributing through a matrix of
general and independent agents,
American Reliable Insurance
Company is a specialty personal
lines and agricultural (equine,
farm and ranch) property and
casualty insurance provider.
Global Indemnity Reinsurance
Company Ltd. is a treaty and
facultative reinsurer of specialty
property and casualty insurance
and reinsurance companies.
The firm serves the international
market from its headquarters in
Bermuda. Formerly Wind River
Reinsurance Company Ltd.,
the name of the company
was changed in 2014.
collectinsure.com
americanreliable.com
globalindemnityre.bm
5
BOARD
MEMBERS
&
OFFICERS
Saul A. Fox
Chairman
Global Indemnity plc
Cynthia Y. Valko
Chief Executive Officer
Global Indemnity plc
We are fortunate in having a dedicated Board, as well as highly
experienced and sharply focused Senior Officers and Staff, all of whom
are committed to achieving our common objective: ProfitableGrowth.
BOARD MEMBERS
OFFICERS
Jay W. Brown
James W. Crystal
Cynthia Y. Valko
Chief Executive Officer
Thomas M. McGeehan
Chief Financial Officer
Matthew B. Scott
Chief Marketing Officer
William J. Devlin
Chief Operations & Claims Officer
Lou Korth
Chief Actuary & Risk Officer
Steve Green
President
Global Indemnity Reinsurance
Company Ltd.
Saul A. Fox, Chairman (3) (4) (6) (7)
Jay W. Brown (3) (5) (6)
Chief Executive Officer
MBIA Inc.
James W. Crystal (1) (5) (7)
Chairman & Chief Executive Officer
Frank Crystal & Company
Raphael L. de Balmann (1) (3) (5) (6)
Portfolio Manager
Bretton Capital Management
Seth J. Gersch (1) (4) (5)
Advisory Panel
Fox Paine & Company, LLC
John H. Howes (2) (6) (7)
Director
Satec srl
Bruce R. Lederman (2) (5) (7)
Retired Partner
Latham & Watkins
Larry N. Port (2) (3) (7)
Senior Vice President,
Corporate Development
Assurant, Inc.
Cynthia Y. Valko (4)
Chief Executive Officer
Global Indemnity plc
Raphael L. de Balmann
Seth J. Gersch
John H. Howes
Bruce R. Lederman
(1) Audit Committee (2) Compensation & Benefits Committee
(3) Enterprise Risk Management Committee (4) Executive Committee
(5) Investment Committee (6) Nominating Committee
(7) Governance Committee
Larry N. Port
6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from
to
001-34809
Commission File Number
GLOBAL INDEMNITY PLC
(Exact name of registrant as specified in its charter)
Ireland
(State or other jurisdiction
of incorporation or organization)
98-0664891
(I.R.S. Employer
Identification No.)
25/28 NORTH WALL QUAY
DUBLIN 1
IRELAND
(Address of principal executive office including zip code)
Registrant’s telephone number, including area code: 353 (0) 1 649 2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Common A Ordinary shares, $0.0001 Par Value
7.75% Subordinated Notes due 2045
Name of Exchange on Which Registered
The Nasdaq Global Select Market
The Nasdaq Global Select Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ‘ NO È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ‘ NO È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES È NO ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES È NO ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer ‘
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ‘ NO È
Accelerated filer
Smaller reporting company ‘
Í
The aggregate market value of the common equity held by non-affiliates of the registrant, computed by reference to the price of the registrant’s A
ordinary shares as of the last business day of the registrant’s most recently completed second fiscal quarter (based on the last reported sale price
on the Nasdaq Global Select Market as of such date), was $232,260,659. There are no B ordinary shares held by non-affiliates of the registrant.
As of March 4, 2016, the registrant had outstanding 13,404,386 A ordinary shares and 4,133,366 B ordinary shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement relating to the 2016 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the
fiscal year ended December 31, 2015 are incorporated by reference into Part III of this report.
TABLE OF CONTENTS
Item 1.
PART I
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . .
Item 6.
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . .
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . .
Page
2
32
47
47
47
47
48
51
53
93
96
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160
Item 9A.
CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160
Item 9B.
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
163
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE . . . . . . . . . .
164
Item 11.
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
Item 12.
Item 13.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
164
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
PART IV
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
165
1
PART I
Item 1.
BUSINESS
Some of the information contained in this Item 1 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 Item 7 of Part
II and “Risk Factors” in Item 1A of Part I 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.
References to the acquisition of American Reliable refer to the January 1, 2015 acquisition of American Reliable
Insurance Company (“American Reliable”).
History
Global Indemnity plc (“Global Indemnity” or “the Company”) was incorporated on March 9, 2010 and is
domiciled in Ireland as a public limited company. In July 2010, Global Indemnity replaced the Company’s
predecessor, United America Indemnity, Ltd., a Cayman Island company, as the ultimate parent company as a
result of a re-domestication transaction. The Company’s A ordinary shares are publicly traded on the NASDAQ
Global Select Market under the trading symbol “GBLI.”
On January 1, 2015, Global Indemnity Group, Inc., a subsidiary of the Company, acquired 100% of the voting
equity interest of American Reliable Insurance Company (“American Reliable”) from American Bankers
Insurance Group, Inc., a subsidiary of Assurant,Inc., by paying $113.7 million in cash and assuming $283.9
million of customary insurance related liabilities, obligations, and mandates. Per the American Reliable Stock
Purchase Agreement (“American Reliable SPA”), the ultimate purchase price is subject to (i) accounting
procedures that were performed in 2015 to determine GAAP book value and (ii) indemnification on future
development on recorded loss and loss adjustment expenses as of December 31, 2014. In accordance with the
American Reliable SPA, on the third calendar year following the calendar year of the closing, if loss and loss
adjustment expenses for accident years 2014 and prior are lower than recorded unpaid loss and loss adjustment
expenses as of December 31, 2014, Global Indemnity Group, Inc. will pay the variance to American Bankers
Group, Inc. Conversely, if loss and loss adjustment expenses for accident years 2014 and prior exceed recorded
unpaid loss and loss adjustment expenses as of December 31, 2014, American Bankers Group, Inc. will pay the
variance to Global Indemnity Group, Inc. In accordance with a dispute resolution agreement between Global
Indemnity Group, Inc. and American Bankers Group, Inc., any variance paid related to the loss indemnification
will be subject to interest of 5% compounded semi-annually. The Company’s current estimate of the purchase
price, based on available financial information, is approximately $99.8 million.
Please see “Recent Developments” in Item 7 of Part II of this report and Note 3 of the notes to consolidated
financial statements in Item 8 of Part II of this report for additional information on the acquisition of American
Reliable.
General
Global Indemnity, one of the leading specialty property and casualty insurers in the industry, provides its
insurance products across a distribution network that includes binding authority, program, brokerage, and
reinsurance. Starting in the 1st quarter of 2015, the Company manages the distribution of these products through
three reportable business segments: Commercial Lines, managed in Bala Cynwyd, PA, offers specialty property
and casualty products designed for product lines such as Small Business Binding Authority, Property Brokerage,
and Programs; Personal Lines, managed in Scottsdale, AZ, offers specialty personal lines and agricultural
coverage; and Reinsurance Operations, managed in Bermuda, provides reinsurance solutions through brokers and
primary writers including insurance and reinsurance companies. The Commercial Lines and Personal Lines
segments comprise the Company’s U.S. Insurance Operations (“Insurance Operations”).
2
Prior to 2015, the Commercial Lines segment was known as Insurance Operations segment. With the acquisition
of American Reliable, the Insurance Operations segment was renamed to Commercial Lines segment. The newly
acquired American Reliable became the Company’s Personal Lines segment. For segment reporting, the values
for 2013 and 2014 did not change for Commercial Lines and Reinsurance Operations.
Business Segments
See Note 19 of the notes to consolidated financial statements in Item 8 of Part II of this report for gross and net
premiums written, income and total assets of each operating segment for the years ended December 31, 2015,
2014 and 2013. For a discussion of the variances between years, see “Results of Operations” in Item 7 of Part II
of this report.
Personal Lines
The Company’s Personal Lines distribute property and casualty insurance products and operate primarily in the
admitted markets. In the standard property and casualty insurance market, insurance rates and forms are highly
regulated; products and coverage are largely uniform and have relatively predictable exposures. In the standard
market, policies must be written by insurance companies that are admitted to transact business in the state in
which the policy is issued. As a result, in the standard property and casualty insurance market, insurance
companies tend to compete for customers primarily on the basis of price, coverage, value-added service, and
financial strength.
The Company’s Personal Lines writes specialty products such as agriculture, mobile homes, manufactured
homes, homeowners, and watersports via American Reliable. These products are distributed through retail
agents, wholesale general agents, and brokers. The insurance products are either underwritten via specific
binding authority or by internal personnel.
See “Underwriting” below for additional discussion on how the Company’s insurance products are underwritten.
Gross premiums written for the Personal Lines were $326.3 million in 2015. Personal lines is a new business
segment in 2015 resulting from the acquisition of American Reliable on January 1, 2015.
Commercial Lines
The Company’s Commercial Lines distribute property and casualty insurance products and operate
predominantly in the excess and surplus lines marketplace. The excess and surplus lines market differs
significantly from the standard property and casualty insurance market.
The excess and surplus lines market provides coverage for businesses that often do not fit the underwriting
criteria of an insurance company operating in the standard markets due to their relatively greater unpredictable
loss patterns and unique niches of exposure requiring rate and policy form flexibility. Without the excess and
surplus lines market, certain businesses would have to self-insure their exposures, or seek coverage outside the
U.S. market.
Competition in the excess and surplus lines market tends to focus less on price and more on availability, service,
and other considerations. While excess and surplus lines market exposures may have higher perceived insurance
risk than their standard market counterparts, excess and surplus lines market underwriters historically have been
able to generate underwriting profitability superior to standard market underwriters.
A portion of the Company’s Commercial Lines is written on a specialty admitted basis. When writing on a
specialty admitted basis, the Company’s focus is on writing insurance for insureds that engage in similar but
often highly specialized types of activities. The specialty admitted market is subject to greater state regulation
3
than the surplus lines market, particularly with regard to rate and form filing requirements and the ability to enter
and exit lines of business. Insureds purchasing coverage from specialty admitted insurance companies do so
because the insurance product is not otherwise available from standard market insurers. Yet, for regulatory or
marketing reasons, these insureds require products that are written by an admitted insurance company.
The Commercial Lines’ insurance products target specific, defined groups of insureds with customized coverage
to meet their needs. To manage operations, the Commercial Lines segment differentiates its products by product
classification. These product classifications are as follows:
•
Penn-America Group distributes property and general
businesses through a select network of wholesale general agents with specific binding authority;
liability products for small commercial
• United National Group distributes property, general liability, and professional lines products through
program administrators with specific binding authority; and
• Diamond State Group distributes property, casualty, and professional lines products through wholesale
brokers that are underwritten by the Company’s personnel and selected brokers with specific binding
authority.
These product classifications comprise the Commercial Lines business segment and are not considered individual
business segments because each product has similar economic characteristics, distribution, and coverage.
The Company’s Commercial Lines provide property, casualty, and professional liability products utilizing
customized guidelines, rates, and forms tailored to the Company’s risk and underwriting philosophy. See
“Underwriting” below for a discussion on how the Company’s insurance products are underwritten.
In 2015, gross premiums written for the Commercial Lines were $214.2 million compared to $230.0 million for
2014. For 2015, surplus lines business accounts for approximately 77.7% of the business written while specialty
admitted business accounts for the remaining 22.3%.
Reinsurance Operations
Global Indemnity Reinsurance Company, Ltd. (“Global Indemnity Reinsurance”) is a Bermuda based treaty
reinsurer of specialty property and casualty insurance and reinsurance companies. The Company’s Reinsurance
Operations segment provides reinsurance solutions through brokers and primary writers including insurance and
reinsurance companies, and consists solely of the operations of Global Indemnity Reinsurance.
The reinsurance markets face many of the same issues confronted in the primary insurance markets including
excess capital capacity, low investment returns and increased pressure on generating acceptable return on
investment.
The limited number of catastrophic events in recent years and an increase in the available capacity has continued
to put pressure on pricing levels. Global Indemnity Reinsurance is focused on using its capital capacity to write
catastrophe-oriented placements and other niche or specialty-focused excess of loss contracts meeting the
Company’s risk tolerance and return thresholds.
In 2015, gross premiums written from third parties were $49.7 million compared to $61.3 million for 2014.
Products and Product Development
The Company’s U.S. Insurance Operations distribute property and casualty insurance products. Its Personal
Lines operate primarily in the admitted marketplace; whereas, its Commercial Lines operate predominantly in the
excess and surplus lines marketplace. To manage its operations, the Company seeks to differentiate its products
4
by product classification. See “Personal Lines” and “Commercial Lines” above for a description of these product
classifications. The U.S. Insurance Operations are licensed to write on a surplus lines (non-admitted) basis and/or
an admitted basis in all 50 U.S. States, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, which
provides the Company with flexibility in designing products and programs, and in determining rates to meet
emerging risks and discontinuities in the marketplace.
The Company’s Reinsurance Operations offer third party treaty reinsurance for specialty property and casualty
insurance companies and reinsurance companies as well as professional liability products to companies. The
Company’s Reinsurance Operations also provide reinsurance to its Insurance Operations in the form of quota
share and stop-loss arrangements.
Geographic Concentration
The following table sets forth the geographic distribution of gross premiums written for the periods indicated:
(Dollars in thousands)
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . .
For the Years Ended December 31,
2015
2014 (1)
2013 (1)
Amount
Percent
Amount
Percent
Amount
Percent
$ 56,142
52,913
37,725
28,329
28,274
26,245
21,199
16,602
16,433
15,387
299,249
241,251
49,733
9.5% $ 27,711
26,170
9.0
29,371
6.4
16,326
4.8
6,474
4.8
2,954
4.4
1,653
3.6
7,121
2.8
2,651
2.8
1,854
2.6
9.5% $ 26,358
29,565
9.0
32,170
10.2
16,600
5.6
8,392
2.2
2,872
1.0
1,693
0.6
8,208
2.4
3442
0.9
1,950
0.6
50.7
40.9
8.4
122,285
107,693
61,275
42.0
37.0
21.0
131,250
101,123
58,350
9.1%
10.1
11.0
5.7
2.9
1.0
0.6
2.8
1.2
0.7
45.1
34.8
20.1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$590,233
100.0% $291,253
100.0% $290,723
100.0%
Marketing and Distribution
The Company provides its insurance products across a full distribution network—binding authority, program,
brokerage, direct, and reinsurance. For its binding authority and program product classifications, the Company
distributes its insurance products primarily through a group of wholesale general agents and program
administrators that have specific quoting and binding authority. For its brokerage business, the Company
distributes its insurance products through wholesale insurance brokers who in turn sell the Company’s insurance
products to insureds through retail insurance brokers. For its reinsurance business, the Company distributes its
products through reinsurance brokers and on a direct basis.
The Company’s Commercial Lines distributes its insurance products primarily through a group of approximately
120 wholesale general agents and program administrators. Of the Commercial Lines’ non-affiliated professional
wholesale general agents and program administrators, the top five accounted for 34.3% of the Commercial Lines’
gross premiums written for the year ended December 31, 2015. One agency represented 10.6% of the
Commercial Lines’ gross premiums written.
The Company’s Personal Lines distributes specialty personal and agricultural insurance products through a group
of approximately 290 agents primarily comprised of wholesale general agents. It also distributes its specialty
the Personal Lines’
personal
insurance products on a retail basis in New Mexico and Arizona. Of
5
non-affiliated professional wholesale general agents and retail agents, the top five accounted for 20.5% of the
Personal Lines’ gross premiums written for the year ended December 31, 2015. No one agency represented more
than 10% of the Personal Lines’ gross premiums written.
There is no agency which accounts for more than 10% of the Company’s consolidated revenues for the year
ended December 31, 2015.
Global Indemnity Reinsurance assumed premiums on three treaties accounted for 95% of the Reinsurance
Operations’ 2015 gross premiums written. There is no treaty that accounted for 10% or more of the Company’s
consolidated revenues for the year ended December 31, 2015.
The Company’s primary distribution strategy is to seek to maintain strong relationships with a limited number of
high-quality wholesale professional general agents and wholesale insurance brokers. The Company carefully
selects distribution sources based on their expertise, experience and reputation. The Company believes that its
distribution strategy enables it to effectively access numerous markets at a relatively low cost structure through
the marketing, underwriting, and administrative support of the Company’s professional general agencies and
wholesale insurance brokers. The Company believes these wholesale general agents and wholesale insurance
brokers have local market knowledge and expertise that enables them to access business in these markets more
effectively.
Underwriting
For Commercial Lines, the Company’s insurance products are primarily underwritten via specific binding
authority in which the Company grants underwriting authority to its wholesale general agents and program
administrators and via brokerage in which the Company’s internal personnel underwrites business submitted by
wholesale insurance brokers. Some of the Company’s specialized property business is submitted by retail agents
or directly from insureds and is also underwritten by internal personnel.
For Personal Lines, the Company’s insurance products are distributed through retail agents, wholesale general
agents, and brokers. The insurance products are either underwritten via specific binding authority or by internal
personnel.
Specific Binding Authority—The Company’s wholesale general agents,
retail agents, and program
administrators for both Commercial Lines and Personal Lines have specific quoting and binding authority with
respect to a single insurance product and some have limited quoting and binding authority with respect to
multiple products.
The Company’s wholesale general agents, retail agents, and program administrators will either utilize company
administered policy systems with the Company’s underwriting guidelines embedded within the system or the
agents will use their own proprietary systems. When the agents use their own proprietary systems, the Company
provides its wholesale general agents, retail agents, and program administrators with a comprehensive, regularly
updated underwriting manual that specifically outlines risk eligibility which is developed based on the type of
insured, nature of exposure and overall expected profitability. This manual also outlines (a) premium pricing,
(b) underwriting guidelines, including but not limited to policy forms, terms and conditions, and (c) policy
issuance instructions.
The Company’s wholesale general agents, retail agents, and program administrators are appointed to underwrite
submissions received in accordance with the Company’s underwriting manual. Risks that are not within the
specific binding authority must be submitted to the Company’s underwriting personnel directly for underwriting
review and approval or denial of the application of the insured. The Company’s wholesale general agents provide
all policy issuance services in accordance with the Company’s underwriting manuals.
6
Agricultural partners are not provided with underwriting manuals. Rather, they are provided with letters of
authority; whereby, policies and endorsement issuance rights are extended.
The Company regularly monitors the underwriting quality of its wholesale general agents, retail agents, and
program administrators through a disciplined system of controls, which includes the following:
•
•
•
•
•
automated system criteria edits and exception reports;
individual policy reviews to measure adherence to the Company’s underwriting manual including: risk
selection, underwriting compliance, policy issuance and pricing;
periodic on-site comprehensive audits to evaluate processes, controls, profitability and adherence to all
aspects of the Company’s underwriting manual including: risk selection, underwriting compliance,
policy issuance and pricing;
internal quarterly actuarial analysis of loss ratios produced by business underwritten by the Company’s
wholesale general agents, retail agents, and program administrators; and
internal quarterly analysis of financial results, including premium growth and overall profitability of
business produced by the Company’s wholesale general agents,
retail agents, and program
administrators.
The Company provides incentives to certain of its wholesale general agents and program administrators to
produce profitable business through contingent profit commission structures that are tied directly to the
achievement of profitability targets.
Brokerage—There are only three wholesale insurance brokers with specific binding authority. These brokers are
within the Company’s Commercial Lines and are subject to the same guidelines and monitoring as discussed
above. The majority of the Company’s wholesale insurance brokers do not have specific binding authority;
therefore, these risks are submitted to the Company’s underwriting personnel for review and processing.
The Company provides its underwriters with a comprehensive, regularly updated underwriting manual that
outlines risk eligibility which is developed based on the type of insured, nature of exposure and overall expected
profitability. This manual also outlines (a) premium pricing, (b) underwriting guidelines, including but not
limited to policy forms, terms and conditions.
The Company’s underwriting personnel review submissions, issue all quotes and perform all policy issuance
functions. The Company regularly monitors the underwriting quality of its underwriters through a disciplined
system of controls, which includes the following:
•
•
•
•
individual policy reviews to measure the Company’s underwriters’ adherence to the underwriting
manual including: risk selection, underwriting compliance, policy issuance and pricing;
periodic underwriting review to evaluate adherence to all aspects of the Company’s underwriting
manual including: risk selection, underwriting compliance, policy issuance and pricing;
internal quarterly actuarial analysis of loss ratios produced by business underwritten by the Company’s
underwriters; and
internal quarterly analysis of financial results, including premium growth and overall profitability of
business produced by the Company’s underwriters.
Reinsurance—The Company’s Global
Indemnity Reinsurance subsidiary primarily offers retrocessional
coverage to Bermuda based reinsurance companies. The business assumed is primarily quota share treaties on
property catastrophe and marine business. The Company also writes a small amount of professional lines excess
liability business. Prior to entering into any agreement, the Company evaluates a number of factors for each
cedent including, but not limited to, reputation and financial condition, underwriting and claims practices and
historical claims experience. The Company also models proposed treaties for both the catastrophe exposure and
the marginal impact on the Company’s existing catastrophe portfolio.
7
Contingent Commissions
Certain professional general agencies of the U.S. Insurance Operations are paid special incentives, referred to as
contingent commissions, when results of business produced by these agencies are more favorable than
predetermined thresholds. Similarly, in some circumstances, companies that cede business to the Reinsurance
Operations are paid a profit commission based on the profitability of the ceded portfolio. These commissions are
charged to other underwriting expenses when incurred.
Pricing
The Company’s pricing actuaries establish pricing tailored to each specific product it underwrites, taking into
account historical loss experience, historical rate level changes, and individual risk and coverage characteristics.
The Company generally uses the actuarial loss costs promulgated by the Insurance Services Office as a
benchmark in the development of pricing for most of the Company’s products. Specific products will utilize
proprietary rating when deemed appropriate. The Company will seek to only write business if it believes it can
achieve an adequate rate of return.
Reinsurance of Underwriting Risk
The Company’s philosophy is to purchase reinsurance from third parties to limit its liability on individual risks
and to protect against property catastrophe and casualty clash losses. Reinsurance assists the Company in
controlling exposure to severe losses and protecting capital resources. The type, cost and limits of reinsurance it
purchases can vary from year to year based upon the Company’s desired retention levels and the availability of
quality reinsurance at an acceptable price. Although reinsurance does not legally discharge an insurer from its
primary liability for the full amount of limits on the policies it has written, it does make the assuming reinsurer
liable to the insurer to the extent of the insurance ceded. The Company’s reinsurance contracts renew throughout
the year and all of its reinsurance is purchased following guidelines established by management. The Company
primarily utilizes treaty reinsurance products made up of proportional and excess of loss reinsurance.
Additionally, the Company may purchase facultative reinsurance protection on single risks when deemed
necessary.
The Company purchases specific types and structures of reinsurance depending upon the characteristics of the
lines of business and specialty products underwritten. The Company will typically seek to place proportional
reinsurance for umbrella and excess products, certain specialty products, or in the development stages of a new
product. The Company believes that this approach allows it to control net exposure in these product areas most
cost effectively.
The Company purchases reinsurance on an excess of loss basis to cover individual risk severity. These structures
are utilized to protect the Company’s primary positions on property and casualty products. The excess of loss
structures allow the Company to maximize underwriting profits over time by retaining a greater portion of the
risk in these products, while helping to protect against the possibility of unforeseen volatility.
The Company analyzes its reinsurance contracts to ensure that they meet the risk transfer requirements of
applicable accounting guidance, which requires that the reinsurer must assume significant insurance risk under
the reinsured portions of the underlying insurance contracts and that there must be a reasonably possible chance
that the reinsurer may realize a significant loss from the transaction.
The Company continually evaluates its retention levels across its entire line of business and specialty product
portfolio seeking to ensure that the ultimate reinsurance structures are aligned with the Company’s corporate risk
tolerance levels associated with such products. Any decision to decrease the Company’s reliance upon
proportional reinsurance or to increase the Company’s excess of loss retentions could increase the Company’s
earnings volatility. In cases where the Company decides to increase its excess of loss retentions, such decisions
will be a result of a change or progression in the Company’s risk tolerance level. The Company endeavors to
8
purchase reinsurance from financially strong reinsurers with which it has long-standing relationships. In addition,
in certain circumstances, the Company holds collateral, including letters of credit, under reinsurance agreements.
The Company’s Insurance Operations’ primary reinsurance treaties are as follows:
Property Catastrophe Excess of Loss—The Company’s current property writings create exposure to catastrophic
events. To protect against these exposures, the Company purchases a property catastrophe treaty. Effective June 1,
2015, the Company purchased a property catastrophe excess of loss treaty which provides occurrence coverage for
losses of $280 million in excess of $20 million. This treaty is made up of three layers: $20 million in excess of $20
million, which the Company participated on 25% of the placement, $60 million in excess of $40 million, and $200
million in excess of $100 million. This treaty provides for one full reinstatement of coverage at 100% additional
premium as to time and pro rata as to amount of limit reinstated. This replaced the treaty which expired on May 31,
2015, which provided occurrence coverage for losses of $70 million in excess of $20 million. This treaty excluded
business underwritten by American Reliable. The Company participated on 60% of the $20 million in excess of $20
million layer and 40% of the $50 million in excess of $40 million layer. This treaty provided for one full
reinstatement of coverage at 100% additional premium as to time and pro rata as to amount of limit reinstated.
Earthquake Property Catastrophe Excess of Loss—Effective January 1, 2015, the Company purchased an
earthquake property catastrophe excess of loss treaty which provided occurrence coverage for earthquake
catastrophe losses of $30 million in excess of $5 million for American Reliable property business. This treaty
provided for one full reinstatement of coverage at 100% additional premium as to time and pro rata as to amount
of limit reinstated. This treaty was cancelled on May 31, 2015 and rolled into a new combined master catastrophe
treaty which was effective June 1, 2015.
Property Per Risk Excess of Loss—Effective January 1, 2016, the Company renewed its property per risk excess
of loss treaty. This treaty provides coverage in three sections: 80% of $9 million per risk in excess of $1 million
per risk for all business except the Property Brokerage unit and business written by American Reliable, 100% of
$4 million per risk in excess of $1 million per risk for American Reliable business, and 75% of $8 million per
risk in excess of $2 million per risk for Property Brokerage business. This treaty also provides coverage of 100%
of $20 million per risk in excess of $10 million per risk for Property Brokerage business. The treaty’s liability is
limited to twice the named per risk limit by section and layer for all risks involved in one loss occurrence. This
replaced the treaty which expired December 31, 2015, which excluded business underwritten by American
Reliable. This treaty provided coverage in two sections: 50% of $9 million per risk in excess of $1 million per
risk for all business with the exception of the Property Brokerage unit, and 50% of $8 million per risk in excess
of $2 million per risk for Property Brokerage business. This treaty also provides coverage of 100% of $20
million per risk in excess of $10 million per risk for Property Brokerage business. The treaty’s liability was
limited to twice the named per risk limit by section and layer for all risks involved in one loss occurrence.
American Reliable Property Per Risk Excess of Loss—Effective January 1, 2015, American Reliable renewed
its property per risk excess of loss treaty covering business underwritten by American Reliable. This treaty
provides coverage in two layers: $1 million per risk in excess of $1 million per risk, and $3 million per risk in
excess of $2 million per risk. The first layer is subject to a $2 million limit of liability for all risks involved in
one loss occurrence, and the second layer is subject to a $6 million limit for all risks involved in one loss
occurrence. This treaty expired on December 31, 2015 and the American Reliable business was added to the
Property Per Risk Excess of Loss treaty described above.
Casualty and Professional Liability Excess of Loss—Effective May 1, 2015, the Company renewed its casualty
and professional liability excess of loss treaty. The casualty section provides coverage for 50% of $2 million per
occurrence in excess of $1 million per occurrence for general liability and auto liability. The professional liability
section provides coverage for 50% of $4 million per policy/occurrence in excess of $1 million per policy/
occurrence. For both sections, allocated loss adjustment expenses are included within limits. This replaced the
casualty and professional liability treaty that expired April 30, 2015 which provided for 100% of the identical
coverage limits and retentions.
9
Casualty Clash Excess of Loss—Effective May 1, 2015, the Company renewed its casualty clash excess of loss
treaty which provides coverage of $10 million per occurrence in excess of $3 million per occurrence, subject to a
$20 million limit for all loss occurrences. The casualty clash treaty that expired April 30, 2015 provided identical
coverage.
100% Ceded Quota Share to American Bankers—Effective December 1, 2014, American Reliable entered into
four treaties to cede 100% of its liabilities related to certain businesses to American Bankers Insurance Company
that were not included in the acquisition of American Reliable. For the year ended December 31, 2015, American
Reliable recorded ceded written premiums and ceded earned premiums of $55.8 million and $59.5 million,
respectively, to American Bankers Insurance Company.
100% Assumed Quota Share from American Bankers—Effective December 1, 2014, American Reliable entered
into two treaties to assume 100% of its liabilities from various insurers owned by Assurant, Inc. for business
included in the acquisition but not written directly by American Reliable. For the year ended December 31, 2015,
American Reliable recorded assumed written premiums and assumed earned premiums of $82.3 million and
$92.7 million, respectively, from insurance companies owned by Assurant, Inc.
To the extent that there may be an increase or decrease in catastrophe or casualty clash exposure in the future, the
Company may increase or decrease its reinsurance protection for these exposures commensurately. There were
no other significant changes to any of the Company’s Insurance Operations’ reinsurance treaties during 2015.
The following table sets forth the ten reinsurers for which the Company has the largest reinsurance receivables as
of December 31, 2015. Also shown are the amounts of premiums ceded by the Company to these reinsurers
during the year ended December 31, 2015.
(Dollars in millions)
A.M.
Best
Rating
Gross
Reinsurance
Receivables
Percent
of
Total
Ceded
Premiums
Written
Percent
of
Total
A+
Munich Re America Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Westport Insurance Corp.
A+
. . . . . . . . . . . . . . . . . . . . . . . . . . . . A++
General Reinsurance Corp.
Transatlantic Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swiss Reinsurance America Corp. . . . . . . . . . . . . . . . . . . . . . . .
Clearwater Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . .
American Bankers Insurance Company . . . . . . . . . . . . . . . . . . .
Hartford Fire Insurance Company . . . . . . . . . . . . . . . . . . . . . . .
Arch Reinsurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scor Reinsurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A
A+
NR
A
A+
A+
A
Subtotal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other reinsurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total reinsurance receivables before purchase accounting
adjustments and allowance for uncollectible
reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 53.4
14.8
12.1
6.8
5.8
4.6
4.5
4.3
2.6
1.7
110.6
17.7
41.6% $ 6.7
—
11.5
4.6
9.4
0.3
5.3
0.5
4.5
—
3.6
—
3.5
—
3.4
0.4
2.0
0.2
1.4
7.6%
—
5.2
0.3
0.6
—
—
—
0.4
0.2
86.2
13.8
12.7
76.3
14.3
85.7
128.3
100.0% $89.0
100.0%
Purchase accounting adjustments and allowance for
uncollectible reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12.7)
Total receivables, net of purchase accounting adjustments
and allowance for uncollectible reinsurance . . . . . . . . .
Collateral held in trust from reinsurers . . . . . . . . . . . . . . . . . . .
Net receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115.6
(6.4)
$109.2
10
At December 31, 2015, the Company carried reinsurance receivables, net of collateral held in trust, of $109.2 million.
This amount is net of a purchase accounting adjustment and an allowance for uncollectible reinsurance receivables.
The purchase accounting adjustment resulted from the Company’s acquisition of Wind River Investment Corporation
on September 5, 2003 and is related to discounting the acquired loss reserves to their present value and applying a risk
margin to the discounted reserves. This adjustment was $3.0 million at December 31, 2015. The allowance for
uncollectible reinsurance receivables was $9.7 million at December 31, 2015.
Historically, there have been insolvencies following a period of competitive pricing in the industry. While the
Company has recorded allowances for reinsurance receivables based on currently available information,
conditions may change or additional information might be obtained that may require the Company to record
additional allowances. On a quarterly basis, the Company reviews its financial exposure to the reinsurance
market and assesses the adequacy of its collateral and allowance for uncollectible reinsurance. The Company
continues to take actions to mitigate its exposure to possible loss.
Claims Management and Administration
The Company’s approach to claims management is designed to investigate reported incidents at the earliest
juncture, to select, manage, and supervise all legal and adjustment aspects of claims, including settlement, for the
mutual benefit of the Company, its professional general agents, wholesale brokers, reinsurers and insureds. The
Company’s professional general agents and wholesale brokers have no authority to settle claims or otherwise
exercise control over the claims process, with the exception of one statutory managing general agent and one
general agent. The Insurance Operations’ claims management staff supervises or processes all claims. The
Company’s Insurance Operations has a formal claims review process, and all claims greater than $100,000 for
Personal Lines and $250,000 for Commercial Lines, gross of reinsurance, are reviewed by senior claims
management and certain senior executives. Large loss trends and analysis are reviewed by a Large Loss
committee.
To handle claims, the Company’s Insurance Operations utilizes its own in-house claims department as well as
third-party claims administrators (“TPAs”) and assuming reinsurers,
to whom it delegates limited claims
handling authority. The Insurance Operations’ experienced in-house staff of claims management professionals
are assigned to one of five dedicated claim units: casualty and automobile claims, latent exposure claims,
property claims, TPA oversight, and a wholly owned subsidiary that administers construction defect claims. The
dedicated claims units meet regularly to communicate current developments within their assigned areas of
specialty.
As of December 31, 2015, the Company has $175 million of direct outstanding loss and loss adjustment expense
case reserves at its Insurance Operations. Claims relating to approximately 89% of those reserves are handled by
in-house claims management professionals, while claims relating to approximately 3% of those reserves are
handled by TPAs, which send the Company detailed financial and claims information on a monthly basis. The
Company also individually supervises in-house any significant or complicated TPA handled claims, and conducts
on-site audits of material TPAs at least twice a year. Approximately 8% of its reserves are handled by the
Company’s assuming reinsurers. The Company reviews and supervises the claims handled by its reinsurers
seeking to protect its reputation and minimize exposure.
Reserves for Unpaid Losses and Loss Adjustment Expenses
Applicable insurance laws require the Company to maintain reserves to cover its estimated ultimate losses under
insurance policies and reinsurance treaties that it writes and for loss adjustment expenses relating to the
investigation and settlement of claims.
The Company establishes loss and loss adjustment expense reserves for individual claims by evaluating reported
claims on the basis of:
•
knowledge of the circumstances surrounding the claim;
11
•
•
•
•
•
•
the severity of injury or damage;
jurisdiction of the occurrence;
the potential for ultimate exposure;
litigation related developments;
the type of loss; and
the Company’s experience with the insured and the line of business and policy provisions relating to
the particular type of claim.
The Company generally estimates such losses and claims costs through an evaluation of individual reported
claims. The Company also establishes reserves for incurred but not reported losses (“IBNR”). IBNR reserves are
based in part on statistical information and in part on industry experience with respect to the expected number
and nature of claims arising from occurrences that have not been reported. The Company also establishes its
reserves based on estimates of future trends in claims severity and other subjective factors. Insurance companies
are not permitted to reserve for a catastrophe until it has occurred. Reserves are recorded on an undiscounted
basis other than fair value adjustments recorded under purchase accounting. The Company’s Insurance
Operations’ reserves are reviewed quarterly by the in-house actuarial staff. Loss reserve estimates for the
Company’s Reinsurance Operations are developed by independent, external actuaries; however management is
responsible for the final determination of loss reserve selections. The data for this analysis is organized by treaty
and treaty year. Reviews for both Insurance Operations and Reinsurance Operations are performed both gross
and net of reinsurance.
In addition to the Company’s internal reserve analysis, independent external actuaries perform a full, detailed
review of the Insurance Operations’ reserves annually. The Company does not rely upon the review by the
independent actuaries to develop its reserves; however, the data is used to corroborate the analysis performed by
the in-house actuarial staff. The Company’s independent external actuaries also perform a full, detailed review of
the Reinsurance Operations’ reserves annually. The results of the detailed reserve reviews by internal and
external actuaries were summarized and discussed with the Company’s senior management to determine the best
estimate of reserves.
With respect to some classes of risks, the period of time between the occurrence of an insured event and the final
resolution of a claim may be many years, and during this period it often becomes necessary to adjust the claim
estimates either upward or downward. Certain classes of umbrella and excess liability that the Company
underwrites have historically had longer intervals between the occurrence of an insured event, reporting of the
claim and final resolution. In such cases, the Company must estimate reserves over long periods of time with the
possibility of several adjustments to reserves. Other classes of insurance that the Company underwrites, such as
most property insurance, historically have shorter intervals between the occurrence of an insured event, reporting
of the claim and final resolution. Reserves with respect to these classes are therefore inherently less likely to be
adjusted.
The loss and loss expense reserving process is intended to reflect the impact of inflation and other factors
affecting loss payments by taking into account changes in historical payment patterns and perceived trends.
However, there is no precise method for the subsequent evaluation of the adequacy of the consideration given to
inflation, or to any other specific factor, or to the way one factor may affect another.
The loss and loss adjustment expense development table that follows shows changes in the Company’s reserves
in subsequent years from the prior loss and loss expense estimates based on experience as of the end of each
succeeding year and in conformity with United States of America generally accepted accounting principles
(“GAAP”). The estimate is increased or decreased as more information becomes known about the frequency and
severity of losses for individual years. A redundancy means the original estimate was higher than the current
estimate; a deficiency means that the current estimate is higher than the original estimate.
12
The first line of the loss and loss adjustment expense development table shows, for the years indicated, the
Company’s net reserve liability including the reserve for IBNR. The first section of the table shows, by year, the
cumulative amounts of losses and loss adjustment expenses paid as of the end of each succeeding year. The
second section sets forth the re-estimates in later years of incurred losses and loss expenses, including payments,
for the years indicated. The “cumulative redundancy/ (deficiency)” represents, as of the date indicated, the
difference between the latest re-estimated liability and the reserves as originally estimated.
On January 1, 2015, the acquisition of American Reliable was completed. Consequently, American Reliable’s
loss and loss adjustment expense reserves are only in the 2015 year in the table below.
The following table shows development in Global Indemnity’s loss and loss adjustment expense reserves on a net
basis:
(Dollars in thousands)
Balance sheet reserves:
Cumulative paid as of:
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
$ 639,291 $ 735,342 $ 800,885 $ 835,839 $ 725,297 $ 638,906 $684,878 $629,558 $586,975 $552,271 $571,917
One year later . . . . . . . . . . . . . . $ 154,069 $ 169,899 $ 190,723 $ 215,903 $ 189,358 $ 160,204 $155,888 $134,065 $116,118 $127,394
. . . . . . . . . . . .
Two years later
Three years later
. . . . . . . . . . .
Four years later . . . . . . . . . . . .
Five years later . . . . . . . . . . . . .
. . . . . . . . . . . . .
Six years later
Seven years later . . . . . . . . . . .
Eight years later . . . . . . . . . . . .
Nine years later . . . . . . . . . . . .
Ten years later . . . . . . . . . . . . .
261,569 260,667 223,358 211,661
330,522 333,131 304,272
377,350 399,854
431,146
268,827
355,987
414,068
440,206
454,982
467,669
471,472
485,142
491,183
300,041
413,055
478,408
506,915
525,173
534,801
551,849
560,923
360,336
470,313
532,753
561,536
581,265
602,649
613,980
366,647
454,284
510,177
541,313
569,079
582,337
299,720
375,066
419,717
454,509
485,777
Re-estimated liability as of:
End of year . . . . . . . . . . . . . . . . $ 639,291 $ 735,342 $ 800,885 $ 835,839 $ 725,297 $ 638,906 $684,878 $629,558 $586,975 $552,271 $571,917
One year later . . . . . . . . . . . . . .
. . . . . . . . . . . .
Two years later
Three years later
. . . . . . . . . . .
Four years later . . . . . . . . . . . .
Five years later . . . . . . . . . . . . .
Six years later
. . . . . . . . . . . . .
Seven years later . . . . . . . . . . .
Eight years later . . . . . . . . . . . .
Nine years later . . . . . . . . . . . .
Ten years later . . . . . . . . . . . . .
643,569 690,004 619,887 575,256 517,249
642,478 679,689 602,217 544,750
640,581 661,592 576,659
624,183 640,641
611,226
632,327
629,859
635,504
622,122
608,050
598,384
591,562
596,405
607,118
609,674
716,361
732,056
707,525
672,712
658,429
651,850
654,983
665,293
667,043
832,733
812,732
765,435
737,614
731,468
729,228
734,695
733,716
827,439
768,623
730,079
719,486
715,067
713,106
706,719
671,399
640,750
636,051
631,101
621,098
611,203
Cumulative redundancy/
(deficiency) . . . . . . . . . . . . . . . . . $
29,617 $
68,299 $
67,169 $ 129,120 $ 114,094 $
27,680 $ 44,237 $ 52,899 $ 42,225 $ 35,022 $ —
Gross Liability—end of year . . . . . . 1,914,224 1,702,010 1,503,238 1,506,430 1,257,741 1,059,756 971,377 879,113 779,466 675,472 680,047
420,850 286,499 249,555 192,491 123,201 108,130
670,591
Less: Reinsurance recoverable . . . . 1,274,933
702,353
966,668
532,444
Net liability-end of year . . . . . . . . . .
639,291
735,342
800,885
835,839
725,297
638,906 684,878 629,558 586,975 552,271 571,917
Gross re-estimated liability . . . . . . . 1,245,286 1,027,049 1,146,219 1,067,165
Less: Re-estimated recoverable at
864,279
798,385 801,855 725,679 661,452 625,156 680,047
December 31, 2015 . . . . . . . . . . .
635,613
360,006
412,503
360,445
253,076
187,158 161,214 149,020 116,702 107,907 108,130
Net re-estimated liability at
December 31, 2015 . . . . . . . . . . . $ 609,673 $ 667,043 $ 733,716 $ 706,720 $ 611,203 $ 611,227 $640,641 $576,659 $544,750 $517,249 $571,917
Gross cumulative redundancy/
(deficiency) . . . . . . . . . . . . . . . . . $ 668,938 $ 674,961 $ 357,019 $ 439,265 $ 393,462 $ 261,371 $169,522 $153,434 $118,014 $ 50,316 $ —
See Note 10 of the notes to consolidated financial statements in Item 8 of Part II of this report for a reconciliation
of the Company’s liability for losses and loss adjustment expenses, net of reinsurance ceded, as well as further
discussion surrounding changes to reserves for prior accident years.
Asbestos and Environmental Exposure
The Company’s environmental exposure arises from the sale of general liability and commercial multi-peril
insurance. Currently, the Company’s policies continue to exclude classic environmental contamination claims. In
some states the Company is required, however, depending on the circumstances, to provide coverage for certain
bodily injury claims, such as an individual’s exposure to a release of chemicals. The Company has also issued
policies that were intended to provide limited pollution and environmental coverage. These policies were specific
to certain types of products underwritten by the Company. The Company has also received a number of asbestos-
13
related claims, the majority of which are declined based on well-established exclusions. In establishing the
liability for unpaid losses and loss adjustment expenses related to A&E exposures, management considers facts
currently known and the current state of the law and coverage litigations. Estimates of these liabilities are
reviewed and updated continually.
Uncertainty remains as to the Company’s ultimate liability for asbestos-related claims due to such factors as the
long latency period between asbestos exposure and disease manifestation and the resulting potential for
involvement of multiple policy periods for individual claims, the increase in the volume of claims made by
plaintiffs who claim exposure but who have no symptoms of asbestos-related disease, and an increase in claims
subject to coverage under general liability policies that do not contain aggregate limits of liability.
The liability for unpaid losses and loss adjustment expenses, inclusive of A&E reserves, reflects the Company’s
best estimates for future amounts needed to pay losses and related adjustment expenses as of each of the balance
sheet dates reflected in the financial statements herein in accordance with GAAP. As of December 31, 2015, the
Company has $15.8 million of net loss reserves for asbestos-related claims and $14.7 million for environmental
claims. The Company attempts to estimate the full impact of the A&E exposures by establishing specific case
reserves on all known losses. See Note 10 of the notes to the consolidated financial statements in Item 8 of Part II
of this report for tables showing the Company’s gross and net reserves for A&E losses.
In addition to the factors referenced above, establishing reserves for A&E and other mass tort claims involves
considerably more judgment than other types of claims due to, among other things, inconsistent court decisions,
an increase in bankruptcy filings as a result of asbestos related liabilities, and judicial interpretations that often
expand theories of recovery and broaden the scope of coverage.
In 2009, one of the Company’s insurance companies entered into a settlement agreement to resolve asbestos
related coverage litigation related to approximately 3,900 existing asbestos-related bodily injury claims and
future claims. The settlement was approved by the Court and a final order was issued in September 2014. As of
December 31, 2015, the Company has no outstanding obligations as it relates to this settlement agreement.
See Note 10 of the notes to the consolidated financial statements in Item 8 of Part II of this report for the survival
ratios on a gross and net basis for the Company’s open A&E claims.
Investments
The Company’s investment policy is determined by the Investment Committee of the Board of Directors. The
Company engages third-party investment advisors to oversee its investments and to make recommendations to
the Investment Committee. The Company’s investment policy allows it to invest in taxable and tax-exempt fixed
income investments including corporate bonds as well as publicly traded and private equity investments. With
respect to fixed income investments, the maximum exposure per issuer varies as a function of the credit quality
of the security. The allocation between taxable and tax-exempt bonds is determined based on market conditions
and tax considerations, including the applicability of the alternative minimum tax. The maximum allowable
investment in equity securities under the Company’s investment policy is 30% of the Company’s GAAP equity,
or $225.0 million at December 31, 2015. As of December 31, 2015, the Company had $1,516.3 million of
investments and cash and cash equivalent assets, including $142.9 million of equity and limited partnership
investments plus a $0.2 million receivable for securities sold.
Insurance company investments must comply with applicable statutory regulations that prescribe the type, quality
and concentration of investments. These regulations permit investments, within specified limits and subject to
certain qualifications, in federal, state, and municipal obligations, corporate bonds and loans, and preferred and
common equity securities.
14
The following table summarizes by type the estimated fair value of Global Indemnity’s investments and cash and
cash equivalents as of December 31, 2015, 2014, and 2013:
(Dollars in thousands)
December 31, 2015
December 31, 2014
December 31, 2013
Estimated
Fair Value
Percent
of Total
Estimated
Fair Value
Percent
of Total
Estimated
Fair Value
Percent
of Total
Cash and cash equivalents . . . . . . . . . . . . . . .
$
67,037
4.4% $
58,823
3.9% $ 105,492
107,122
7.1
80,767
5.4
81,674
U.S. treasury and agency obligations . . . . . .
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities (1) . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . .
Commercial mortgage-backed securities . . .
Corporate bonds and loans . . . . . . . . . . . . . .
Foreign corporate bonds . . . . . . . . . . . . . . . .
205,240
159,123
260,022
140,390
332,111
102,141
Total fixed maturities . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . .
Other invested assets . . . . . . . . . . . . . . . . . . .
1,306,149
110,315
32,592
Total investments and cash and cash
13.5
10.5
17.2
9.3
21.9
6.7
86.2
7.3
2.1
191,473
208,759
178,263
133,158
383,416
107,639
1,283,475
122,048
33,663
12.8
13.9
11.9
8.9
25.6
7.2
85.7
8.2
2.2
180,936
229,910
168,436
53,975
435,392
54,041
1,204,364
254,070
3,489
6.7%
5.2
11.5
14.8
10.7
3.4
27.9
3.4
76.9
16.2
0.2
equivalents (2) . . . . . . . . . . . . . . . . . . . . . .
$1,516,093
100.0% $1,498,009
100.0% $1,567,415
100.0%
(1)
Includes collateralized mortgage obligations of $57,330, $49,322, and $63,322 for 2015, 2014, and 2013,
respectively.
(2) Does not include net receivable for securities sold of $172, $60, and $723 for 2015, 2014, and 2013,
respectively.
Although the Company generally intends to hold fixed maturities to recovery and/or maturity, the Company
regularly re-evaluates its position based upon market conditions. As of December 31, 2015, the Company’s fixed
maturities, excluding the mortgage-backed, commercial mortgage-backed and collateralized mortgage
obligations, had a weighted average maturity of 3.9 years and a weighted average duration, excluding mortgage-
backed, commercial mortgage-backed and collateralized mortgage obligations and including cash and short-term
investments, of 1.9 years. The Company’s financial statements reflect a net unrealized loss on fixed maturities
available for sale as of December 31, 2015 of $2.2 million on a pre-tax basis.
The following table shows the average amount of fixed maturities, income earned on fixed maturities, and the
book yield thereon, as well as unrealized gains for the periods indicated:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Average fixed maturities at book value . . . . . . .
Gross income on fixed maturities (1) . . . . . . . . .
Book yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed maturities at book value . . . . . . . . . . . . . .
Unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . .
$1,290,641
32,091
$1,230,317
26,788
$1,187,390
35,669
2.49%
2.18%
3.00%
$1,308,333
(2,184)
$1,272,948
10,527
$1,187,685
16,679
(1) Represents income earned by fixed maturities, gross of investment expenses and excluding realized gains
and losses.
The Company has sought to structure its portfolio to reduce the risk of default on collateralized commercial real
estate obligations and asset-backed securities. Of the $159.1 million of mortgage-backed securities, $101.8
million is invested in U.S. agency paper and $57.3 million is invested in collateralized mortgage obligations, of
15
which $56.6 million, or 98.8%, are rated AA+ or better. In addition, the Company holds $260.0 million in asset-
backed securities, of which 85.0% are rated AA or better and $140.4 million in commercial mortgaged-backed
securities, of which 98.0% are rated A- or better. The weighted average credit enhancement for the Company’s
asset-backed securities is 23.4. The Company also faces liquidity risk. Liquidity risk is when the fair value of an
investment is not able to be realized due to lack of interest by outside parties in the marketplace. The Company
attempts to diversify its investment holdings to minimize this risk. The Company’s investment managers run
periodic analysis of liquidity costs to the fixed income portfolio. The Company also faces credit risk. 97.4% of
the Company’s fixed income securities are investment grade securities. 17.0% of the Company’s fixed maturities
are rated AAA. See “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of Part II of this
report for a more detailed discussion of the credit market and the Company’s investment strategy.
The following table summarizes, by Standard & Poor’s rating classifications, the estimated fair value of Global
Indemnity’s investments in fixed maturities, as of December 31, 2015 and 2014:
(Dollars in thousands)
December 31, 2015
December 31, 2014
Estimated
Fair Value
Percent of
Total
Estimated
Fair Value
Percent of
Total
AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BBB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Not rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 222,381
518,122
355,225
175,785
16,868
7,989
515
976
559
7,729
17.0% $ 162,649
557,919
39.7
372,925
27.2
167,422
13.5
11,393
1.3
4,033
0.6
580
0.0
316
0.1
—
0.0
6,238
0.6
12.7%
43.5
29.1
13.0
0.9
0.3
0.0
0.0
0.0
0.5
Total fixed maturities . . . . . . . . . . . . . . . . .
$1,306,149
100.0% $1,283,475
100.0%
The following table sets forth the expected maturity distribution of Global Indemnity’s fixed maturities portfolio
at their estimated market value as of December 31, 2015 and 2014:
(Dollars in thousands)
December 31, 2015
December 31, 2014
Estimated
Market Value
Percent of
Total
Estimated
Market Value
Percent of
Total
Due in one year or less . . . . . . . . . . . . . . . . . . .
Due in one year through five years . . . . . . . . . .
Due in five years through ten years . . . . . . . . . .
Due in ten years through fifteen years . . . . . . .
Due after fifteen years . . . . . . . . . . . . . . . . . . . .
Securities with fixed maturities . . . . . . . . . . . . .
Mortgaged-backed securities . . . . . . . . . . . . . .
Commercial mortgage-backed securities . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . .
$ 107,582
594,859
38,016
2,137
4,020
746,614
159,123
140,390
260,022
8.2% $ 134,722
552,135
45.6
42,469
2.9
11,316
0.2
22,653
0.3
57.2
12.2
10.7
19.9
763,295
208,759
133,158
178,263
10.5%
42.9
3.3
0.9
1.8
59.4
16.3
10.4
13.9
Total fixed maturities . . . . . . . . . . . . . . . .
$1,306,149
100.0% $1,283,475
100.0%
The expected weighted average duration of the Company’s asset-backed, mortgage-backed and commercial
mortgage-backed securities is 1.6 years.
The value of the Company’s portfolio of bonds is inversely correlated to changes in market interest rates. In
addition, some of the Company’s bonds have call or prepayment options. This could subject the Company to
16
reinvestment risk should interest rates fall and issuers call their securities and the Company is forced to invest the
proceeds at lower interest rates. The Company seeks to mitigate its reinvestment risk by investing in securities
with varied maturity dates, so that only a portion of the portfolio will mature, be called, or be prepaid at any point
in time.
As of December 31, 2015, the Company has aggregate equity securities of $110.3 million that consisted entirely
of common stocks.
The Company’s investments in other invested assets is comprised of a limited liability partnership investment
where the partnership invests in distressed securities and assets, which was valued at $32.6 million at
December 31, 2015, and a limited liability partnership investment that invests in real estate, which was valued at
zero at December 31, 2015. There is no readily available independent market price for these limited liability
partnership investments. The Company does not have access to daily valuations, therefore the estimated fair
value of these limited partnerships is based on the net asset value as a practical expedient for each limited
partnership. The Company receives annual audited financial statements from each of the partnership investments
it owns.
Realized losses, including other than temporary impairments, for the year ended December 31, 2015 were $3.4
million compared with gains of $35.9 million and $27.4 million for the years ended December 31, 2014 and
2013, respectively.
Competition
The Company competes with numerous domestic and international insurance and reinsurance companies, mutual
companies, specialty insurance companies, underwriting agencies, diversified financial services companies,
Lloyd’s syndicates, risk retention groups, insurance buying groups, risk securitization products and alternative
self-insurance mechanisms. In particular, the Company competes against insurance subsidiaries of the groups in
the specialty insurance market noted below, insurance companies, and others, including:
• American International Group;
• American Modern Insurance Group
• Argo Group International Holdings, Ltd.;
• Berkshire Hathaway;
• Everest Re Group, Ltd.;
•
Foremost Insurance Group
• Great American Insurance Group;
• HCC Insurance Holdings, Inc.;
•
IFG Companies;
• Markel Corporation;
• Nationwide Insurance;
• Navigators Insurance Group;
• RLI Corporation;
•
Selective Insurance Group, Inc.;
• The Travelers Companies, Inc.;
• Validus Group; and
• W.R. Berkley Corporation.
17
In addition to the companies mentioned above, the Company is facing competition from standard line companies
who are continuing to write risks that traditionally had been written by excess and surplus lines carriers, Bermuda
companies who are establishing relationships with wholesale brokers and purchasing carriers, and other excess
and surplus lines competitors.
Competition may take the form of lower prices, broader coverage, greater product flexibility, higher quality
services, reputation and financial strength or higher ratings by independent rating agencies. In all of the
Company’s markets, it competes by developing insurance products to satisfy well-defined market needs and by
maintaining relationships with brokers and insureds that rely on the Company’s expertise. For its program and
specialty wholesale products, offerings and underwriting products that are not readily available is the Company’s
principal means of differentiating itself from its competition. Each of the Company’s products has its own
distinct competitive environment. The Company seeks to compete through innovative products, appropriate
pricing, niche underwriting expertise, and quality service to policyholders, general agencies and brokers.
Employees
At December 31, 2015, the Company had approximately 460 employees. None of the Company’s employees are
covered by collective bargaining agreements as of December 31, 2015.
Ratings
A.M. Best ratings for the industry range from “A++” (Superior) to “F” (In Liquidation) with some companies not
being rated. The Company’s Insurance Operations, which consist of its United States based insurance companies,
and Global Indemnity Reinsurance are currently rated “A” (Excellent) by A.M. Best, the third highest of sixteen
rating categories.
Publications of A.M. Best indicate that “A” (Excellent) ratings are assigned to those companies that, in A.M.
Best’s opinion, have an excellent ability to meet their ongoing obligations to policyholders. In evaluating a
company’s financial and operating performance, A.M. Best reviews its profitability, leverage and liquidity, as
well as its spread of risk, the quality and appropriateness of its reinsurance, the quality and diversification of its
assets, the adequacy of its policy and loss reserves, the adequacy of its surplus, its capital structure and the
experience and objectives of its management. These ratings are based on factors relevant to policyholders,
general agencies, insurance brokers and intermediaries and are not directed to the protection of investors.
General
Regulation
The business of insurance is regulated in most countries, although the degree and type of regulation varies
significantly from one jurisdiction to another. As a holding company, Global Indemnity is not subject to any
insurance regulation in the Republic of Ireland. However, Global Indemnity is subject to various Irish laws and
regulations, including, but not limited to, laws and regulations governing interested directors, mergers and
acquisitions, takeovers, shareholder lawsuits, and indemnification of directors.
U.S. Regulation
At December 31, 2015, the Company had seven operating insurance subsidiaries domiciled in the United States;
United National Insurance Company, Penn-America Insurance Company, and Penn-Star Insurance Company,
which are domiciled in Pennsylvania; Diamond State Insurance Company which is domiciled in Indiana; United
National Specialty Insurance Company, which is domiciled in Wisconsin; Penn-Patriot Insurance Company,
which is domiciled in Virginia; and American Reliable Insurance Company, which is domiciled in Arizona.
18
As the indirect parent of these U.S. insurance companies, Global Indemnity is subject to the insurance holding
company laws of Pennsylvania, Indiana, Wisconsin, Virginia, and Arizona. These laws generally require each of
the U.S. insurance companies to register with its respective domestic state insurance department and to annually
furnish financial and other information about the operations of the companies within the insurance holding
company system. Generally, all material transactions among affiliated companies in the holding company system
to which any of the U.S. insurance companies is a party must be fair, and, if material or of a specified category,
require prior notice and approval or absence of disapproval by the insurance department where the subsidiary is
domiciled. Material transactions include sales, loans, reinsurance agreements, certain types of dividends, and
service agreements with the non-insurance companies within Global Indemnity’s family of companies, the
Insurance Operations, or the Reinsurance Operations.
Changes of Control
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from
the insurance commissioner of the state where the insurer is domiciled. Prior to granting approval of an
application to acquire control of a domestic insurer, the state insurance commissioner will consider factors such
as the financial strength of the applicant, the integrity and management of the applicant’s Board of Directors and
executive officers, the acquirer’s plans for the management, Board of Directors and executive officers of the
company being acquired, the acquirer’s plans for the future operations of the domestic insurer and any anti-
competitive results that may arise from the consummation of the acquisition of control. Generally, state statutes
provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns,
controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of the
domestic insurer. Because a person acquiring 10% or more of the Company’s ordinary shares would indirectly
control the same percentage of the stock of the U.S. insurance companies, the insurance change of control laws of
Pennsylvania, Indiana, Wisconsin, Virginia and Arizona would likely apply to such a transaction. While the
Company’s articles of association limit the voting power of any U.S. shareholder to less than 9.5%, there can be
no assurance that the applicable state insurance regulator would agree that any shareholder did not control the
applicable insurance company.
These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of
Global Indemnity, including through transactions, and in particular unsolicited transactions, that some or all of
the shareholders of Global Indemnity might consider desirable.
Federal Insurance Regulation
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) includes a number of
provisions having a direct impact on the insurance industry, most notably, the creation of a Federal Insurance
Office to monitor the insurance industry, streamlining of surplus lines insurance, credit for reinsurance, and
systemic risk regulation. The Federal Insurance Office is empowered to gather data and information regarding
the insurance industry and insurers, including conducting a study for submission to the U.S. Congress on how to
modernize and improve insurance regulation in the United States. With respect to surplus lines insurance, the
Dodd-Frank Act gives exclusive authority to regulate surplus lines transactions to the home state of the insured,
and the requirement that a surplus lines broker must first attempt to place coverage in the admitted market is
the Dodd-Frank Act
substantially softened with respect
provides that a state may not prevent a surplus lines broker from placing surplus lines insurance with a non-U.S.
insurer that appears on the quarterly listing of non-admitted insurers maintained by the International Insurers
Department of
for
reinsurance, the Dodd-Frank Act generally provides that the state of domicile of the ceding company (and no
other state) may regulate financial statement credit for the ceded risk. The Dodd-Frank Act also provides the U.S.
Federal Reserve with supervisory authority over insurance companies that are deemed to be “systemically
important.” Regulations to implement the Dodd-Frank Act continue to be developed and the Company continues
to monitor the impact the Dodd-Frank Act may have on operations.
Insurance Commissioners (“NAIC”). Regarding credit
to large commercial policyholders. Significantly,
the National Association of
19
State Insurance Regulation
limited to,
including, but not
State insurance authorities have broad regulatory powers with respect to various aspects of the business of U.S.
insurance companies,
licensing companies to transact admitted business or
determining eligibility to write surplus lines business, accreditation of reinsurers, admittance of assets to
statutory surplus, regulating unfair trade and claims practices, establishing reserve requirements and solvency
standards, management of enterprise risk, regulating investments and dividends, approving policy forms and
related materials in certain instances and approving premium rates in certain instances. State insurance laws and
regulations may require the Company’s U.S. insurance companies to file financial statements with insurance
departments everywhere they will be licensed or eligible or accredited to conduct insurance business, and their
operations are subject to review by those departments at any time. The Company’s U.S. insurance companies
prepare statutory financial statements in accordance with statutory accounting principles (“SAP”) and procedures
prescribed or permitted by these departments. State insurance departments also conduct periodic examinations of
the books and records, financial reporting, policy filings and market conduct of insurance companies domiciled
in their states, generally once every three to five years, although market conduct examinations may take place at
any time. These examinations are generally carried out in cooperation with the insurance departments of other
states under guidelines promulgated by the NAIC. In addition, admitted insurers are subject to targeted market
conduct examinations involving specific insurers by state insurance regulators in any state in which the insurer is
admitted. The insurance departments for the states of Pennsylvania, Indiana, Wisconsin, and Virginia completed
their most recent financial examinations of the Company’s U.S. insurance subsidiaries, excluding American
Reliable, for the period ended December 31, 2012. Their final reports were issued in 2014, and there were no
materially adverse findings. The insurance department for the state of Arizona completed its most recent
financial examination of American Reliable for the period ending December 31, 2013. Their final report was
issued in 2015, and there were no materially adverse findings.
Insurance Regulatory Information System Ratios
The NAIC Insurance Regulatory Information System (“IRIS”) was developed by a committee of the state
insurance regulators and is intended primarily to assist state insurance departments in executing their statutory
mandates to oversee the financial condition of insurance companies operating in their respective states. IRIS
identifies twelve industry ratios and specifies “usual values” for each ratio. Departure from the usual values of
the ratios can lead to inquiries from individual state insurance commissioners as to certain aspects of an insurer’s
business. Insurers that report four or more ratios that fall outside the range of usual values are generally targeted
for increased regulatory review.
The Company’s U.S. insurance subsidiaries have acceptable results for the IRIS ratios with the exception of the
following:
• Change in policyholder’s surplus and adjusted liabilities of United National Insurance Company were
outside of the IRIS range primarily due to ordinary dividend to its parent, Global Indemnity Group, Inc.
•
Investment yields were lower than the IRIS range for Diamond State Insurance Company, United
National Specialty Insurance Company, Penn-Star Insurance Company and Penn-Patriot Insurance
Company. The investment portfolios of these companies are invested in high quality short duration
bonds.
• The following ratios were outside of the IRIS range due to the acquisition of American Reliable
Insurance Company on January 1, 2015 and the addition of American Reliable Insurance Company to
the intercompany pooling arrangements:
• Changes in net written premiums for American Reliable Insurance Company, United National
Insurance Company, Diamond State Insurance Company, United National Specialty Insurance
Company, Penn-Star Insurance Company and Penn-Patriot Insurance Company
• Asset to liability liquidity ratios for United National Insurance Company, Penn-America Insurance
Company and American Reliable Insurance Company
20
• Estimated current reserve deficiency for United National Insurance Company, Diamond State
Insurance Company, United National Specialty Insurance Company, Penn-America Insurance
Company and Penn-Star Insurance Company
• Two-year overall operating ratio for Penn-Patriot Insurance Company and American Reliable
Insurance Company
Risk-Based Capital Regulations
The state insurance departments of Pennsylvania, Indiana, Wisconsin, Virginia and Arizona require that each
domestic insurer report its risk-based capital based on a formula calculated by applying factors to various asset,
premium and reserve items. The formula takes into account the risk characteristics of the insurer, including asset
risk, insurance risk, interest rate risk and business risk. The respective state insurance regulators use the formula
as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating
regulatory action, and generally not as a means to rank insurers. State insurance laws impose broad
confidentiality requirements on those engaged in the insurance business (including insurers, general agencies,
brokers and others) and on state insurance departments as to the use and publication of risk-based capital data.
The respective state insurance regulators have explicit regulatory authority to require various actions by, or to
take various actions against, insurers whose total adjusted capital does not exceed certain company action level
risk-based capital levels.
Based on the standards currently adopted, the U.S. insurance companies reported in their 2015 statutory filings
that their capital and surplus are above the prescribed company action level risk-based capital requirements. See
Note 18 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional
information on the NAIC’s risk-based capital model for determining the levels of statutory capital and surplus an
insurer must maintain.
Statutory Accounting Principles
SAP is a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency
of insurance companies. SAP is primarily concerned with measuring an insurer’s surplus. Accordingly, statutory
accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with
appropriate insurance laws, regulatory provisions, and practices prescribed or permitted by each insurer’s
domiciliary state.
GAAP is concerned with a company’s solvency, but it is also concerned with other financial measurements, such
as income and cash flows. As a direct result, different line item groupings of assets and liabilities and different
amounts of assets and liabilities are reflected in financial statements prepared in accordance with GAAP than
financial statements prepared in accordance with SAP.
Statutory accounting practices established by the NAIC and adopted in part by the Pennsylvania, Indiana,
Wisconsin, Virginia, and Arizona regulators determine, among other things, the amount of statutory surplus and
statutory net income of the U.S. insurance companies and thus determine, in part, the amount of funds these
subsidiaries have available to pay dividends.
State Dividend Limitations
The U.S. insurance companies are restricted by statute as to the amount of dividends that they may pay without
the prior approval of the applicable state regulatory authorities. Dividends may be paid without advanced
regulatory approval only out of unassigned surplus. The dividend limitations imposed by the applicable state
laws are based on the statutory financial results of each company within the Insurance Operations that are
determined using statutory accounting practices that differ in various respects from accounting principles used in
21
financial statements prepared in conformity with GAAP. See “Regulation – Statutory Accounting Principles.”
Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes,
reserve calculation assumptions and surplus notes, if any.
See the “Liquidity and Capital Resources” section in Item 7 of Part II of this report for a more complete
description of the state dividend limitations. See Note 18 of the notes to consolidated financial statements in
Item 8 of Part II of this report for the dividends declared and paid by Global Indemnity’s U.S. insurance
companies in 2015 and the maximum amount of distributions that U.S. insurance companies could pay as
dividends in 2016.
Guaranty Associations and Similar Arrangements
Most of the jurisdictions in which the U.S. insurance companies are admitted to transact business require
property and casualty insurers doing business within that jurisdiction to participate in guaranty associations.
These associations are organized to pay contractual benefits owed pursuant to insurance policies issued by
impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all
member insurers in a particular state on the basis of the proportionate share of the premiums written by member
insurers in the lines of business in which the impaired, insolvent, or failed insurer is engaged. Some states permit
member insurers to recover assessments paid through full or partial premium tax offsets or in limited
circumstances by surcharging policyholders.
Operations of Global Indemnity Reinsurance
The insurance laws of the United States regulate or prohibit the sale of insurance and reinsurance within their
jurisdictions by non-domestic insurers and reinsurers that are not admitted to do business within such
jurisdictions. Global Indemnity Reinsurance is not admitted to do business in the United States. The Company
does not intend for Global Indemnity Reinsurance to maintain offices or solicit, advertise, settle claims or
conduct other insurance and reinsurance underwriting activities in any jurisdiction in the United States where the
conduct of such activities would require that Global Indemnity Reinsurance be admitted or authorized.
As a reinsurer that is not licensed, accredited, or approved in any state in the United States, Global Indemnity
Reinsurance is required to post collateral security with respect to the reinsurance liabilities it assumes from the
Company’s Insurance Operations as well as other U.S. ceding companies. The posting of collateral security is
generally required in order for U.S. ceding companies to obtain credit on their U.S. statutory financial statements
with respect to reinsurance liabilities ceded to unlicensed or unaccredited reinsurers. Under applicable United
States “credit for reinsurance” statutory provisions, the security arrangements generally may be in the form of
letters of credit, reinsurance trusts maintained by third-party trustees or funds-withheld arrangements whereby
the ceded premium is held by the ceding company. If “credit for reinsurance” laws or regulations are made more
stringent in Pennsylvania, Indiana, Wisconsin, Virginia and Arizona or other applicable states or any of the U.S.
insurance companies re-domesticate to one of the few states that do not allow credit for reinsurance ceded to non-
licensed reinsurers, the Company may be unable to realize some of the benefits expected from its business plan.
Accordingly, Global Indemnity Reinsurance could be adversely affected.
Global Indemnity Reinsurance generally is not subject to regulation by U.S. jurisdictions. Specifically, rate and
form regulations otherwise applicable to authorized insurers generally do not apply to Global Indemnity
Reinsurance’s surplus lines transactions.
Bermuda Insurance Regulation
The Bermuda Insurance Act 1978 and related regulations, as amended (the “Insurance Act”), regulates the
insurance business of Global Indemnity Reinsurance and provides that no person may carry on any such business
in or from within Bermuda unless registered as an insurer by the Bermuda Monetary Authority (the “BMA”)
22
under the Insurance Act. Global Indemnity Reinsurance, which is incorporated to carry on general insurance and
reinsurance business, is registered as a Class 3B insurer in Bermuda. A corporate body is registrable as a Class
3B insurer if it intends to carry on insurance business in circumstances where 50% or more of the net premiums
written or 50% or more of the loss and loss expense provisions represent unrelated business, or its total net
premiums written from unrelated business are $50.0 million or more. The continued registration of an applicant
as an insurer is subject to it complying with the terms of its registration and such other conditions as the BMA
may impose from time to time. An insurer’s registration may be canceled by the BMA on certain grounds
specified in the Insurance Act, including failure of the insurer to comply with its obligations under the Insurance
Act.
The Insurance Act imposes solvency and liquidity standards, auditing and reporting requirements, and grants the
BMA powers to supervise, investigate, require information and the production of documents, and to intervene in
the affairs of Bermuda insurance companies. The BMA continues to make amendments to the Insurance Act with
a view to enhancing Bermuda’s insurance regulatory regime.
The BMA utilizes a risk-based approach when it comes to licensing and supervising insurance companies. As
part of the BMA’s risk-based system, an assessment of the inherent risks within each particular class of insurer is
used to determine the limitations and specific requirements which may be imposed. Thereafter the BMA keeps
its analysis of relative risk within individual institutions under review on an ongoing basis, including through the
scrutiny of regular audited statutory financial statements, and, as appropriate, meeting with senior management
during onsite visits.
Certain significant aspects of the Bermuda insurance regulatory framework are set forth as follows:
Cancellation of Insurer’s Registration
An insurer’s registration may be canceled by the BMA on certain grounds specified in the Bermuda Insurance
Act, including failure of the insurer to comply with its obligations under the Bermuda Insurance Act or if, in the
opinion of the BMA, the insurer has not been carrying on business in accordance with sound insurance
principles.
Principal Representative and Principal Office
Every registered insurer or reinsurer is required to maintain a principal office in Bermuda and to appoint and
maintain a principal representative in Bermuda, subject to certain prescribed requirements under the Bermuda
Insurance Act. Further, any registered insurer that is a Class 3A insurer or above is required to maintain a head
office in Bermuda and direct and manage its insurance business from Bermuda. The recent amendments to the
Bermuda Insurance Act provide that in considering whether an insurer satisfies the requirements of having its
head office in Bermuda, the BMA may consider (a) where the underwriting, risk management, and operational
decision making occurs; (b) whether the presence of senior executives who are responsible for, and involved in,
the decision making are located in Bermuda; and (c) where meetings of the board of directors occur. The BMA
will also consider (a) the location where management meets to effect policy decisions; (b) the residence of the
officers, insurance managers or employees; and (c) the residence of one or more directors in Bermuda.
Global Indemnity Reinsurance maintains its principal office in Hamilton, Bermuda and its external management
firm has been appointed as its principal representative.
It is the duty of the principal representative upon reaching the view that there is a likelihood of the insurer for
which the principal representative acts becoming insolvent or that a reportable “event” has, to the principal
representative’s knowledge, occurred or is believed to have occurred, to immediately notify the BMA and to
make a report in writing to the BMA within 14 days of the prior notification setting out all the particulars of the
case that are available to the principal representative.
23
Where there has been a significant loss which is reasonably likely to cause the insurer to fail to comply with its
enhanced capital requirement (in respect of its general business, as described below under the Enhanced Capital
Requirement (“ECR”) and Minimum Solvency Margin (“MSM”) section), the principal representative must also
furnish the BMA with a capital and solvency return reflecting an enhanced capital requirement prepared using
post-loss data. The principal representative must provide this within 45 days of notifying the BMA regarding the
loss.
Furthermore, where a notification has been made to the BMA regarding a material change to an insurer’s
business or structure (including a merger or amalgamation), the principal representative has 30 days from the
date of such notification to furnish the BMA with unaudited interim statutory financial statements in relation to
such period if so requested by the BMA, together with a general business solvency certificate in respect to those
statements.
Independent Approved Auditor
Every registered insurer, such as Global Indemnity Reinsurance, must appoint an independent auditor who will
audit and report annually on the statutory financial statements and the statutory financial return of the insurer,
both of which are required to be filed annually with the BMA.
Loss Reserve Specialist
As a registered Class 3B insurer, Global Indemnity Reinsurance is required to submit an opinion of its approved
loss reserve specialist in respect of its losses and loss expense provisions with its statutory financial return.
Statutory Financial Statements
Global Indemnity Reinsurance must prepare annual statutory financial statements in accordance with the
Bermuda Insurance Act 1978. These statutory financial statements are not prepared in accordance with GAAP or
SAP. The Insurance Act prescribes rules for the preparation and substance of these statutory financial statements
(which include, in statutory form, a balance sheet, an income statement, a statement of capital and surplus and
notes thereto).
Annual Statutory Financial Return
Global Indemnity Reinsurance is required to file with the BMA a statutory financial return no later than four
months after its financial year end (unless specifically extended upon application to the BMA). The statutory
financial return for a Class 3B insurer includes, among other matters, a report of the approved independent
auditor on the statutory financial statements of the insurer, solvency certificates, schedules of ceded reinsurance,
the statutory financial statements, a declaration of statutory ratios and the opinion of the loss reserve specialist.
Pursuant to the Bermuda Insurance (Prudential Standards) (Class 4 and 3B Solvency Requirement) rules 2008,
Global Indemnity Reinsurance is required to give detailed information and analyses regarding premiums, claims,
reinsurance, and investments and is also required to provide audited annual financial statements prepared in
accordance with GAAP or International Financial Reporting Standards.
Enhanced Capital Requirement (“ECR”) and Minimum Solvency Margin (“MSM”)
The BMA has promulgated the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement)
Amendment Rules 2008, as amended (the “Rules”) which, among other things, mandate that a Class 3B insurer’s
ECR be calculated by either (a) the model set out in Schedule I to the Rules, or (b) an internal capital model
which the BMA has approved for use for this purpose. These measures are an integral part of the BMA’s ongoing
Solvency II equivalence program for Class 3B insurance companies. For 2015, Global Indemnity Reinsurance
used the BMA’s model to calculate its capital and solvency requirements.
24
The risk-based regulatory capital adequacy and solvency requirements implemented with effect
from
December 31, 2008 (termed the Bermuda Solvency Capital Requirement or “BSCR”) provide a risk-based capital
model as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization.
BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to the
capital
is dedicated to their business. The framework that has been developed applies a standard
measurement format to the risk associated with an insurer’s assets, liabilities and premiums, including a formula
to take account of catastrophe risk exposure.
that
Where an insurer believes that its own internal model for measuring risk and determining appropriate levels of
capital better reflects the inherent risk of its business, it may apply to the BMA for approval to use its internal
capital model in substitution for the BSCR model. The BMA may approve an insurer’s internal model, provided
certain conditions have been established, and may revoke approval of an internal model in the event that the
conditions are no longer met or where it feels that the revocation is appropriate. The BMA will review the
internal model regularly to confirm that the model continues to meet the conditions.
In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation, the BMA
seeks that insurers operate at or above a threshold capital level (termed the Target Capital Level or “TCL”),
which exceeds the BSCR or approved internal model minimum amounts. The Rules provide prudential standards
in relation to the ECR and Capital and Solvency Return (“CSR”). The ECR is determined using the BSCR or an
approved internal model, provided that at all times the ECR must be an amount equal to, or exceeding the MSM.
The CSR is the return setting out the insurer’s risk management practices and other information used by the
insurer to calculate its approved internal model ECR. The capital requirements require Class 3B insurers to hold
to, or exceeding ECR and set TCL at 120% of ECR. In
available statutory capital and surplus equal
circumstances where an insurer has failed to comply with an ECR given by the BMA, such insurer is prohibited
from declaring or paying any dividends until the failure is rectified.
The risk-based solvency capital framework referred to above represents a modification of the minimum solvency
margin test set out in the Insurance Returns and Solvency Amendment Regulations 1980 (as amended). While it
must calculate its ECR annually by reference to either the BSCR or an approved internal model, Global
Indemnity Reinsurance must also ensure at all times that its ECR is at least equal to the MSM for a Class 3B
insurer in respect of its general business, which is the greater of:
(i)
$1.0 million;
(ii) 50% of net premiums written;
(iii) 15% of net loss and loss adjustment expense reserves and other general business insurance reserves.
(iv) 25% of the insurer’s enhanced capital requirement.
The BMA has also introduced a three-tiered capital system for Class 3B insurers designed to assess the quality of
capital resources that an insurer has available to meet its capital requirements. The tiered capital system classifies
all capital instruments into one of three tiers based on their “loss absorbency” characteristics, with the highest
quality capital classified as Tier 1 Capital and lesser quality capital classified as either Tier 2 or Tier 3 Capital.
Only Tier 1 and Tier 2 Capital may be used to support an insurer’s MSM. Certain percentages of each of Tier 1,
2 and 3 Capital may be used to satisfy an insurer’s ECR. Any combination of Tier 1, 2 or 3 Capital may be used
to meet the TCL.
The Rules introduced a regime that requires Class 3B insurers to perform an assessment of their own risk and
solvency requirements, referred to as a Commercial Insurer’s Solvency Self Assessment (“CISSA”). The CISSA
will allow the BMA to obtain an insurer’s view of the capital resources required to achieve its business objectives
and to assess the company’s governance, risk management and controls surrounding this process. The Rules also
introduced a Catastrophe Risk Return, which must be filed with the BMA, which assesses an insurer’s reliance
on vendor models in assessing catastrophe exposure.
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Economic Balance Sheet Framework
The Economic Balance Sheet (“EBS”) framework is an accounting balance sheet approach using market
consistent values for all current assets and current obligations relating to in-force business which applies to Class
3B and 4 insurers effective for the 2016 financial year end. The EBS framework is embedded as part of the
Capital and Solvency Return and forms the basis for the insurer’s ECR. There is a mandatory trial run of the EBS
for all insurers and insurance groups for the 2015 year end and the EBS will be in full effect as of 2016 year end.
Minimum Liquidity Ratio
The Insurance Act provides a minimum liquidity ratio for general business insurers, such as Global Indemnity
Reinsurance. An insurer engaged in general business is required to maintain the value of its relevant assets at not
less than 75% of the amount of its relevant liabilities; as such terms are defined in the Insurance Act.
Restrictions on Dividends and Distributions
Global Indemnity Reinsurance is prohibited from declaring or paying any dividends during any financial year if
it is in breach of its minimum solvency margin or minimum liquidity ratio or if the declaration or payment of
such dividends would cause it to fail to meet such margin or ratio. In addition, if it has failed to meet its
minimum solvency margin or minimum liquidity ratio on the last day of any financial year, Global Indemnity
Reinsurance will be prohibited, without the approval of the BMA, from declaring or paying any dividends during
the next financial year.
Global Indemnity Reinsurance is prohibited, without the approval of the BMA, from reducing by 15% or more its
total statutory capital as set out in its previous year’s financial statements, and any application for such approval
must include such information as the BMA may require. In addition, if at any time it fails to meet its minimum
margin of solvency, Global Indemnity Reinsurance is required within 30 days after becoming aware of such
failure or having reason to believe that such failure has occurred, to file with the BMA a written report containing
certain information.
Additionally, under the Companies Act, Global Indemnity Reinsurance may not declare or pay a dividend, or
make a distribution from contributed surplus, if there are reasonable grounds for believing that it is, or would
after the payment be, unable to pay its liabilities as they become due, or if the realizable value of its assets would
be less than the aggregate of its liabilities and its issued share capital and share premium accounts.
Supervision, Investigation and Intervention
The BMA has wide powers of investigation and document production in relation to Bermuda insurers under the
Insurance Act. For example, the BMA may appoint an inspector with extensive powers to investigate the affairs
of Global Indemnity Reinsurance if the BMA believes that such an investigation is in the best interests of its
policyholders or persons who may become policyholders. Further, the BMA has the power to appoint a
professional person to prepare a report on any aspect of any matter about which the BMA has or could require
information. If it appears to the BMA that there is a risk of Global Indemnity Reinsurance becoming insolvent, or
that Global Indemnity Reinsurance is in breach of the Insurance Act or any conditions imposed upon its
registration, the BMA may, among other things, direct Global Indemnity Reinsurance not to take on any new
business, not to vary any current treaties if the effect would be to increase its liabilities, not to make certain
investments, to realize or not realize certain investments, to maintain in, or transfer to, the custody of a specified
bank, certain assets, not to declare or pay any dividends or other distributions or to restrict the making of such
payments, or to limit its premium income or remove an officer.
The BMA may also make additional rules prescribing prudential standards in relation to ECR, CSR’s, insurance
reserves and eligible capital which Global Indemnity Reinsurance must comply with.
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Bermuda Code of Conduct
The BMA has implemented the Insurance Code of Conduct (the “Bermuda Code of Conduct”) which came into
effect on July 1, 2010. The BMA established July 1, 2011 as the date of compliance for commercial insurers. The
Bermuda Code of Conduct is divided into six categories: (i) Proportionality Principal, (ii) Corporate Governance,
(iii) Risk Management, (iv) Governance Mechanism, (v) Outsourcing, and (vi) Market Discipline and Disclosure.
These categories contain the duties, requirements and compliance standards to which all insurers must adhere. It
stipulates that in order to achieve compliance with the Bermuda Code of Conduct, insurers are to develop and
apply policies and procedures capable of assessment by the BMA. Global Indemnity Reinsurance is in
compliance with the Bermuda Code of Conduct.
Group Supervision
Emerging international norms in the regulation of global insurance groups are trending increasingly towards the
imposition of group-wide supervisory regimes by one principal “home” regulator over all the legal entities in the
group, no matter where incorporated. Amendments to the Insurance Act in 2010 introduced such a regime into
Bermuda insurance regulation.
The Insurance Act contains provisions regarding group supervision, the authority to exclude specified entities
from group supervision, the power for the BMA to withdraw as a group supervisor, the functions of the BMA as
group supervisor and the power of the BMA to make rules regarding group supervision.
The BMA has issued the Insurance (Group Supervision) Rules 2011 (the “Group Supervision Rules”) and the
Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011 (the “Group Solvency
Rules”) each effective December 31, 2011. The Group Supervision Rules set out the rules in respect of the
assessment of the financial situation and solvency of an insurance group, the system of governance and risk
management of the insurance group, and supervisory reporting and disclosures of the insurance group. The
Group Solvency Rules set out the rules in respect of the capital and solvency return and enhanced capital
requirements for an insurance group. The BMA also intends to publish an insurance code of conduct in relation
to group supervision.
Global Indemnity Reinsurance was notified by the BMA that, having considered the matters set out in the 2010
amendments to the Insurance Act, it had determined that it would not be Global Indemnity Reinsurance’s group
supervisor.
Notifications to the BMA
In the event that the share capital of an insurer (or its parent) is traded on any stock exchange recognized by the
BMA, then any shareholder must notify the BMA within 45 days of becoming a 10%, 20%, 33% or 50%
shareholder of such insurer. An insurer must also provide written notice to the BMA that a person has become, or
ceased to be, a “Controller” of that insurer. A Controller for this purpose means a managing director, chief
executive or other person in accordance with whose directions or instructions the Directors of Global Indemnity
Reinsurance are accustomed to act, including any person who holds, or is entitled to exercise, 10% or more of the
voting shares or voting power or is otherwise able to exercise significant influence over the management of
Global Indemnity Reinsurance.
Global Indemnity Reinsurance is also required to notify the BMA in writing in the event any person has become
or ceased to be an officer of it, an officer being a director, chief executive or senior executive performing duties
of underwriting, actuarial, risk management, compliance, internal audit, finance or investment matters. Failure to
give required notice is an offense under the Insurance Act.
27
An insurer, or designated insurer in respect of the group of which it is a member, must notify the BMA in writing
that it proposes to take measures that are likely to be of material significance for the discharge, in relation to the
insurer or the group, of the BMA’s functions under the Insurance Act. Measures that are likely to be of material
significance include:
•
•
•
acquisition or transfer of insurance business being part of a scheme falling within section 25 of the
Insurance Act or section 99 of the Companies Act;
amalgamation with or acquisition of another firm; and
a material change in the insurer’s business plan not otherwise reported to the BMA.
In respect of the forgoing, the BMA will typically object to the material change unless it is satisfied that:
•
the interest of the policyholders and potential policyholders of the insurer or the group would not in any
manner be threatened by the material change; and
• without prejudice to the first point, that, having regard to the material change, the requirements of the
Insurance Act would continue to be complied with, or, if any of those requirements are not complied
with, that the insurer concerned is likely to undertake adequate remedial action.
Failure to give such notice constitutes an offence under the Insurance Act. It is possible to appeal a notice of
objection served by the BMA.
Disclosure of Information
The BMA may assist other regulatory authorities, including foreign insurance regulatory authorities, with their
investigations involving insurance and reinsurance companies in Bermuda, but subject to restrictions. For
example, the BMA must be satisfied that the assistance being requested is in connection with the discharge of
the BMA must consider whether
regulatory responsibilities of the foreign regulatory authority. Further,
cooperation is in the public interest. The grounds for disclosure are limited and the Insurance Act provides
sanctions for breach of the statutory duty of confidentiality.
Under the Companies Act, the Minister of Finance may assist a foreign regulatory authority that has requested
assistance in connection with inquiries being carried out by it in the performance of its regulatory functions. The
Minster of Finance’s powers include requiring a person to furnish information to the Minister of Finance, to
produce documents to the Minister of Finance, to attend and answer questions and to give assistance to the
Minister of Finance in relation to inquiries. The Minister of Finance must be satisfied that the assistance
requested by the foreign regulatory authority is for the purpose of its regulatory functions and that the request is
in relation to information in Bermuda that a person has in his possession or under his control. The Minister of
Finance must consider, among other things, whether it is in the public interest to give the information sought.
Certain Other Bermuda Law Considerations
Although Global Indemnity Reinsurance is incorporated in Bermuda, it is classified as a non-resident of Bermuda
for exchange control purposes by the BMA. Pursuant to the non-resident status, Global Indemnity Reinsurance
may engage in transactions in currencies other than Bermuda dollars, and there are no restrictions on its ability to
transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to
United States residents that are holders of its ordinary shares.
Under Bermuda law, exempted companies are companies formed for the purpose of conducting business outside
Bermuda from a principal place of business in Bermuda. As an “exempted” company, Global Indemnity
Reinsurance may not, without the express authorization of the Bermuda legislature or under a license or consent
granted by the Minister of Finance, participate in certain business transactions, including transactions involving
Bermuda landholding rights and the carrying on of business of any kind for which it is not licensed in Bermuda.
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Taxation of Global Indemnity and Subsidiaries
Ireland
Global Indemnity is a public limited company incorporated under the laws of Ireland. The Company is a resident
taxpayer fully subject to Ireland corporate income tax of 12.5% on trading income and 25.0% on non-trading
income, including interest and dividends from foreign companies. The capital gains tax rate is 33.0%. Currently,
Global Indemnity has only non-trading income, so it is subject to corporate income tax of 25.0%.
United America Indemnity, Ltd., a direct wholly-owned subsidiary, is a private limited liability company
incorporated under the laws of the Cayman Islands. The company is an Irish tax resident fully subject to Ireland
corporate income tax laws. Currently, United America Indemnity, Ltd. has only non-trading income, so it is
subject to corporate income tax of 25.0%.
Global Indemnity Services Ltd., a direct wholly-owned subsidiary, is a company limited by shares incorporated
under the laws of Ireland. The company is a resident taxpayer fully subject to Ireland corporate income tax laws.
Currently, Global Indemnity Services Ltd. has only trading income, so it is subject to corporate income tax of
12.5%.
U.A.I. (Ireland) Limited, an indirect wholly-owned subsidiary, is a company limited by shares incorporated under
the laws of Ireland. The company is a resident taxpayer fully subject to Ireland corporate income tax laws.
Currently, U.A.I. (Ireland) Limited has only non-trading income, so it is subject to corporate income tax of
25.0%.
U.A.I. (Ireland) II Unlimited Company, an indirect wholly-owned subsidiary, is a private unlimited company
incorporated under the laws of Ireland. The company is a resident taxpayer fully subject to Ireland corporate
income tax laws. Currently, U.A.I. (Ireland) II Unlimited Company has only non-trading income, so it is subject
to corporate income tax of 25.0%.
Cayman Islands
United America Indemnity, Ltd., a direct wholly-owned subsidiary, and Global Indemnity (Cayman) Ltd., an
indirect wholly-owned subsidiary, are private limited liability companies incorporated under the laws of the
Cayman Islands. Under current Cayman Islands law, the Company is not required to pay any taxes in the
Cayman Islands on its income or capital gains. United America Indemnity, Ltd. obtained an undertaking on
September 2, 2003 from the Governor in Council of the Cayman Islands substantially that, for a period of 20
years from the date of such undertaking, no law that is enacted in the Cayman Islands imposing any tax to be
levied on profit or income or gains or appreciation shall apply to it and no such tax and no tax in the nature of
estate duty or inheritance tax will be payable, either directly or by way of withholding, on its shares. Given the
limited duration of the undertaking, the Company cannot be certain that it will not be subject to Cayman Islands
tax after the expiration of the 20 year period.
Bermuda
Under current Bermuda law, the Company and its Bermuda subsidiaries are not required to pay any taxes in
Bermuda on income or capital gains. Currently, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by Global Indemnity
Reinsurance or its shareholders, other than shareholders ordinarily resident in Bermuda, if any. Currently, there is
no Bermuda withholding or other tax on principal, interest, or dividends paid to holders of the ordinary shares of
Global Indemnity Reinsurance, other than holders ordinarily resident in Bermuda, if any. There can be no
assurance that Global Indemnity Reinsurance or its shareholders will not be subject to any such tax in the future.
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The Company has received a written assurance from the Bermuda Minister of Finance under the Exempted
Undertakings Tax Protection Act of 1966 of Bermuda, that if any legislation is enacted in Bermuda that would
impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in
the nature of estate duty or inheritance tax, then the imposition of that tax would not be applicable to Global
Indemnity Reinsurance or to any of its operations, shares, debentures or obligations through March 31, 2035;
provided that such assurance is subject to the condition that it will not be construed to prevent the application of
such tax to people ordinarily resident in Bermuda, or to prevent the application of any taxes payable by Global
Indemnity Reinsurance in respect of real property or leasehold interests in Bermuda held by them. Given the
limited duration of the assurance, the Company cannot be certain that the Company will not be subject to any
Bermuda tax after March 31, 2035.
Gibraltar
Global Indemnity (Gibraltar) Ltd., an indirect wholly-owned subsidiary, is a private limited liability company
incorporated under the laws of Gibraltar. The Company received a tax ruling from the Ministry of Finance
Income Tax Office of Gibraltar that dividends and distributions received by Global Indemnity (Gibraltar) Ltd.
from Global Indemnity (Cayman) Ltd. would not be subject to tax in Gibraltar, provided that Global Indemnity
(Gibraltar) Ltd. continues to indirectly hold a relevant participation in U.A.I. (Luxembourg) I S.à.r.l.
Luxembourg
U.A.I. (Luxembourg) I S.à.r.l., U.A.I. (Luxembourg) II S.à.r.l., U.A.I. (Luxembourg) III S.à.r.l., U.A.I.
(Luxembourg) IV S.à.r.l., U.A.I. (Luxembourg) Investment S.à.r.l., Wind River (Luxembourg) S.à.r.l., and
Global Indemnity (Luxembourg) S.à.r.l. (the “Luxembourg Companies”) are indirect wholly-owned subsidiaries
and private limited liability companies incorporated under the laws of Luxembourg. These are taxable
companies, which may carry out any activities that fall within the scope of their corporate object clause. In
accordance with Luxembourg regulations, the companies are resident taxpayers fully subject to Luxembourg
corporate income tax at a rate of 29.22% and net worth tax at a rate of 0.5%. The companies are entitled to
benefits of the tax treaties concluded between Luxembourg and other countries and European Union Directives.
Profit distributions (not in respect to liquidations) by the companies are generally subject to Luxembourg
dividend withholding tax at a rate of 15%, unless a domestic law exemption or a lower tax treaty rate applies.
Dividends paid by any of the Luxembourg Companies to their Luxembourg resident parent company are exempt
from Luxembourg dividend withholding tax, provided that at the time of the dividend distribution, the resident
parent company has held (or commits itself to continue to hold) 10% or more of the nominal paid up capital of
the distributing entity or, in the event of a lower percentage participation, a participation having an acquisition
price of Euro 1.2 million or more for a period of at least 12 months.
The Luxembourg Companies have received advance tax confirmations (“ATCs”) from the Luxembourg
Administration des Contributions Directes (the “Luxembourg tax authorities”) that the financing activities of the
Luxembourg Companies does not lead to taxation in Luxembourg except for the taxation as provided in the
ATCs. Based on these confirmations, the current financing activities of the Luxembourg Companies should not
lead to taxation in Luxembourg other than for such tax as provided for in the financial statements. The
Luxembourg Companies have in their files transfer pricing documentation substantiating the arm’s length nature
of the financing activities. It is however not guaranteed that the Luxembourg Companies cannot be subject to
higher Luxembourg taxes.
Dividends by Global Indemnity (Luxembourg) S.à.r.l. to United America Indemnity, Ltd., an Irish tax resident,
are exempt from withholding tax in Luxembourg, provided that as of the date on which the income is made
available, United America Indemnity, Ltd. has held or undertakes to hold, directly, for an uninterrupted period of
at least 12 months, a relevant participation in the share capital of Global Indemnity (Luxembourg) S.à.r.l. United
America Indemnity, Ltd. has held such participation since April, 2010.
30
Global Indemnity (Luxembourg) S.à.r.l. benefits from the Luxembourg participation exemption regime for its
participation in Global Indemnity (Gibraltar) Ltd. with respect to dividends and capital gains derived there from,
provided Global Indemnity (Luxembourg) S.à.r.l. has held or commits to hold a participation in the share capital
of Global Indemnity (Gibraltar) Ltd. for an uninterrupted period of at least 12 months. Global Indemnity
(Luxembourg) S.à.r.l. has held such participation since June, 2010.
United States
The following discussion is a summary of the material U.S. federal income tax considerations relating to the
Company’s operations. The Company manages its business in a manner that seeks to mitigate the risk that either
Global Indemnity or Global Indemnity Reinsurance will be treated as engaged in a U.S. trade or business for U.S.
federal income tax purposes. However, whether business is being conducted in the United States is an inherently
factual determination. Because the United States Internal Revenue Code (the “Code”), regulations and court
decisions fail to identify definitively activities that constitute being engaged in a trade or business in the United
States, the Company cannot be certain that the IRS will not contend successfully that Global Indemnity or Global
Indemnity Reinsurance is or has been engaged in a trade or business in the United States. A non-U.S. corporation
deemed to be so engaged would be subject to U.S. income tax at regular corporate rates, as well as the branch
profits tax, on its income that is treated as effectively connected with the conduct of that trade or business unless
the corporation is entitled to relief under the permanent establishment provision of an applicable tax treaty, as
discussed below. Such income tax, if imposed, would be based on effectively connected income computed in a
manner generally analogous to that applied to the income of a U.S. corporation, except that a non-U.S.
corporation is generally entitled to deductions and credits only if it timely files a U.S. federal income tax return.
Global Indemnity and Global Indemnity Reinsurance are filing protective U.S. federal income tax returns on a
timely basis in order to preserve the right to claim income tax deductions and credits if it is ever determined that
it is subject to U.S. federal income tax. All of the Company’s other non-U.S. entities are considered disregarded
entities for federal income tax purposes. The highest marginal federal income tax rates as of 2015 are 39.6% for a
corporation’s effectively connected income and 30% for the branch profits tax.
If Global Indemnity Reinsurance is entitled to the benefits under the tax treaty between Bermuda and the United
States (the “Bermuda Treaty”), Global Indemnity Reinsurance would not be subject to U.S. income tax on any
business profits of its insurance enterprise found to be effectively connected with a U.S. trade or business, unless
that trade or business is conducted through a permanent establishment in the United States. No regulations
interpreting the Bermuda Treaty have been issued. Global Indemnity Reinsurance currently conducts its activities
to reduce the risk that it will have a permanent establishment in the United States, although the Company cannot
be certain that it will achieve this result.
An insurance enterprise resident in Bermuda generally will be entitled to the benefits of the Bermuda Treaty if
(1) more than 50% of its shares are owned beneficially, directly or indirectly, by individual residents of the
United States or Bermuda or U.S. citizens and (2) its income is not used in substantial part, directly or indirectly,
to make disproportionate distributions to, or to meet certain liabilities to, persons who are neither residents of
either the United States or Bermuda nor U.S. citizens. The Company cannot be certain that Global Indemnity
Reinsurance will be eligible for Bermuda Treaty benefits in the future because of factual and legal uncertainties
regarding the residency and citizenship of the Company’s shareholders.
Foreign insurance companies carrying on an insurance business within the United States have a certain minimum
amount of effectively connected net investment income, determined in accordance with a formula that depends,
in part, on the amount of U.S. risk insured or reinsured by such companies. If Global Indemnity Reinsurance is
considered to be engaged in the conduct of an insurance business in the United States and it is not entitled to the
benefits of the Bermuda Treaty in general (because it fails to qualify under the limitations on treaty benefits
discussed above), the Code could subject a significant portion of Global Indemnity Reinsurance’s investment
income to U.S. income tax. In addition, while the Bermuda Treaty clearly applies to premium income, it is
uncertain whether the Bermuda Treaty applies to other income such as investment income. If Global Indemnity
31
Reinsurance is considered engaged in the conduct of an insurance business in the United States and is entitled to
the benefits of the Bermuda Treaty in general, but the Bermuda Treaty is interpreted to not apply to investment
income, a significant portion of Global Indemnity Reinsurance’s investment income could be subject to U.S.
federal income tax.
The United States also imposes an excise tax on insurance and reinsurance premiums paid to foreign insurers or
reinsurers with respect to risks located in the United States. The rates of tax applicable to premiums paid to
Global Indemnity Reinsurance on such business are 4% for direct insurance premiums and 1% for reinsurance
premiums. Foreign corporations not engaged in a trade or business in the United States are subject to 30% U.S.
income tax imposed by withholding on the gross amount of certain “fixed or determinable annual or periodic
gains, profits and income” derived from sources within the United States (such as dividends and certain interest
on investments), subject to exemption under the Code or reduction by applicable treaties. The Bermuda Treaty
does not reduce the rate of tax in such circumstances. Global Indemnity Group, Inc. is a Delaware corporation
wholly owned by U.A.I. (Luxembourg) Investment S.à.r.l. Under U.S. federal income tax law, dividends and
interest paid by a U.S. corporation to a non-U.S. shareholder are generally subject to a 30% withholding tax,
unless reduced by treaty. The income tax treaty between Luxembourg and the United States (the “Luxembourg
Treaty”) reduces the rate of withholding tax on interest payments to 0% and on dividends to 15%, or 5% (if the
shareholder owns 10% or more of the company’s voting stock). There is a risk that interest paid by the
Company’s U.S. subsidiary to a Luxembourg affiliate may be subject to a 30% withholding tax.
The Company’s U.S. subsidiaries are each subject to taxation in the United States at regular corporate rates.
Available Information
The Company maintains a website at www.globalindemnity.ie. The information on the Company’s website is not
incorporated herein by reference. The Company will make available, free of charge on its website, the most
recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company files such material with,
or furnishes it to, the United States Securities and Exchange Commission.
The public may also read and copy any materials the Company files with the U.S. Securities and Exchange
Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by
calling the SEC at 1-800-SEC-0330. The SEC maintains, free of charge, an Internet site (www.sec.gov) that
contains reports, proxy and information statements, and other
file
electronically with the SEC.
information regarding issuers that
Item 1A. RISK FACTORS
The risks and uncertainties described below are those the Company believes to be material. If any of the
following actually occur, the Company’s business, prospects, financial condition, results of operations and cash
flows could be materially and adversely affected.
Risks Related to the Company’s Business
The benefits of acquiring American Reliable may not be realized which could have a material adverse effect
on the Company’s business operations and financial results.
There may be difficulties in the continued integration of American Reliable business, which could result in a
failure to realize the potential benefits of the acquisition. Achieving the anticipated benefits of the acquisition
will depend in part upon whether the common aspects of the business can continue to be integrated in an efficient
and effective manner with Global Indemnity’s existing businesses. Furthermore, the risk that the Company’s or
32
American Reliable’s prospective insurance premiums, investment yield, or net earnings are less than anticipated
(including as a result of unexpected events, competition, costs, charges or outlays whether as a consequence of
the transaction or otherwise) could negatively impact the Company’s profitability and results of operations.
If actual claims payments exceed the Company’s reserves for losses and loss adjustment expenses, the
Company’s financial condition and results of operations could be adversely affected.
The Company’s success depends upon its ability to accurately assess the risks associated with the insurance and
reinsurance policies that it writes. The Company establishes reserves on an undiscounted basis to cover its
estimated liability for the payment of all losses and loss adjustment expenses incurred with respect to premiums
earned on the insurance policies that it writes. Reserves do not represent an exact calculation of liability. Rather,
reserves are estimates of what the Company expects to be the ultimate cost of resolution and administration of
claims under the insurance policies that it writes. These estimates are based upon actuarial and statistical
projections, the Company’s assessment of currently available data, as well as estimates and assumptions as to
future trends in claims severity and frequency, judicial theories of liability and other factors. The Company
continually refines its reserve estimates in an ongoing process as experience develops and claims are reported
and settled. The Company’s insurance subsidiaries obtain an annual statement of opinion from an independent
actuarial firm on the reasonableness of these reserves.
Establishing an appropriate level of reserves is an inherently uncertain process. The following factors may have a
substantial impact on the Company’s future actual losses and loss adjustment experience:
•
•
•
•
claim and expense payments;
frequency and severity of claims;
legislative and judicial developments; and
changes in economic conditions, including the effect of inflation.
For example, as industry practices and legal, judicial, social and other conditions change, unexpected and
unintended exposures related to claims and coverage may emerge. Examples include claims relating to mold,
asbestos and construction defects, as well as larger settlements and jury awards against professionals and
corporate directors and officers. In addition, there is a growing trend of plaintiffs targeting property and casualty
insurers in purported class action litigations relating to claims handling, insurance sales practices and other
practices. These exposures may either extend coverage beyond the Company’s underwriting intent or increase the
frequency or severity of claims. As a result, such developments could cause the Company’s level of reserves to
be inadequate.
Actual losses and loss adjustment expenses the Company incurs under insurance policies that it writes may be
different from the amount of reserves it establishes, and to the extent that actual losses and loss adjustment
expenses exceed the Company’s expectations and the reserves reflected on its financial statements, the Company
will be required to immediately reflect those changes by increasing its reserves. In addition, regulators could
require that the Company increase its reserves if they determine that the reserves were understated in the past.
When the Company increases reserves, pre-tax income for the period in which it does so will decrease by a
increasing or
corresponding amount. In addition to having an effect on reserves and pre-tax income,
“strengthening” reserves causes a reduction in the Company’s insurance companies’ surplus and could cause the
rating of its insurance company subsidiaries to be downgraded or placed on credit watch. Such a downgrade
could, in turn, adversely affect the Company’s ability to sell insurance policies.
Catastrophic events can have a significant impact on the Company’s financial and operational condition.
Results of operations of property and casualty insurers are subject to man-made and natural catastrophes. The
Company has experienced, and expects to experience in the future, catastrophe losses. It is possible that a
33
catastrophic event or a series of multiple catastrophic events could have a material adverse effect on the
Company’s operating results and financial condition. The Company’s operating results could be negatively
impacted if it experiences losses from catastrophes that are in excess of the catastrophe reinsurance coverage of
its Insurance Operations. The Company’s Reinsurance Operations also have exposure to losses from catastrophes
as a result of the reinsurance treaties that it writes. Operating results could be negatively impacted if losses and
expenses related to property catastrophe events exceed premiums assumed. Catastrophes include windstorms,
hurricanes, typhoons, floods, earthquakes, tornadoes, tsunamis, hail, severe winter weather, fires and may include
terrorist events such as the attacks of September 11, 2001. The Company cannot predict how severe a particular
catastrophe may be until after it occurs. The extent of losses from catastrophes is a function of the total amount
and type of losses incurred, the number of insureds affected, the frequency of the events and the severity of the
particular catastrophe. Most catastrophes occur in small geographic areas. However, some catastrophes may
produce significant damage in large, heavily populated areas.
A failure in the Company’s operational systems or infrastructure or those of third parties, including security
breaches or cyber-attacks, could disrupt the Company’s business, its reputation, and / or cause losses which
would have a material effect on the Company’s business operations and financial results.
The Company’s business is dependent upon the secure processing, storage, and transmission of information over
computer networks using applications, systems and other technologies. The business depends on effective
information security and systems to perform accounting, policy administration, claims, underwriting, actuarial
and all aspects of day to day operations necessary to service the Company’s customers and agents, to value the
Company’s investments and to timely and accurately report the Company’s financial results.
The information systems the Company relies upon must ensure confidentiality, integrity and availability of the
data, including systems maintained by the Company as well as data in and assets held through third-party service
providers and systems. The Company employs various measures, systems, applications and software to address
the data security. The Company reviews its existing security measures and systems on a continuing basis through
internal and independent evaluations. The Company has implemented administrative and technical controls and
takes protective actions in an attempt to reduce the risk of cyber incidents.
The Company’s internal and external controls, processes, and the vendors used to protect networks, systems and
applications, individually or together, may be insufficient to prevent a security incident. Employee or third party
vendor errors, malicious acts, unauthorized access, computer viruses, malware, the introduction of malicious
code, system failures and disruptions and or cyber-attacks can result in business interruption, compromise of data
and loss of assets and that could have security consequences. Availability and complexity of the Company’s
technology increases regularly and the number of users grew, especially with the acquisition of American
Reliable. This has increased the risk of a security incident involving data, network, systems and applications.
The Company has, from time to time, experienced security incidents, none of which had a material adverse
impact on the Company’s business, results of operations, or financial condition. Security incidents have the
potential to interrupt business, cause delays in processes and procedures directly affecting the Company, and
jeopardize the Company’s, insureds, claimants, agents and others confidential data resulting in data loss and loss
of assets and reputational damages. If this occurs it could have a material adverse effect on the Company’s
business operations and financial results.
Security incidents could require significant resources, both internal and external, to resolve or remediate and
could result in financial losses that may not be covered by insurance or not fully recoverable under any
insurance. The Company may be subject to litigation and damages or regulatory action under data protection and
privacy laws and regulations enacted by federal, state and foreign governments, or other regulatory bodies. As a
result, the Company’s ability to conduct its business and its results of operations might be materially and
adversely affected.
34
The Company’s failure to adequately protect personal information could have a material adverse effect on its
business.
A wide variety of local, state, national, and international laws and regulations apply to the collection, use,
retention, protection, disclosure, transfer and other processing of personal data, including laws mandating the
privacy and security of personal health and financial data. These data protection and privacy-related laws and
regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of
enforcement and sanctions. The Company’s failure to comply with applicable laws and regulations, or to protect
such data, could result in enforcement action against it, including fines, imprisonment of company officials and
public censure, claims for damages by customers and other affected individuals, damage to the Company’s
reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which
could have a material adverse effect on its operations, financial performance and business.
Evolving and changing definitions of personal data and personal information within the European Union, the
United States, and elsewhere may limit or inhibit the Company’s ability to operate or expand its business,
including limiting technology alliance partners that may involve the sharing of data. Additionally, there is a risk
that failures in systems designed to protect private, personal or proprietary data held by the Company will allow
such data to be disclosed to or acquired or seen by others, resulting in potential regulatory investigations,
enforcement actions, or penalties, remediation obligations and/or private litigation by parties whose data were
improperly disclosed. There is also a risk that the Company could be found to have failed to comply with U.S. or
foreign laws or regulations regarding the collection, consent, handling, transfer, or disposal of such privacy,
personal or proprietary data, which could subject it to fines or other sanctions, as well as adverse reputational
impact. Even the perception of privacy concerns, whether or not valid, may harm the Company’s reputation,
inhibit adoption of its products by current and future customers, or adversely impact its ability to attract and
retain workforce talent.
A decline in rating for any of the Company’s insurance or reinsurance subsidiaries could adversely affect its
position in the insurance market; making it more difficult to market its insurance products and cause
premiums and earnings to decrease.
If the rating of any of the companies in its Insurance Operations or Reinsurance Operations is reduced from its
current level of “A” (Excellent) by A.M. Best, the Company’s competitive position in the insurance industry
could suffer, and it could be more difficult to market its insurance products. A downgrade could result in a
significant reduction in the number of insurance contracts the Company writes and in a substantial loss of
business; as such business could move to other competitors with higher ratings, thus causing premiums and
earnings to decrease.
Ratings have become an increasingly important factor in establishing the competitive position for insurance
companies. A.M. Best ratings currently range from “A++” (Superior) to “F” (In Liquidation), with a total of 16
separate ratings categories. A.M. Best currently assigns the companies in the Insurance Operations and
Reinsurance Operations a financial strength rating of “A” (Excellent), the third highest of their 16 rating
categories. The objective of A.M. Best’s rating system is to provide potential policyholders an opinion of an
insurer’s financial strength and its ability to meet ongoing obligations, including paying claims. In evaluating a
company’s financial and operating performance, A.M. Best reviews its profitability, leverage and liquidity, its
spread of risk, the quality and appropriateness of its reinsurance, the quality and diversification of its assets, the
adequacy of its policy and loss reserves, the adequacy of its surplus, its capital structure, and the experience and
objectives of its management. These ratings are based on factors relevant to policyholders, general agencies,
insurance brokers, reinsurers, and intermediaries and are not directed to the protection of investors. These ratings
are not an evaluation of, nor are they directed to, investors in the Company’s A ordinary shares and are not a
recommendation to buy, sell or hold the Company’s A ordinary shares. Publications of A.M. Best indicate that
companies are assigned “A” (Excellent) ratings if, in A.M. Best’s opinion, they have an excellent ability to meet
their ongoing obligations to policyholders. These ratings are subject to periodic review by, and may be revised
downward or revoked at the sole discretion of A.M. Best.
35
The Company cannot guarantee that its reinsurers will pay in a timely fashion, if at all, and as a result, the
Company could experience losses.
The Company cedes a portion of gross premiums written to third party reinsurers under reinsurance contracts.
Although reinsurance makes the reinsurer liable to the Company to the extent the risk is transferred, it does not
relieve the Company of its liability to its policyholders. Upon payment of claims, the Company will bill its
reinsurers for their share of such claims. The reinsurers may not pay the reinsurance receivables that they owe to
the Company or they may not pay such receivables on a timely basis. If the reinsurers fail to pay it or fail to pay
on a timely basis, the Company’s financial results would be adversely affected. Lack of reinsurer liquidity,
perceived improper underwriting, or claim handling by the Company, and other factors could cause a reinsurer
not to pay. See “Business—Reinsurance of Underwriting Risk” in Item 1 of Part I of this report.
See Note 8 of the notes to consolidated financial statements in Item 8 of Part II of this report for further
information surrounding the Company’s reinsurance receivable balances as of December 31, 2015 and 2014.
The Company’s investment performance may suffer as a result of adverse capital market developments or
other factors, which would in turn adversely affect its financial condition and results of operations.
The Company derives a significant portion of its income from its invested assets. As a result, the Company’s
operating results depend in part on the performance of its investment portfolio. The Company’s operating results
are subject to a variety of investment risks, including risks relating to general economic conditions, market
volatility, interest rate fluctuations, liquidity risk and credit and default risk. The fair value of fixed income
investments can fluctuate depending on changes in interest rates and the credit quality of underlying issuers.
Generally, the fair market value of these investments has an inverse relationship with changes in interest rates,
while net investment income earned by the Company from future investments in fixed maturities will generally
increase or decrease with changes in interest rates. Additionally, with respect to certain of its investments, the
Company is subject to pre-payment or reinvestment risk.
Credit tightening could negatively impact the Company’s future investment returns and limit the ability to invest
in certain classes of investments. Credit tightening may cause opportunities that are marginally attractive to not
be financed, which could cause a decrease in the number of bond issuances. If marginally attractive opportunities
are financed, they may be at higher interest rates, which would cause credit risk of such opportunities to increase.
If new debt supply is curtailed, it could cause interest rates on securities that are deemed to be credit-worthy to
decline. Funds generated by operations, sales, and maturities will need to be invested. If the Company invests
during a tight credit market, investment returns could be lower than the returns the Company is currently
realizing and/or it may have to invest in higher risk securities.
With respect to its longer-term liabilities, the Company strives to structure its investments in a manner that
recognizes liquidity needs for its future liabilities. However, if the Company’s liquidity needs or general and
specific liability profile unexpectedly changes, it may not be successful in continuing to structure its investment
portfolio in that manner. To the extent that the Company is unsuccessful in correlating its investment portfolio
with its expected liabilities, the Company may be forced to liquidate its investments at times and prices that are
not optimal, which could have a material adverse effect on the performance of its investment portfolio. The
Company refers to this risk as liquidity risk, which is when the fair value of an investment is not able to be
realized due to low demand by outside parties in the marketplace.
The Company is also subject to credit risk due to non-payment of principal or interest. Several classes of
securities that the Company holds have default risk. As interest rates rise for companies that are deemed to be
less creditworthy, there is a greater risk that they will be unable to pay contractual interest or principal on their
debt obligations.
Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and
international economic and political conditions and other factors beyond the Company’s control. Although the
Company attempts to take measures to manage the risks of investing in a changing interest rate environment, the
36
Company may not be able to mitigate interest rate sensitivity effectively. A significant increase in interest rates
could have a material adverse effect on the market value of the Company’s fixed maturities securities.
The Company also has an equity portfolio. The performance of the Company’s equity portfolio is dependent
upon a number of factors, including many of the same factors that affect the performance of its fixed income
investments, although those factors sometimes have the opposite effect on the performance of the equity
portfolio. Individual equity securities have unsystemic risk. The Company could experience market declines on
these investments. The Company also has systemic risk, which is the risk inherent in the general market due to
broad macroeconomic factors that affect all companies in the market. If the market indexes were to decline, the
Company anticipates that the value of its portfolio would be negatively affected.
The Company has investments in limited partnerships which are not liquid. The Company does not have the
contractual option to redeem its limited partnership interests but receives distributions based on the liquidation of
the underlying assets. The Company does not have the ability to sell or transfer its limited partnership interests
without consent from the general partner. The Company’s returns could be negatively affected if the market
value of the partnership declines. If the Company needs liquidity,
it might be forced to liquidate other
investments at a time when prices are not optimal.
See Note 4 of the notes to consolidated financial statements in Item 8 of Part II of this report for further
information surrounding the Company’s investments as of December 31, 2015 and 2014.
Deterioration in the debt and equity markets could result in a margin call which could have a material adverse
effect on the Company’s financial condition and/or results of operations.
The collateral backing the Company’s margin borrowing facilities currently consist of equity securities but could
also include fixed income securities in the future. Declines in financial markets could negatively impact the value
of the Company’s collateral. Adverse changes in market value could result in a margin call which would require
the posting of additional collateral thereby reducing liquidity. Additionally, if such a margin call is not met, the
Company could be required to liquidate securities and incur realized losses.
Borrowings under the Company’s margin borrowing facilities are based upon a variable rate of interest,
which could result in higher expense in the event of increases in interest rates.
As of December 31, 2015, $75.6 million of the Company’s outstanding indebtedness bore interest at a rate that
varies depending upon the London Interbank Offered Rate (“LIBOR”). If LIBOR rises, the interest rates on
outstanding debt will increase resulting in increased interest payment obligations under the Company’s margin
borrowing facilities. This could have a negative effect on the Company’s cash flow and financial condition.
The Company’s outstanding indebtedness could adversely affect its financial flexibility and a failure to make
periodic payments related to the Subordinated Notes could adversely affect the Company.
The Company sold $100 million aggregate principal amount of its 7.75% Subordinated Notes due in 2045. The
level of debt outstanding could adversely affect the Company’s financial flexibility, including:
•
•
•
increasing vulnerability to changing economic, regulatory and industry conditions;
limiting the ability to borrow additional funds; and
requiring the Company to dedicate a substantial portion of cash flow from operations to debt payments,
thereby, reducing funds available for working capital, capital expenditures, acquisitions and other
purposes.
Furthermore, failure by the Company to make periodic payments related to the Subordinated Notes could impact
rating agencies and regulators assessment of the Company’s capital position, adequacy and flexibility and
therefore, the financial strength ratings of rating agencies, and regulators’ assessment of the solvency of the
Company and its subsidiaries.
37
The Company is dependent on its senior executives and the loss of any of these executives or the Company’s
inability to attract and retain other key personnel could adversely affect its business.
The Company’s success depends upon its ability to attract and retain qualified employees and upon the ability of
senior management and other key employees to implement the Company’s business strategy. The Company
believes there are a limited number of available, qualified executives in the business lines in which it competes.
The success of the Company’s initiatives and future performance depend, in significant part, upon the continued
service of the senior management team. The future loss of any of the services of members of the Company’s
senior management team or the inability to attract and retain other talented personnel could impede the further
implementation of the Company’s business strategy, which could have a material adverse effect on its business.
In addition, the Company does not currently maintain key man life insurance policies with respect to any of its
employees.
Employee error and misconduct may be difficult to detect and prevent and could adversely affect the
Company’s business, results of operations, financial condition and reputation.
Losses may result from, among other things, fraud, errors, failure to document transactions properly, failure to
obtain proper internal authorization, or failure to comply with regulatory requirements. It is not always possible
to deter or prevent employee misconduct and the precautions the Company takes to prevent and detect this
activity may not be effective in all cases. Resultant losses could adversely affect the Company’s business, results
of operations, financial condition and reputation.
Since the Company depends on professional general agencies, brokers, other insurance companies and other
reinsurance companies for a significant portion of its revenue, a loss of any one of them could adversely affect
the Company.
The Company markets and distributes its insurance products through a group of approximately 427 professional
general agencies that have specific quoting and binding authority and that in turn sell the Company’s insurance
products to insureds through retail insurance brokers. The Company also markets and distributes its reinsurance
products through third-party brokers,
insurance companies and reinsurance companies. A loss of all or
substantially all of the business produced by any one of these general agencies, brokers, insurance companies or
reinsurance companies could have an adverse effect on the Company’s results of operations.
If market conditions cause reinsurance to be more costly or unavailable, the Company may be required to
bear increased risks or reduce the level of its underwriting commitments.
As part of the Company’s overall strategy of risk and capacity management, it purchases reinsurance for a
portion of the risk underwritten by its insurance subsidiaries. Market conditions beyond the Company’s control
determine the availability and cost of the reinsurance it purchases, which may affect the level of its business and
profitability. The Company’s third party reinsurance facilities are generally subject to annual renewal. The
Company may be unable to maintain its current reinsurance facilities or obtain other reinsurance facilities in
adequate amounts and at favorable rates. If the Company is unable to renew expiring facilities or obtain new
reinsurance facilities, either the net exposure to risk would increase or, if the Company is unwilling to bear an
increase in net risk exposures, it would have to reduce the amount of risk it underwrites.
The Company’s financial and business results may fluctuate as a result of many factors, including cyclical
changes in the insurance industry.
Historically, the results of companies in the property and casualty insurance industry have been subject to
significant fluctuations and uncertainties. The industry’s profitability can be affected significantly by:
•
•
•
competition;
capital capacity;
rising levels of actual costs that are not foreseen by companies at the time they price their products;
38
•
•
•
volatile and unpredictable developments,
catastrophes or terrorist attacks;
including man-made, weather-related and other natural
changes in loss reserves resulting from the general claims and legal environments as different types of
claims arise and judicial interpretations relating to the scope of insurers’ liability develop; and
fluctuations in interest rates, inflationary pressures and other changes in the investment environment,
which affect returns on invested assets and may affect the ultimate payout of losses.
The demand for property and casualty insurance and reinsurance can also vary significantly, rising as the overall
level of economic activity increases and falling as that activity decreases. The property and casualty insurance
in nature. These fluctuations in demand and competition could produce
industry historically is cyclical
underwriting results that would have a negative impact on the Company’s consolidated results of operations and
financial condition.
The Company faces significant competitive pressures in its business that could cause demand for its products
to fall and adversely affect the Company’s profitability.
The Company competes with a large number of other companies in its selected lines of business. The Company
competes, and will continue to compete, with major U.S. and non-U.S. insurers and other regional companies, as
well as mutual companies, specialty insurance companies, reinsurance companies, underwriting agencies and
diversified financial services companies. The Company’s competitors include, among others: American
International Group, American Modern Insurance Group, Argo Group International Holdings, Ltd., Berkshire
Hathaway, Everest Re Group, Ltd., Foremost Insurance Group, Great American Insurance Group, HCC
Insurance Holdings, Inc., IFG Companies, Markel Corporation, Nationwide Insurance, Navigators Insurance
Group, RLI Corporation, Selective Insurance Group, Inc., The Travelers Companies, Inc., Validus Group, and
W.R. Berkley Corporation. Some of the Company’s competitors have greater financial and marketing resources
than the Company does. The Company’s profitability could be adversely affected if it loses business to
competitors offering similar products at or below the Company’s prices.
The Company’s general agencies typically pay the insurance premiums on business they have bound to the
Company on a monthly basis. This accumulation of balances due to the Company exposes it to credit risk.
Insurance premiums generally flow from the insured to their retail broker, then into a trust account controlled by
the Company’s professional general agencies. The Company’s professional general agencies are typically
required to forward funds, net of commissions, to the Company following the end of each month. Consequently,
the Company assumes a degree of credit risk on the aggregate amount of these balances that have been paid by
the insured but have yet to reach the Company.
Brokers, insurance companies and reinsurance companies typically pay premiums on reinsurance treaties
written with the Company on a quarterly basis. This accumulation of balances due to the Company exposes it
to credit risk.
Assumed premiums on reinsurance treaties generally flow from the ceding companies to the Company on a
quarterly basis. In some instances, the reinsurance treaties allow for funds to be withheld for longer periods as
specified in the treaties. Consequently, the Company assumes a degree of credit risk on the aggregate amount of
these balances that have been collected by the reinsured but have yet to reach the Company.
Because the Company provides its general agencies with specific quoting and binding authority, if any of them
fail to comply with pre-established guidelines, the Company’s results of operations could be adversely affected.
The Company markets and distributes its insurance products through professional general agencies that have
limited quoting and binding authority and that in turn sell the Company’s insurance products to insureds through
39
retail insurance brokers. These professional general agencies can bind certain risks without the Company’s initial
to comply with the Company’s
approval. If any of these wholesale professional general agencies fail
underwriting guidelines and the terms of their appointment, the Company could be bound on a particular risk or
number of risks that were not anticipated when it developed the insurance products or estimated loss and loss
adjustment expenses. Such actions could adversely affect the Company’s results of operations.
The Company’s holding company structure and regulatory constraints limit its ability to receive dividends
from subsidiaries in order to meet its cash requirements.
Global Indemnity is a holding company and, as such, has no substantial operations of its own. The Company’s
assets primarily consist of cash and ownership of the shares of its direct and indirect subsidiaries. Dividends and
other permitted distributions from insurance subsidiaries, which include payment for equity awards granted by
Global Indemnity to employees of such subsidiaries, are expected to be Global Indemnity’s sole source of funds
to meet ongoing cash requirements, including debt service payments and other expenses.
Due to its corporate structure, most of the dividends that Global Indemnity receives from its subsidiaries must
pass through Global Indemnity Reinsurance. The inability of Global Indemnity Reinsurance to pay dividends in
an amount sufficient to enable Global Indemnity to meet its cash requirements at the holding company level
could have a material adverse effect on its operations.
Bermuda law does not permit payment of dividends or distributions of contributed surplus by a company if there
are reasonable grounds for believing that the company, after the payment is made, would be unable to pay its
liabilities as they become due, or the realizable value of the company’s assets would be less, as a result of the
payment,
than the aggregate of its liabilities and its issued share capital and share premium accounts.
Furthermore, pursuant to the Bermuda Insurance Act 1978, an insurance company is prohibited from declaring or
paying a dividend during the financial year if it is in breach of its minimum solvency margin or minimum
liquidity ratio or if the declaration or payment of such dividends would cause it to fail to meet such margin or
ratio. See “Regulation—Bermuda Insurance Regulation” in Item 1 of Part I of this report.
In addition, the Company’s U.S. insurance subsidiaries, which are indirect subsidiaries of Global Indemnity
Reinsurance, are subject to significant regulatory restrictions limiting their ability to declare and pay dividends,
which must first pass through Global Indemnity Reinsurance before being paid to Global Indemnity. See
“Regulation—U.S. Regulation” in Item 1 of Part I of this report. Also, see Note 18 of the notes to consolidated
financial statements in Item 8 of Part II of this report for the maximum amount of dividends that could be paid by
the Company’s U.S. insurance subsidiaries in 2016.
The Company’s businesses are heavily regulated and changes in regulation may limit the way it operates.
The Company is subject to extensive supervision and regulation in the U.S. states in which the Insurance
Operations operate. This is particularly true in those states in which the Company’s insurance subsidiaries are
licensed, as opposed to those states where its insurance subsidiaries write business on a surplus lines basis. The
supervision and regulation relate to numerous aspects of the Company’s business and financial condition. The
primary purpose of the supervision and regulation is the protection of the Company’s insurance policyholders
and not its investors. The extent of regulation varies, but generally is governed by state statutes. These statutes
delegate regulatory, supervisory, and administrative authority to state insurance departments. This system of
regulation covers, among other things:
•
•
•
standards of solvency, including risk-based capital measurements;
restrictions on the nature, quality and concentration of investments;
restrictions on the types of terms that the Company can include or exclude in the insurance policies it
offers;
40
•
•
•
•
•
•
restrictions on the way rates are developed and the premiums the Company may charge;
standards for the manner in which general agencies may be appointed or terminated;
credit for reinsurance;
certain required methods of accounting;
reserves for unearned premiums, losses and other purposes; and
potential assessments for the provision of funds necessary for the settlement of covered claims under
certain insurance policies provided by impaired, insolvent or failed insurance companies.
The statutes or the state insurance department regulations may affect the cost or demand for the Company’s
products and may impede the Company from obtaining rate increases or taking other actions it might wish to take
to increase profitability. Further, the Company may be unable to maintain all required licenses and approvals and
its business may not fully comply with the wide variety of applicable laws and regulations or the relevant
authority’s interpretation of the laws and regulations. Also, regulatory authorities have discretion to grant, renew
or revoke licenses and approvals subject to the applicable state statutes and appeal process. If the Company does
not have the requisite licenses and approvals (including in some states the requisite secretary of state registration)
or do not comply with applicable regulatory requirements, the insurance regulatory authorities could stop or
temporarily suspend the Company from carrying on some or all of its activities or monetarily penalize the
Company.
In recent years, the U.S. insurance regulatory framework has come under increased federal scrutiny, and some
state legislators have considered or enacted laws that may alter or increase state regulation of insurance and
reinsurance companies and holding companies. Moreover, the NAIC, which is an association of the insurance
commissioners of all 50 U.S. States and the District of Columbia, and state insurance regulators regularly re-
examine existing laws and regulations. Changes in these laws and regulations or the interpretation of these laws
and regulations could have a material adverse effect on the Company’s business.
Although the U.S. federal government has not historically regulated the insurance business, there have been
proposals from time to time to impose federal regulation on the insurance industry. In 2010, the President signed
into law the Dodd-Frank Act. Among other things, the Dodd-Frank Act establishes a Federal Insurance Office
within the U.S. Department of the Treasury. The Federal Insurance Office initially has limited regulatory
authority and is empowered to gather data and information regarding the insurance industry and insurers,
including conducting a study for submission to the U.S. Congress on how to modernize and improve insurance
regulation in the U.S. Further, the Dodd-Frank Act gives the Federal Reserve supervisory authority over a
number of financial services companies, including insurance companies, if they are designated by a two-thirds
vote of a Financial Stability Oversight Council as “systemically important.” While the Company does not believe
that it is “systemically important,” as defined in the Dodd-Frank Act, it is possible that the Financial Stability
Oversight Council may conclude that it is. If the Company were designated as “systemically important,” the
Federal Reserve’s supervisory authority could include the ability to impose heightened financial regulation and
could impact requirements regarding the Company’s capital,
leverage, business and investment
conduct. As a result of the foregoing, the Dodd-Frank Act, or other additional federal regulation that is adopted in
the future, could impose significant burdens on the Company, including impacting the ways in which it conducts
in a competitive
business,
disadvantage, particularly relative to smaller insurers who may not be subject to the same level of regulation.
increasing compliance costs and duplicating state regulation, and could result
liquidity,
The interests of holders of A ordinary shares may conflict with the interests of the Company’s controlling
shareholder.
Fox Paine & Company, LLC (“Fox Paine & Company”) beneficially owns shares having approximately 84% of
the Company’s total voting power. The percentage of the Company’s total voting power that Fox Paine &
Company may exercise is greater than the percentage of the Company’s total shares that Fox Paine & Company
41
beneficially owns because Fox Paine & Company beneficially owns all of the Company’s B ordinary shares,
which have ten votes per share as opposed to A ordinary shares, which have one vote per share. The A ordinary
shares and the B ordinary shares generally vote together as a single class on matters presented to the Company’s
shareholders. Based on the ownership structure of the affiliates of Fox Paine & Company that own these shares,
these affiliates are not subject to the voting restriction contained in the Company’s articles of association. As a
result, Fox Paine & Company has and will continue to have control over the outcome of certain matters requiring
shareholder approval, including the power to, among other things:
•
•
•
•
•
•
elect all of the Company’s directors;
amend the Company’s articles of association (as long as their voting power is greater than 75%);
ratify the appointment of the Company’s auditors;
increase the Company’s share capital;
resolve to pay dividends or distributions; and
approve the annual report and the annual financial statements.
Subject to certain exceptions, Fox Paine & Company may also be able to prevent or cause a change of control.
Fox Paine & Company’s control over the Company, and Fox Paine & Company’s ability in certain circumstances
to prevent or cause a change of control, may delay or prevent a change of control, or cause a change of control to
occur at a time when it is not favored by other shareholders. As a result, the trading price of the Company’s A
ordinary shares could be adversely affected.
In addition, the Company has agreed to pay Fox Paine & Company an annual management fee of $1.9 million,
adjusted annually to reflect change in the consumer price index published by the US Department of Labor Bureau
of Labor Statistics “CPI-U”, in exchange for management services. The Company has also agreed to pay a
termination fee of cash in an amount to be agreed upon, plus reimbursement of expenses, upon the termination of
Fox Paine & Company’s management services in connection with the consummation of a change of control
transaction that does not involve Fox Paine & Company and its affiliates. The Company has also agreed to pay
Fox Paine & Company a transaction advisory fee of cash in an amount to be agreed upon, plus reimbursement of
expenses upon the consummation of a change of control transaction that does not involve Fox Paine & Company
and its affiliates in exchange for advisory services to be provided by Fox Paine & Company in connection
therewith. Fox Paine & Company may in the future make significant
investments in other insurance or
reinsurance companies. Some of these companies may compete with the Company or its subsidiaries. Fox
Paine & Company is not obligated to advise the Company of any investment or business opportunities of which
they are aware, and they are not prohibited or restricted from competing with the Company or its subsidiaries.
The Company’s controlling shareholder has the contractual right to nominate a certain number of the
members of the Board of Directors and also otherwise controls the election of Directors due to its ownership.
While Fox Paine & Company has the right under the terms of the memorandum and articles of association to
nominate a certain number of directors of the Board of Directors, dependent on Fox Paine & Company’s
percentage ownership of voting shares in the Company for so long as Fox Paine & Company hold an aggregate
25% or more of the voting power in the Company, it also controls the election of all directors to the Board of
Directors due to its controlling share ownership. The Company’s Board of Directors currently consists of nine
directors, all of whom were identified and proposed for consideration for the Board of Directors by Fox Paine &
Company.
The Company’s Board of Directors, in turn, and subject to its fiduciary duties under Irish law, appoints the
members of the Company’s senior management, who also have fiduciary duties to the Company. As a result, Fox
Paine & Company effectively has the ability to control the appointment of the members of the Company’s senior
management and to prevent any changes in senior management that other shareholders or other members of the
Board of Directors may deem advisable.
42
Because the Company relies on certain services provided by Fox Paine & Company, the loss of such services
could adversely affect its business.
Fox Paine & Company provides certain management services to the Company. To the extent that Fox Paine &
Company is unable or unwilling to provide similar services in the future, and the Company is unable to perform
those services itself or is unable to secure replacement services, the Company’s business could be adversely
affected.
The U.S. and global economic and financial industry downturns could harm the Company’s business, its
liquidity and financial condition, and its stock price.
In past years, global market and economic conditions were severely disrupted. While conditions appear to be
improving, there is continued uncertainty regarding the timing and strength of any economic recovery. The trend
may not continue or may continue at a slow rate for an extended period of time, or conditions may worsen. These
conditions may potentially affect (among other aspects of the Company’s business) the demand for and claims
made under the Company’s products, the ability of customers, counterparties and others to establish or maintain
their relationships with the Company, its ability to access and efficiently use internal and external capital
resources, the availability of reinsurance protection, the risks the Company assumes under reinsurance programs,
and the Company’s investment performance. Continued volatility in the U.S. and other securities markets may
adversely affect the Company’s stock price.
The Company previously identified a material weakness in internal control over financial reporting which has
been remediated, and the Company’s business may be adversely affected if it fails to maintain effective
controls over financial reporting.
Global Indemnity identified a material weakness in internal control over financial reporting at December 31,
2014 related to an element of the design of its estimation process for Unpaid Losses and Loss Adjustment
Expenses. Specifically, the design of the Company’s control relating to Unpaid Losses and Loss Adjustment
Expenses that exceeded the central estimates of both the internal and external actuaries in the process of
establishing management’s final determination of loss reserve selections was not adequate. This deficiency did
not result in a material misstatement in the consolidated financial statements; however, this deficiency could have
resulted in a material misstatement of the aforementioned accounts and disclosures of the annual or interim
consolidated financial statements that would not have been prevented or detected.
The Company has completed its testing of both the design and operating effectiveness of the controls over the
estimation process and concluded that the material weakness identified at December 31, 2014 was remediated as
of March 31, 2015. Global Indemnity faces the risk that, notwithstanding efforts to date to identify and remedy
the material weakness in internal control over financial reporting, the Company may discover other material
weaknesses in the future and the cost of remediating the material weakness could be high and could cause
investors to lose confidence in the accuracy and completeness of the Company’s financial reports, negatively
affect the market price of the Company’s common stock, result in regulatory scrutiny (which could require
additional financial and management resources), and otherwise materially adversely affect the Company’s
business and financial condition.
The Company’s operating results and shareholders’ equity may be adversely affected by currency fluctuations.
The Company’s functional currency is the U.S. dollar. The Reinsurance Operations conducts business with some
customers in foreign currencies and several of the Company’s U.S. and non-U.S. subsidiaries maintains
investments and cash accounts in foreign currencies. At period-end, the Company re-measures non-U.S. currency
financial assets to their current U.S. dollar equivalent. The resulting gain or loss for foreign denominated
investments is reflected in accumulated other comprehensive income in shareholders’ equity; whereas, the gain
or loss on foreign denominated cash accounts is reflected in income during the period. Financial liabilities, if any,
43
are generally adjusted within the reserving process. However, for known losses on claims to be paid in foreign
currencies, the Company re-measures the liabilities to their current U.S. dollar equivalent each period end with
the resulting gain or loss reflected in income during the period. Foreign exchange risk is reviewed as part of the
Company’s risk management process. The Company may experience losses resulting from fluctuations in the
values of non-U.S. currencies relative to the strength of the U.S. dollar, which could adversely impact the
Company’s results of operations and financial condition.
The Company is incorporated in Ireland and some of its assets are located outside the United States. As a
result, it might not be possible for shareholders to enforce civil liability provisions of the federal or state
securities laws of the United States.
The Company is organized under the laws of Ireland, and some of its assets are located outside the United States.
A shareholder who obtains a court judgment based on the civil liability provisions of U.S. federal or state
securities laws may be unable to enforce the judgment against the Company in Ireland or in countries other than
the United States where the Company has assets. In addition, there is some doubt as to whether the courts of
Ireland and other countries would recognize or enforce judgments of U.S. courts obtained against the Company
or its Directors or officers based on the civil liabilities provisions of the federal or state securities laws of the
United States or would hear actions against the Company or those persons based on those laws. The Company
has been advised that the United States and Ireland do not currently have a treaty providing for the reciprocal
recognition and enforcement of judgments in civil and commercial matters. The laws of Ireland do however, as a
general rule, provide that the judgments of the courts of the United States have the same validity in Ireland as if
rendered by Irish Courts. Certain important requirements must be satisfied before the Irish Courts will recognize
the United States judgment. The originating court must have been a court of competent jurisdiction and the
judgment may not be recognized if it was obtained by fraud or its recognition would be contrary to Irish public
policy.
Any judgment obtained in contravention of the rules of natural justice or that is irreconcilable with an earlier
foreign judgment would not be enforced in Ireland. Similarly, judgments might not be enforceable in countries
other than the United States where the Company has assets.
Irish law differs from the laws in effect in the United States and might afford less protection to shareholders.
The Company’s shareholders could have more difficulty protecting their interests than would shareholders of a
corporation incorporated in a jurisdiction of the United States. As an Irish company, the Company is governed by
the Irish Companies Act 2014 (“the Companies Acts 2014”) and other Irish statutes. The Companies Act 2014
and other Irish statutes differ in some significant, and possibly material, respects from laws applicable to U.S.
corporations and shareholders under various state corporation laws, including the provisions relating to interested
Directors, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of Directors.
Under Irish law, the duties of Directors and officers of a company are generally owed to the company only.
Shareholders of Irish companies do not generally have rights to take action against Directors or officers of the
company under Irish law, and may only exercise such right of action on behalf of the Company in limited
circumstances. Directors of an Irish company must, in exercising their powers and performing their duties, act
with due care and skill, honestly and in good faith with a view to the best interests of the company. Directors
have a duty not to put themselves in a position in which their duties to the company and their personal interests
might conflict and also are under a duty to disclose any personal interest in any contract or arrangement with the
company or any of its subsidiaries. If a Director or officer of an Irish company is found to have breached his
duties to that company, he could be held personally liable to the company in respect of that breach of duty.
A future transfer of ordinary shares, other than one effected by means of the transfer of book entry interests
in Depository Trust Company (“DTC”), may be subject to Irish stamp duty.
A transfer of the Company’s A ordinary shares by a seller who holds A ordinary shares beneficially through DTC
to a buyer who holds the acquired A ordinary shares beneficially through DTC will not be subject to Irish stamp
44
duty. A transfer of the Company’s ordinary shares by a seller who holds shares directly to any buyer, or by a
seller who holds the shares beneficially through DTC to a buyer who holds the acquired shares directly, may be
subject to Irish stamp duty. Stamp duty is a liability of the buyer or transferee and is currently levied at the rate of
1% of the price paid or the market value of the shares acquired, if higher. The potential for stamp duty could
adversely affect the price of the Company’s ordinary shares.
Risks Related to Taxation
Legislative and regulatory action by the U.S. Congress could materially and adversely affect the Company.
The Company’s tax position could be adversely impacted by changes in tax laws, tax treaties or tax regulations or
the interpretation or enforcement thereof. Legislative action may be taken by the U.S. Congress which, if
ultimately enacted, could override tax treaties upon which the Company relies or could broaden the
circumstances under which the Company would be considered a U.S. resident, each of which could materially
and adversely affect the Company’s effective tax rate and cash tax position.
The Organization for Economic Cooperation and Development (“OECD”) and the European Union (“EU”)
are considering measures that might encourage countries to change their tax laws which could have a
negative impact on the Company.
The OECD has published an action plan to address base erosion and profit shifting (“BEPS”) impacting its
member countries and other jurisdictions. It is possible that jurisdictions in which the Company does business
could react to the BEPS initiative or their own concerns by enacting tax legislation that could adversely affect the
Company or its shareholders.
A number of multilateral organizations, including the EU and the OECD have, in recent years, expressed concern
about some countries not participating in adequate tax information exchange arrangements and have threatened
those that do not agree to cooperate with punitive sanctions by member countries. It is as yet unclear what all of
these sanctions might be, which countries might adopt them, and when or if they might be imposed. The
Company cannot assure, however, that the Tax Information Exchange Agreements (TIEAs) that have been or
will be entered into by the countries where the Company and its subsidiaries are located will be sufficient to
preclude all of the sanctions described above, which, if ultimately adopted, could adversely affect the Company
or its shareholders.
The Company may become subject to taxes in the Cayman Islands or Bermuda in the future, which may have
a material adverse effect on its results of operations.
The Company has subsidiaries which have been incorporated under the laws of the Cayman Islands as exempted
companies and, as such, obtained an undertaking on September 2, 2003 from the Governor in Council of the
Cayman Islands substantially that, for a period of 20 years from the date of such undertaking, no law that is
enacted in the Cayman Islands imposing any tax to be levied on profit or income or gains or appreciation shall
apply to the Company and no such tax and no tax in the nature of estate duty or inheritance tax will be payable,
either directly or by way of withholding, on the Company’s ordinary shares. This undertaking would not,
however, prevent the imposition of taxes on any person ordinarily resident in the Cayman Islands or any
company in respect of its ownership of real property or leasehold interests in the Cayman Islands. Given the
limited duration of the undertaking, the Company cannot be certain that it will not be subject to Cayman Islands
tax after the expiration of the 20-year period.
Global Indemnity Reinsurance was formed in 2006 through the amalgamation of the Company’s non-U.S.
operations. The Company received an assurance from the Bermuda Minister of Finance, under the Bermuda
Exempted Undertakings Tax Protection Act of 1966, as amended, that if any legislation is enacted in Bermuda
that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or
any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable
45
to Global Indemnity Reinsurance or any of its operations, shares, debentures or other obligations through
March 31, 2035. Given the limited duration of the assurance, the Company cannot be certain that it will not be
subject to any Bermuda tax after March 31, 2035.
Following the expiration of the periods described above, the Company may become subject to taxes in the
Cayman Islands or Bermuda, which may have a material adverse effect on its results of operations.
Global Indemnity or Global Indemnity Reinsurance may be subject to U.S. tax that may have a material
adverse effect on Global Indemnity’s or Global Indemnity Reinsurance’s results of operations.
Global Indemnity is an Irish company and Global Indemnity Reinsurance is a Bermuda company. The Company
seeks to manage its business in a manner designed to reduce the risk that Global Indemnity and Global Indemnity
Reinsurance will be treated as being engaged in a U.S. trade or business for U.S. federal income tax purposes.
However, because there is considerable uncertainty as to the activities that constitute being engaged in a trade or
business within the United States, the Company cannot be certain that the U.S. Internal Revenue Service will not
contend successfully that Global Indemnity or Global Indemnity Reinsurance is or has been engaged in a trade or
business in the United States. If Global Indemnity or Global Indemnity Reinsurance were considered to be
engaged in a business in the United States, the Company could be subject to U.S. corporate income and branch
profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case its results of
operations could be materially adversely affected.
The impact of the Letters of Commitment by the Cayman Islands and Bermuda or other concessions to the
Organization for Economic Co-operation and Development to eliminate harmful tax practices is uncertain
and could adversely affect the tax status of the Company’s subsidiaries in the Cayman Islands or Bermuda.
The Organization for Economic Co-operation and Development, which is commonly referred to as the OECD,
has published reports and launched a global dialogue among member and non-member countries on measures to
limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and
preferential tax regimes in countries around the world. The Cayman Islands and Bermuda are not listed as
uncooperative tax haven jurisdictions because each had previously committed itself to eliminate harmful tax
practices and to embrace international
tax standards for transparency, exchange of information and the
elimination of any aspects of the regimes for financial and other services that attract business with no substantial
domestic activity. The Company is not able to predict what changes will arise from the OECD in the future or
whether such changes will subject it to additional taxes.
There is a risk that interest paid by the Company’s U.S. subsidiary to a Luxembourg affiliate may be subject to
30% U.S. withholding tax.
U.A.I. (Luxembourg) Investment, S.à.r.l., an indirectly owned Luxembourg subsidiary of Global Indemnity
Reinsurance, owns two notes and two loans issued by Global Indemnity Group, Inc., a Delaware corporation.
Under U.S. federal income tax law, interest paid by a U.S. corporation to a non-U.S. shareholder is generally
subject to a 30% withholding tax, unless reduced by treaty. The income tax treaty between the United States and
Luxembourg (the “Luxembourg Treaty”) generally eliminates the withholding tax on interest paid to qualified
residents of Luxembourg. Were the IRS to contend successfully that U.A.I. (Luxembourg) Investment, S.à.r.l. is
not eligible for benefits under the Luxembourg Treaty, interest paid to U.A.I. (Luxembourg) Investment, S.à.r.l.
by Global Indemnity Group, Inc. would be subject to the 30% withholding tax. Such tax may be applied
retroactively to all previous years for which the statute of limitations has not expired, with interest and penalties.
Such a result may have a material adverse effect on the Company’s financial condition and results of operation.
There is a risk that interest income imputed to the Company’s Irish affiliates may be subject to 25% Irish
income tax.
U.A.I. (Ireland) Limited and U.A.I. (Ireland) II Unlimited Company are companies incorporated under the laws
of Ireland. The companies are resident taxpayers fully subject to Ireland corporate income tax of 12.5% on
46
trading income and 25.0% on non-trading income, including interest and dividends from foreign companies. The
Company intends to manage its operations in such a way that there will not be any material taxable income
generated in Ireland under Irish law. However, there can be no assurance from the Irish authorities that a law may
not be enacted that would impute income to U.A.I. (Ireland) Limited and U.A.I. (Ireland) II Unlimited Company
in the future or retroactively arising out of the Companies’ current operations.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
At December 31, 2015, the Company leased office space in Bala Cynwyd, Pennsylvania which holds the
Commercial Lines’ principal executive offices and headquarters. The Company also leased additional office
space in California, Georgia, Illinois, and Texas, which serves as office space for field offices for Commercial
Lines. Some of the office space in California also serves as office space for the Company’s claims operations for
Commercial Lines. As part of Global Indemnity Reinsurance’s agreement with one of its service providers, the
Company shares office space in Hamilton, Bermuda, which is used by Reinsurance Operations. The Company
leased office space in Arizona, Nebraska, and Florida, which is used by Personal Lines. The Company leased
office space in Cavan, Ireland, which is used to support the operating needs of the Insurance and Reinsurance
Operations. The Company believes the properties listed are suitable and adequate to meet its needs.
Item 3.
LEGAL PROCEEDINGS
The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The
Company purchased insurance and reinsurance coverage for risks in amounts that
it considers adequate.
However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is
sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the
resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a
material adverse effect on its business, results of operations, cash flows, or financial condition.
There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’
have operations that are in runoff, and therefore, the Company closely monitors those relationships. The
Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be
subject to litigation and arbitration proceedings in the ordinary course of business.
Item 4. MINE SAFETY DISCLOSURES
None.
47
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for the Company’s A Ordinary Shares
The Company’s A ordinary shares, par value $0.0001 per share, began trading on the NASDAQ Global Select
Market, formerly the NASDAQ National Market, under the symbol “UNGL” on December 16, 2003. On
March 14, 2005 the Company changed its symbol to “INDM.” On July 6, 2010, the Company changed its symbol
to “GBLI” as part of a re-domestication transaction whereby all shares of “INDM” were replaced with shares of
“GBLI” on a one-for-two basis. The following table sets forth, for the periods indicated, the high and low
intraday sales prices of the Company’s A ordinary shares as reported by the NASDAQ Global Select Market.
Fiscal Year Ended December 31, 2015:
First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended December 31, 2014:
First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$29.93
29.73
29.20
29.92
$26.98
27.78
27.23
29.50
$22.96
26.60
25.22
25.05
$23.16
24.44
24.68
25.15
There is no established public trading market for the Company’s B ordinary shares, par value $0.0001 per share.
As of March 4, 2016, there were 9 holders of record of the Company’s B ordinary shares, all of whom are
affiliates of Fox Paine & Company, LLC. The number of holders of record, including individual owners of the
Company’s A ordinary shares, was 708 as of March 4, 2016. The Company believes that the actual number of
beneficial owners of the Company’s A ordinary shares is much higher than the number of record holders as
shares are held in “street name” by brokers and others on behalf of individual owners.
See Note 15 to the consolidated financial statements in Item 8 of Part II of this report for information regarding
securities authorized under the Company’s equity compensation plans.
48
Performance of the Company’s A Ordinary Shares
The following graph represents a five-year comparison of the cumulative total return to shareholders for the
Company’s A ordinary shares and stock of companies included in the NASDAQ Insurance Index and NASDAQ
Composite Index, which the Company believes are the most comparative indexes.
S
R
A
L
L
O
D
225
200
175
150
125
100
75
50
25
0
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
Global Indemnity (GBLI)
NASDAQ Insurance (^IXIS)
NASDAQ Composite (^IXIC)
Global Indemnity plc . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Insurance Index . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite Index . . . . . . . . . . . . . . . . . . . . . .
$100.0
100.0
100.0
$ 97.0
103.1
98.2
$108.2
117.0
113.8
$123.7
150.7
157.4
$138.7
163.6
178.5
$141.9
174.1
188.8
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Recent Sales of Unregistered Securities
None.
Company Purchases of Ordinary Shares
The Company’s Share Incentive Plan allows employees to surrender A ordinary shares as payment for the tax
liability incurred upon the vesting of restricted stock that was issued under the Share Incentive Plan. During
2015, the Company purchased an aggregate 11,895 of surrendered A ordinary shares from employees for $0.3
million. All shares purchased from employees are held as treasury stock and recorded at cost.
On October 29, 2015, Global Indemnity entered into a redemption agreement with certain affiliates of Fox
Paine & Company and agreed to redeem 8,260,870 of its ordinary shares for $190 million in the aggregate from
affiliates of Fox Paine & Company. Global Indemnity also acquired rights, expiring December 31, 2019, to
redeem an additional 3,397,031 ordinary shares for $78.1 million, which is subject to an annual 3% increase.
See Note 12 to the consolidated financial statements in Item 8 of Part II of this report for tabular disclosure of the
Company’s share repurchases by month.
Dividend Policy
The Company did not declare or pay cash dividends on any class of its ordinary shares in 2015 or 2014. Payment
of dividends is subject to future determinations by the Board of Directors based on the Company’s results,
financial conditions, amounts required to grow the Company’s business, and other factors deemed relevant by the
Board.
49
The Company is a holding company and has no direct operations. The ability of Global Indemnity plc to pay
dividends is subject to Irish regulations and depends, in part, on the ability of its subsidiaries to pay dividends.
Global Indemnity Reinsurance and the U.S.
to significant regulatory
restrictions limiting their ability to declare and pay dividends. See “Management’s Discussion and Analysis of
Financial Condition—Liquidity and Capital Resources—Sources and Uses of Funds” in Item 7 of Part II of this
report for dividend limitation and Note 18 of the notes to the consolidated financial statement in Item 8 of Part II
of this report for the dividends declared and paid by the U.S. insurance subsidiaries in 2015 and the maximum
amount of distributions that they could pay as dividends in 2016.
insurance subsidiaries are subject
Under the Companies Act, Global Indemnity Reinsurance may only declare or pay a dividend if it has no
reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they
become due, or if the realizable value of its assets would not be less than the aggregate of its liabilities and its
issued share capital and share premium accounts.
For 2016, the Company believes that Global Indemnity Reinsurance should have sufficient liquidity and solvency
to pay dividends. In the future, the Company anticipates using dividends from Global Indemnity Reinsurance to
fund obligations of Global Indemnity. Global Indemnity Reinsurance is prohibited, without the approval of the
BMA, from reducing by 15% or more its total statutory capital as set out in its previous year’s statutory financial
statements, and any application for such approval must include such information as the BMA may require. Based
upon the total statutory capital plus the statutory surplus as set out in its 2015 statutory financial statements that
will be filed in 2016, Global Indemnity Reinsurance could pay a dividend of up to $234.8 million without
requesting BMA approval. Global Indemnity Reinsurance is dependent on receiving distributions from its
subsidiaries in order to pay the full dividend in cash.
In 2015, profit distributions (not in respect to liquidations) by the Luxembourg Companies were generally subject
to Luxembourg dividend withholding tax at a rate of 15%, unless a domestic law exemption or a lower tax treaty
rate applies. Dividends paid by any of the Luxembourg Companies to their Luxembourg resident parent company
are exempt from Luxembourg dividend withholding tax, provided that at the time of the dividend distribution, the
resident parent company has held (or commits itself to continue to hold) 10% or more of the nominal paid up
capital of the distributing entity or, in the event of a lower percentage participation, a participation having an
acquisition price of Euro 1.2 million or more for a period of at least twelve months.
For a discussion of factors affecting the Company’s ability to pay dividends, see “Business—Regulation” in
Item 1 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Sources and Uses of Funds” in Item 7 of Part II, and Note 18 of the notes to
the consolidated financial statements in Item 8 of Part II of this report.
50
Item 6.
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated historical financial data for Global Indemnity and should be
read together with the consolidated financial statements and accompanying notes and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” included elsewhere in this report. No cash
dividends were declared on common stock in any year presented in the table.
(Dollars in thousands, except shares and per
share data)
Consolidated Statements of
Operations Data:
Gross premiums written . . . . . . . . . . .
Net premiums written . . . . . . . . . . . . .
Net premiums earned . . . . . . . . . . . . .
Net realized investment gains
(losses) . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . .
Net income (loss)
. . . . . . . . . . . . . . . .
Per share data: (1) (2)
Net income (loss) available to
For the Years Ended December 31,
2015
2014
2013
2012
2011
$
$
590,233
501,244
504,143
(3,374)
538,778
41,469
$
291,253
273,181
268,519
35,860
333,755
62,856
$
290,723
271,984
248,722
27,412
319,134
61,690
244,053
219,547
238,862
6,755
293,016
34,757
$
307,903
280,570
297,854
21,473
385,020
(38,338)
common shareholders . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . .
$
$
41,469
1.71
1.69
$
62,856
2.50
2.48
$
61,690
2.46
2.45
$
34,757
1.30
1.30
(38,338)
(1.27)
(1.27)
Weighted-average number of shares
outstanding
Basic . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . .
24,253,657
24,505,851
25,131,811
25,331,420
25,072,712
25,174,015
26,722,772
26,748,833
30,246,095
30,246,095
In 2011, “Diluted” shares were the same as “Basic” shares since there was a net loss for that year.
(1)
(2) Shares outstanding and per share amounts have been restated to reflect the 1-for-2 stock exchange effective
July 2, 2010 when the Company completed its re-domestication to Ireland.
51
Consolidated Insurance Operating Ratios
based on the Company’s GAAP
Results: (1)
Loss ratio (2) (3) . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio (2) (3) . . . . . . . . . . . . . . . . . .
Net / gross premiums written . . . . . . . . . . . .
Financial Position as of Last Day of
Period:
Total investments and cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance receivables, net of allowance . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
7.75% Subordinated notes payable . . . . . . . .
Margin borrowing facilities . . . . . . . . . . . . . .
Senior notes payable . . . . . . . . . . . . . . . . . . .
Junior subordinated debentures . . . . . . . . . . .
Unpaid losses and loss adjustment
expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . .
Base Value per share . . . . . . . . . . . . . . . . . . .
2015
2014
2013
2012
2011
54.6
39.9
94.5
84.9
51.2
40.8
92.0
93.8
53.5
42.5
96.0
93.6
64.3
39.9
104.2
90.0
93.5
40.8
134.3
91.1
$1,516,093
115,594
1,957,294
96,388
75,646
—
—
$1,498,009
125,718
1,930,033
—
174,673
—
—
680,047
749,926
42.98
675,472
908,290
35.86
$1,567,415
197,887
1,911,779
$1,533,989
241,827
1,903,703
$1,647,723
287,986
2,072,916
—
100,000
—
—
779,466
873,280
34.65
—
—
54,000
30,929
879,114
806,618
32.15
—
—
72,000
30,929
971,377
839,063
27.06
(1) The Company’s insurance operating ratios are GAAP financial measures that are generally viewed in the
insurance industry as indicators of underwriting profitability. The loss ratio is the ratio of net losses and loss
adjustment expenses to net premiums earned. The expense ratio is the ratio of acquisition costs and other
underwriting expenses to net premiums earned. The combined ratio is the sum of the loss and expense
ratios. The ratios presented here represent the consolidated results of the Company’s Commercial Lines,
Personal Lines, and Reinsurance Operations.
(2) A summary of prior accident year adjustments is summarized as follows:
•
•
•
•
•
2015 loss and combined ratios reflect a $34.7 million reduction of net losses and loss adjustment
expenses
2014 loss and combined ratios reflect a $16.4 million reduction of net losses and loss adjustment
expenses
2013 loss and combined ratios reflect a $7.9 million reduction of net losses and loss adjustment
expenses
2012 loss and combined ratios reflect a $4.4 million increase of net losses and loss adjustment
expenses
2011 loss and combined ratios reflect a $3.4 million increase of net losses and loss adjustment
expenses
See “Results of Operations” in Item 7 of Part II of this report for details of these items and their impact on
the loss and combined ratios.
(3) The Company’s loss and combined ratios for 2015, 2014, 2013, 2012, and 2011 include $45.0 million, $14.0
million, $10.0 million, $14.2 million, and $20.6 million, respectively, of catastrophic losses from the
Insurance Operations. See “Results of Operations” in Item 7 of Part II of this report for a discussion of the
impact of these losses on the loss and combined ratios.
52
Item 7. 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 Global Indemnity
included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth
elsewhere in this report, including information with respect to the Company’s plans and strategy, constitutes
forward-looking statements that involve risks and uncertainties. Please see “Cautionary Note Regarding Forward-
Looking Statements” at the end of this Item 7 and “Risk Factors” in Item 1A above for more information. You
should review “Risk Factors” in Item 1A above for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the forward-looking statements contained
herein.
Recent Developments
Effective December 6, 2015, Bruce Lederman, Raphael de Balmann, and Joseph W. Brown were appointed to the
Company’s Board of Directors. On May 27, 2015, Larry N. Port was elected to the Company’s Board of
Directors.
On October 29, 2015, Global Indemnity entered into a redemption agreement with certain affiliates of Fox
Paine & Company and agreed to redeem 8,260,870 of its ordinary shares for $190 million in the aggregate from
affiliates of Fox Paine & Company. Global Indemnity also acquired rights, expiring December 31, 2019, to
redeem an additional 3,397,031 ordinary shares for $78.1 million, which is subject to an annual 3% increase.
After giving effect to the share redemptions and regardless of whether or not the additional redemption rights are
exercised, affiliates of Fox Paine & Company will continue to have the ability to cast a majority of votes on
matters submitted to Global Indemnity shareholders for approval. The Company reimbursed Fox Paine &
Company $1.15 million for expenses related to the redemption of the Company’s ordinary shares. In connection
with the redemption, the Company sold $279.9 million of securities from its consolidated investment portfolio
during October, 2015. $102.0 million was used to pay down margin debt, with the remainder being used to fund a
portion of the redemption transaction.
On August 12, 2015, the Company issued $100.0 million in aggregate principal amount of its 2045 Subordinated
Notes through an underwritten public offering. See Note 11 of the notes to the consolidated financial statements
in Item 8 of Part II of this report for additional information on this debt issuance.
On June 12, 2015, A.M. Best affirmed the financial strength rating of “A” (Excellent) for Global Indemnity
Reinsurance and its U.S. insurance subsidiaries.
On January 1, 2015, Global Indemnity Group, Inc. completed its acquisition of American Reliable. The results of
American Reliable’s operations are included in the Company’s consolidated financial statements since the date of
acquisition on January 1, 2015. The business acquired from American Reliable is considered to be a separate
segment, Personal Lines. For additional information related to the acquisition of American Reliable, see Note 3
and Note 19 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional
information as well as the “Overview” and “Results of Operations” sections below.
Overview
In connection with the acquisition of American Reliable, the Company reevaluated segment classifications and
determined that the Company will operate and manage its business through three reportable business segments:
Commercial Lines, Personal Lines, and Reinsurance Operations.
53
The Company’s Commercial Lines segment distribute property and casualty insurance products through a group
of approximately 120 professional general agencies that have limited quoting and binding authority, as well as a
number of wholesale insurance brokers who in turn sell the Company’s insurance products to insureds through
retail insurance brokers. Commercial Lines operates predominantly in the excess and surplus lines marketplace.
The Company manages its Commercial Lines segment via product classification. These product classifications
are: 1) Penn-America, which includes property and general liability products for small commercial businesses
distributed through a select network of wholesale general agents with specific binding authority; 2) United
National, which includes property, general liability, and professional lines products distributed through program
administrators with specific binding authority; and 3) Diamond State, which includes property, casualty, and
professional lines products distributed through wholesale brokers and program administrators with specific
binding authority.
The Company’s Personal Lines segment, via American Reliable, offers specialty personal lines and agricultural
coverage through a group of approximately 290 agents, primarily comprised of wholesale general agents, with
specific binding authority in the admitted marketplace.
The Company’s Reinsurance Operations consisting solely of the operations of Global Indemnity Reinsurance,
provides reinsurance solutions through brokers and on a direct basis. In prior years, the Company provided
reinsurance solutions through program managers and primary writers, including regional insurance companies.
Global Indemnity Reinsurance is a Bermuda based treaty reinsurer for specialty property and casualty insurance
and reinsurance companies. Global Indemnity Reinsurance conducts business in Bermuda and is focused on
using its capital capacity to write catastrophe-oriented placements and other niche or specialty-focused treaties
meeting the Company’s risk tolerance and return thresholds.
The Company derives its revenues primarily from premiums paid on insurance policies that it writes and from
income generated by its investment portfolio, net of fees paid for investment management services. The amount
of insurance premiums that the Company receives is a function of the amount and type of policies it writes, as
well as prevailing market prices.
The Company’s expenses include losses and loss adjustment expenses, acquisition costs and other underwriting
expenses, corporate and other operating expenses, interest, investment expenses, and income taxes. Losses and
loss adjustment expenses are estimated by management and reflect the Company’s best estimate of ultimate
losses and costs arising during the reporting period and revisions of prior period estimates. The Company records
its best estimate of losses and loss adjustment expenses considering both internal and external actuarial analyses
of the estimated losses the Company expects to incur on the insurance policies it writes. The ultimate losses and
loss adjustment expenses will depend on the actual costs to resolve claims. Acquisition costs consist principally
of commissions and premium taxes that are typically a percentage of the premiums on the insurance policies the
Company writes, net of ceding commissions earned from reinsurers. Other underwriting expenses consist
primarily of personnel expenses and general operating expenses related to underwriting activities. Corporate and
other operating expenses are comprised primarily of outside legal fees, other professional and accounting fees,
directors’ fees, management fees, and salaries and benefits for company personnel whose services relate to the
support of corporate activities. In 2015, corporate expenses also included $8.3 million of expenses related to the
acquisition of American Reliable. Interest expense is primarily comprised of amounts due on outstanding debt.
Critical Accounting Estimates and Policies
The Company’s consolidated financial statements are prepared in conformity with GAAP, which require it to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting periods. See Note 2
of the notes to consolidated financial statements contained in Item 8 of Part II of this report. Actual results could
differ from those estimates and assumptions.
54
The Company believes that of the Company’s significant accounting policies, the following may involve a higher
degree of judgment and estimation.
Liability for Unpaid Losses and Loss Adjustment Expenses
Although variability is inherent in estimates, the Company believes that the liability for unpaid losses and loss
adjustment expenses reflects its best estimate for future amounts needed to pay losses and related loss adjustment
expenses and the impact of its reinsurance coverage with respect to insured events.
In developing loss and loss adjustment expense (“loss” or “losses”) reserve estimates for the Company’s
Insurance Operations, its actuaries perform detailed reserve analyses each quarter. To perform the analysis, the
data is organized at a “reserve category” level. Management is responsible for the final determination of loss
reserve selections. A reserve category can be a line of business such as commercial automobile liability, or it can
be a particular type of claim such as construction defect. The reserves within a reserve category level are
characterized as short-tail and long-tail. For long-tail business, it will generally be several years between the time
the business is written and the time when all claims are settled. The Company’s long-tail exposures include
general
liability, products liability, commercial automobile liability, and excess and
umbrella. Short-tail exposures include property, commercial automobile physical damage, and equine mortality.
To manage its insurance operations, the Company differentiates by product classifications, which are Penn-
America, United National, Diamond State, and American Reliable. For further discussion about the Company’s
product classifications, see “General—Business Segments—Insurance Operations” in Item 1 of Part I of this
report. Each of the Company’s product classifications contain both long-tail and short-tail exposures. Every
reserve category is analyzed by the Company’s actuaries each quarter. The analyses generally include reviews of
losses gross of reinsurance and net of reinsurance.
liability, professional
Loss reserve estimates for the Company’s Reinsurance Operations are developed by independent, external
actuaries; however, management is responsible for the final determination of loss reserve selections. The data for
this analysis is organized by treaty and treaty year. As with the Company’s reserves for its Insurance Operations,
reserves for its Reinsurance Operations are characterized as short-tail and long-tail. Long-tail exposures include
workers compensation, professional liability, and excess and umbrella liability. Short-tail exposures are primarily
catastrophe exposed property and marine accounts.
In addition to the Company’s internal reserve analysis, independent external actuaries perform a full, detailed
review of the Insurance Operations’ and Reinsurance Operations’ reserves annually. The Company reviews both
the internal and external actuarial analyses in determining its reserve position.
The methods used to project ultimate losses for both long-tail and short-tail exposures include, but are not limited
to, the following:
•
•
Paid Development method;
Incurred Development method;
• Expected Loss Ratio method;
• Bornhuetter-Ferguson method using premiums and paid loss;
• Bornhuetter-Ferguson method using premiums and incurred loss; and
• Average Loss method.
The Paid Development method estimates ultimate losses by reviewing paid loss patterns and applying them to
accident years with further expected changes in paid loss. Selection of the paid loss pattern requires analysis of
several factors including the impact of inflation on claims costs, the rate at which claims professionals make
claim payments and closed claims, the impact of judicial decisions, the impact of underwriting changes, the
55
impact of large claim payments and other factors. Claim cost inflation itself requires evaluation of changes in the
cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage
replacement, judicial decisions, legislative changes and other factors. Because this method assumes that losses
are paid at a consistent rate, changes in any of these factors can impact the results. Since the method does not rely
on case reserves, it is not directly influenced by changes in the adequacy of case reserves.
For many reserve categories, paid loss data for recent periods may be too immature or erratic for accurate loss
projections. This situation often exists for long-tail exposures. In addition, changes in the factors described above
may result in inconsistent payment patterns. Finally, estimating the paid loss pattern subsequent to the most
mature point available in the data analyzed often involves considerable uncertainty for long-tail reserve
categories.
The Incurred Development method is similar to the Paid Development method, but it uses case incurred losses
instead of paid losses. Since this method uses more data (case reserves in addition to paid losses) than the Paid
Development method, the incurred development patterns may be less variable than paid development patterns.
However, selection of the incurred loss pattern requires analysis of all of the factors listed in the description of
the Paid Development method. In addition, the inclusion of case reserves can lead to distortions if changes in
case reserving practices have taken place and the use of case incurred losses may not eliminate the issues
associated with estimating the incurred loss pattern subsequent to the most mature point available.
The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce ultimate loss
estimates for each accident year. This method may be useful if loss development patterns are inconsistent, losses
emerge very slowly, or there is relatively little loss history from which to estimate future losses. The selection of
the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis
of inflationary trends, frequency trends, rate changes, underwriting changes, and other applicable factors.
The Bornhuetter-Ferguson method using premiums and paid losses is a combination of the Paid Development
method and the Expected Loss Ratio method. This method normally determines expected loss ratios similar to
the method used for the Expected Loss Ratio method and requires analysis of the same factors described above.
The method assumes that only future losses will develop at the expected loss ratio level. The percent of paid loss
to ultimate loss implied from the Paid Development method is used to determine what percentage of ultimate loss
is yet to be paid. The use of the pattern from the Paid Development method requires consideration of all factors
listed in the description of the Paid Development method. The estimate of losses yet to be paid is added to
current paid losses to estimate the ultimate loss for each year. This method will react very slowly if actual
ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio
calculation.
The Bornhuetter-Ferguson method using premiums and incurred losses is similar to the Bornhuetter-Ferguson
method using premiums and paid losses except that it uses case incurred losses. The use of case incurred losses
instead of paid losses can result in development patterns that are less variable than paid development patterns.
However, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken
place. The method requires analysis of all the factors that need to be reviewed for the Expected Loss Ratio and
Incurred Development methods.
The Average Loss method multiplies a projected number of ultimate claims by an estimated ultimate average loss
for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims are
often less variable than projections of ultimate loss, this method can provide more reliable results for reserve
categories where loss development patterns are inconsistent or too variable to be relied on exclusively. In
addition, this method can more directly account for changes in coverage that impact the number and size of
claims. However, this method can be difficult to apply to situations where very large claims or a substantial
number of unusual claims result in volatile average claim sizes. Projecting the ultimate number of claims requires
analysis of several factors including the rate at which policyholders report claims to the Company, the impact of
56
judicial decisions, the impact of underwriting changes and other factors. Estimating the ultimate average loss
requires analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or
replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial
decisions, legislative changes and other factors.
For many exposures, especially those that can be considered long-tail, a particular accident year may not have a
sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, the
Company’s actuaries typically assign more weight to the Incurred Development method than to the Paid
Development method. As claims continue to settle and the volume of paid losses increases, the actuaries may
assign additional weight to the Paid Development method. For most of the Company’s reserve categories, even
the incurred losses for accident years that are early in the claim settlement process will not be of sufficient
volume to produce a reliable estimate of ultimate losses. In these cases, the Company will not assign any weight
to the Paid and Incurred Development methods and will use the Bornhuetter-Ferguson and Expected Loss Ratio
methods. For short-tail exposures, the Paid and Incurred Development methods can often be relied on sooner
primarily because the Company’s history includes a sufficient number of years to cover the entire period over
which paid and incurred losses are expected to change. However, the Company may also use the Expected Loss
Ratio, Bornhuetter-Ferguson and Average Loss methods for short-tail exposures.
Generally, reserves for long-tail lines give more weight to the Expected Loss Ratio method in the more recent
immature years. As the accident years mature, weight shifts to the Bornhuetter-Ferguson methods and eventually
to the Incurred and/or Paid Development method. Claims related to umbrella business are usually reported later
than claims for other long-tail lines. For umbrella business, the shift from the Expected Loss Ratio method to the
Bornhuetter-Ferguson methods to the Loss Development method may be more protracted than for most long-
tailed lines. Reserves for short-tail lines tend to make the shift across methods more quickly than the long-tail
lines.
For other more complex reserve categories where the above methods may not produce reliable indications, the
Company uses additional methods tailored to the characteristics of the specific situation. Such reserve categories
include losses from construction defects and A&E.
For construction defect losses, the Company’s actuaries organize losses by the year in which they were reported
to develop an IBNR provision for development on known cases. To estimate losses from claims that have not
been reported (pure IBNR), various extrapolation techniques are applied to the pattern of claims that have been
reported to estimate the number of claims yet to be reported. This process requires analysis of several factors
including the rate at which policyholders report claims to the Company, the impact of judicial decisions, the
impact of underwriting changes and other factors. An average claim size is determined from past experience and
applied to the number of unreported claims to estimate reserves for these claims.
Establishing reserves for A&E and other mass tort claims involves considerably more judgment than other types
of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of
asbestos-related liabilities, and judicial interpretations that often expand theories of recovery and broaden the
scope of coverage. The insurance industry continues to receive a substantial number of asbestos-related bodily
injury claims, with an increasing focus being directed toward other parties, including installers of products
containing asbestos rather than against asbestos manufacturers. This shift has resulted in significant insurance
coverage litigation implicating applicable coverage defenses or determinations, if any, including but not limited
to, determinations as to whether or not an asbestos-related bodily injury claim is subject to aggregate limits of
liability found in most comprehensive general liability policies. The Company continues to closely monitor its
asbestos exposure and make adjustments where they are warranted.
In 2009, one of the Company’s insurance companies entered into a settlement agreement to resolve asbestos
related coverage litigation related to approximately 3,900 existing asbestos-related bodily injury claims and
57
future claims. The settlement was approved by the Court and a final order was issued in September 2014. As of
December 31, 2015, the Company has no outstanding obligations as it relates to this settlement agreement.
In addition, the Company has exposure to other asbestos related matters. In 2013, three claims were reported on
an excess policy that was written in 1985. These claims were settled in April, 2014. Management will continue to
monitor the developments of the litigation noted above as well as the new claims that have been reported to
determine if any additional financial exposure is present.
Reserve analyses performed by the Company’s internal and external actuaries result in actuarial point estimates.
The results of the detailed reserve reviews were summarized and discussed with the Company’s senior
management to determine the best estimate of reserves. This group considered many factors in making this
decision. The factors included, but were not limited to, the historical pattern and volatility of the actuarial
indications,
indications to changes in paid and incurred loss patterns, the
consistency of claims handling processes, the consistency of case reserving practices, changes in the Company’s
pricing and underwriting, and overall pricing and underwriting trends in the insurance market.
the sensitivity of the actuarial
Management’s best estimate at December 31, 2015 was recorded as the loss reserve. Management’s best estimate
is as of a particular point in time and is based upon known facts, the Company’s actuarial analyses, current law,
and the Company’s judgment. This resulted in carried gross and net reserves of $680.0 million and $571.9
million, respectively, as of December 31, 2015. A breakout of the Company’s gross and net reserves, excluding
the effects of the Company’s intercompany pooling arrangements and intercompany stop loss and quota share
reinsurance agreements, as of December 31, 2015 is as follows:
(Dollars in thousands)
Gross Reserves
Case
IBNR (1)
Total
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . .
$143,876
37,252
15,954
$380,731
57,107
45,127
$524,607
94,359
61,081
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$197,082
$482,965
$680,047
(Dollars in thousands)
Net Reserves (2)
Case
IBNR (1)
Total
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . .
$110,327
32,002
15,954
$318,549
50,292
44,793
$428,876
82,294
60,747
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$158,283
$413,634
$571,917
(1) Losses incurred but not reported, including the expected future emergence of case reserves.
(2) Does not include reinsurance receivable on paid losses.
The Company continually reviews these estimates and, based on new developments and information, includes
adjustments of the estimated ultimate liability in the operating results for the periods in which the adjustments are
made. The establishment of loss and loss adjustment expense reserves makes no provision for the possible
broadening of coverage by legislative action or judicial interpretation, or the emergence of new types of losses
not sufficiently represented in the Company’s historical experience or that cannot yet be quantified or estimated.
The Company regularly analyzes its reserves and reviews reserving methodologies so that future adjustments to
prior year reserves can be minimized. However, given the complexity of this process, reserves require continual
updates and the ultimate liability may be higher or lower than previously indicated. Changes in estimates for loss
and loss adjustment expense reserves are recorded in the period that the change in these estimates is made. See
Note 10 to the consolidated financial statements in Item 8 of Part II of this report for details concerning the
changes in the estimate for incurred loss and loss adjustment expenses related to prior accident years.
58
The detailed reserve analyses that the Company’s internal and external actuaries complete use a variety of
generally accepted actuarial methods and techniques to produce a number of estimates of ultimate loss. The
Company determines its best estimate of ultimate loss by reviewing the various estimates provided by its
actuaries and other relevant information. The reserve estimate is the difference between the estimated ultimate
loss and the losses paid to date. The difference between the estimated ultimate loss and the case incurred loss
(paid loss plus case reserve) is considered to be IBNR. IBNR calculated as such includes a provision for
development on known cases (supplemental development) as well as a provision for claims that have occurred
but have not yet been reported (pure IBNR).
In light of the many uncertainties associated with establishing the estimates and making the assumptions
necessary to establish reserve levels, the Company reviews its reserve estimates on a regular basis and makes
adjustments in the period that the need for such adjustments is determined. In general, loss emergence has been
reflective of historical patterns and the selected development patterns have not changed significantly from prior
years.
The key assumptions fundamental to the reserving process are often different for various reserve categories and
accident years. Some of these assumptions are explicit assumptions that are required of a particular method, but
most of the assumptions are implicit and cannot be precisely quantified. An example of an explicit assumption is
the pattern employed in the Paid Development method. However, the assumed pattern is itself based on several
implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals
close claims. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity
is a measure of the average size of claims. Each reserve segment has an implicit frequency and severity for each
accident year as a result of the various assumptions made.
Previous reserve analyses have resulted in the Company’s identification of information and trends that have
caused it to increase or decrease frequency and severity assumptions in prior periods and could lead to the
identification of a need for additional material changes in loss and loss adjustment expense reserves, which could
materially affect results of operations, equity, business and insurer financial strength and debt ratings. Factors
affecting loss frequency include, among other things, the effectiveness of loss controls and safety programs and
changes in economic activity or weather patterns. Factors affecting loss severity include, among other things,
changes in policy limits and deductibles, rate of inflation and judicial interpretations. Another factor affecting
estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the
occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects
the Company’s ability to accurately predict loss frequency (loss frequencies are more predictable for short-tail
lines) as well as the amount of reserves needed for IBNR.
59
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 sensitive to 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 $310.1 million for claims occurring
during the year ended December 31, 2015:
(Dollars in thousands)
Frequency Change . . . . . . . . . . . .
Severity Change
-10%
-5%
0%
5%
10%
-5% $(44,965)
-3% (39,383)
-2% (36,592)
-1% (33,801)
0% (31,010)
1% (28,219)
2% (25,428)
3% (22,637)
5% (17,056)
$(30,235)
(24,343)
(21,397)
(18,451)
(15,505)
(12,559)
(9,613)
(6,667)
(775)
$(15,505)
(9,303)
(6,202)
(3,101)
—
3,101
6,202
9,303
15,505
$ (775)
5,737
8,993
12,249
15,505
18,761
22,017
25,273
31,785
$13,955
20,777
24,188
27,599
31,010
34,421
37,832
41,243
48,066
The Company’s net reserves for losses and loss adjustment expenses of $571.9 million as of December 31, 2015
relate to multiple accident years. Therefore, the impact of changes in frequency and severity for more than one
accident year could be higher or lower than the amounts reflected above.
Recoverability of Reinsurance Receivables
The Company regularly reviews the collectability of its reinsurance receivables, and includes adjustments
resulting from this review in earnings in the period in which the adjustment arises. A.M. Best ratings, financial
history, available collateral, and payment history with the reinsurers are several of the factors that the Company
considers when judging collectability. Changes in loss reserves can also affect the valuation of reinsurance
receivables if the change is related to loss reserves that are ceded to reinsurers. Certain amounts may be
uncollectible if the Company’s reinsurers dispute a loss or if the reinsurer is unable to pay. If its reinsurers do not
pay, the Company remains legally obligated to pay the loss.
See Note 8 of the notes to consolidated financial statements in Item 8 of Part II of this report for further
information surrounding the Company’s reinsurance receivable balances and collectability as of December 31,
2015 and 2014. For a listing of the ten reinsurers for which the Company has the largest reinsurance asset
amounts as of December 31, 2015, see “Reinsurance of Underwriting Risk” in Item 1 of Part I of this report.
Investments
The carrying amount of the Company’s investments approximates their fair value. The Company regularly
performs various analytical valuation procedures with respect to investments, including reviewing each fixed
maturity security in an unrealized loss position to determine the amount of unrealized loss related to credit loss
and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion
of the amortized book value in excess of the net present value of the projected future cash flows discounted at the
effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other
than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit
losses are recorded in other comprehensive income, net of taxes. During its review, the Company considers credit
rating, market price, and issuer specific financial information, among other factors, to assess the likelihood of
collection of all principal and interest as contractually due. Securities for which the Company determines that a
60
credit loss is likely are subjected to further analysis to estimate the credit loss to be recognized in earnings, if any.
See Note 2 of the notes to consolidated financial statements in Item 8 of Part II of this report for the specific
methodologies and significant assumptions used by asset class. Upon identification of such securities and
periodically thereafter, a detailed review is performed to determine whether the decline is considered other than
temporary. This review includes an analysis of several factors, including but not limited to, the credit ratings and
cash flows of the securities, and the magnitude and length of time that the fair value of such securities is below
cost.
For an analysis of the Company’s securities with gross unrealized losses as of December 31, 2015 and 2014, and
for other than temporary impairment losses that the Company recorded for the years ended December 31, 2015,
2014, and 2013, please see Note 4 of the notes to the consolidated financial statements in Item 8 of Part II of this
report.
Fair Value Measurements
The Company categorizes its invested assets and derivative instruments that are accounted for at fair value in the
consolidated statements into a fair value hierarchy. The fair value hierarchy is directly related to the amount of
subjectivity associated with the inputs utilized to determine the fair value of these assets. The reported value of
financial instruments not carried at fair value, principally cash and cash equivalents and margin borrowing
facility approximate fair value. See Note 6 of the notes to the consolidated financial statements in Item 8 of Part
II of this report for further information about the fair value hierarchy and the Company’s assets that are
accounted for at fair value.
Goodwill and Intangible Assets
The Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in
accordance with applicable accounting guidance. Accounting guidance allows for the testing of goodwill for
impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the
carrying amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. The
amount of the impairment loss would be equal to the excess carrying value of the goodwill over the implied fair
value of the reporting unit goodwill. Based on the qualitative assessment performed, there was no impairment of
goodwill as of December 31, 2015.
Impairment of intangible assets with indefinite useful lives is tested at least annually and more frequently as
circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the
testing of intangible assets for impairment using both qualitative and quantitative factors. Impairment of
indefinite lived intangible assets is recognized only if the carrying amount of the intangible assets exceeds the
fair value of said assets. The amount of the impairment loss would be equal to the excess carrying value of the
there were no
assets over the fair value of said assets. Based on the qualitative assessment performed,
impairments of indefinite lived intangible assets as of December 31, 2015.
Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful
lives. The carrying amounts of definite lived intangible assets are regularly reviewed for indicators of impairment
in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the
intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the
difference between the carrying amount and the estimated fair value of the asset. As of December 31, 2015, there
were no triggering events that occurred during the year that would result in an impairment of definite lived
intangible assets.
See Note 7 of the notes to the consolidated financial statements in Item 8 of Part II of this report for more details
concerning the Company’s goodwill and intangible assets.
61
Deferred Acquisition Costs
The costs of acquiring new and renewal insurance and reinsurance contracts include commissions, premium taxes
and certain other costs that are directly related to the successful acquisition of new and renewal insurance and
reinsurance contracts. The excess of the Company’s costs of acquiring new and renewal
insurance and
reinsurance contracts over the related ceding commissions earned from reinsurers is capitalized as deferred
acquisition costs and amortized over the period in which the related premiums are earned.
In accordance with accounting guidance for insurance enterprises, the method followed in computing such
amounts limits them to amounts recoverable from premium to be earned, related investment income, losses and
loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. A premium
deficiency is recognized if the sum of expected loss and loss adjustment expenses and unamortized acquisition
costs exceeds related unearned premium. This evaluation is done at a product line level in Insurance Operations
and at a treaty level in Reinsurance Operations. Any future expected loss on the related unearned premium is
recorded first by impairing the unamortized acquisition costs on the related unearned premium followed by an
increase to loss and loss adjustment expense reserves on additional expected loss in excess of unamortized
acquisition costs. The Company calculates deferred acquisition costs for Insurance Operations separately by
product lines and for its Reinsurance Operations separately for each treaty.
Taxation
The Company provides for income taxes in accordance with applicable accounting guidance. The Company’s
deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in
the consolidated financial statements and the tax basis of the Company’s assets and liabilities.
At each balance sheet date, management assesses the need to establish a valuation allowance that reduces
deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be
realized. A valuation allowance would be based on all available information including the Company’s assessment
of uncertain tax positions and projections of future taxable income from each tax-paying component in each
jurisdiction, principally derived from business plans and available tax planning strategies. There are no valuation
allowances as of December 31, 2015 and 2014. The deferred tax asset balance is analyzed regularly by
management. This assessment requires significant judgment and considers, among other matters, the nature,
frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of
carryforward periods, and tax planning strategies and/or actions. Based on these analyses, the Company has
determined that its deferred tax asset is recoverable. Projections of future taxable income incorporate several
assumptions of future business and operations that are apt to differ from actual experience. If, in the future, the
Company’s assumptions and estimates that resulted in the forecast of future taxable income for each tax-paying
component prove to be incorrect, a valuation allowance may be required. This could have a material adverse
effect on the Company’s financial condition, results of operations, and liquidity.
The Company applies a more likely than not recognition threshold for all tax uncertainties, only allowing the
recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by
the taxing authorities. Please see Note 9 of the notes to the consolidated financial statements in Item 8 of Part II
of this report for a discussion of the Company’s tax uncertainties.
Business Segments
The Company manages its business through three reportable business segments: Personal Lines, Commercial
Lines, and Reinsurance Operations. The Personal Lines and Commercial Lines segments comprise the
Company’s U.S. Insurance Operations, which currently includes the operations of United National Insurance
Company, Diamond State Insurance Company, United National Specialty Insurance Company, Penn-America
Insurance Company, Penn-Star Insurance Company, Penn-Patriot Insurance Company, American Reliable
62
Insurance Company, American Insurance Adjustment Agency, Inc., Collectibles Insurance Services, LLC,
Global Indemnity Insurance Agency, LLC, J.H. Ferguson & Associates, LLC, and U.S. Insurance Services, Inc.
Reinsurance Operations includes the operations of Global Indemnity Reinsurance Company, Ltd.
The Company evaluates the performance of these three segments based on gross and net premiums written,
revenues in the form of net premiums earned, and expenses in the form of (1) net losses and loss adjustment
expenses, (2) acquisition costs, and (3) other underwriting expenses.
Prior to 2015, the Commercial Lines segment was known as Insurance Operations segment. With the acquisition
of American Reliable, the Insurance Operations segment was renamed to Commercial Lines segment. The newly
acquired American Reliable became the Company’s Personal Lines segment. For segment reporting, the values
for 2013 and 2014 did not change for Commercial Lines and Reinsurance Operations.
See “Business Segments” in Item 1 of Part I of this report for a description of the Company’s segments.
63
The following table sets forth an analysis of financial data for the Company’s segments during the periods
indicated:
(Dollars in thousands)
Personal Lines premium written:
Years Ended December 31,
2015
2014
2013 (6)
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$326,282
72,247
$ — $ —
—
—
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$254,035
$ — $ —
Commercial Lines premiums written:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$214,218
16,692
$229,978
17,013
$232,373
18,668
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$197,526
$212,965
$213,705
Reinsurance Operations premiums written:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 49,733
50
$ 61,275
1,059
$ 58,350
71
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 49,683
$ 60,216
$ 58,279
Revenues: (1)
Personal Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$255,920
199,925
51,698
$ — $ —
202,097
211,785
52,416
57,289
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$507,543
$269,074
$254,513
Expenses: (2)
Personal Lines (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Lines (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$263,126
180,700
32,845
$ — $ —
204,197
206,569
34,445
40,611
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$476,671
$247,180
$238,642
Income (loss) from segments:
Personal Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (7,206) $ — $ —
19,225
18,853
5,216
16,678
(2,100)
17,971
Total income (loss) from segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,872
$ 21,894
$ 15,871
Insurance combined ratio analysis: (5)
Personal Lines
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Lines
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64.8
39.2
104.0
48.9
41.7
90.6
26.8
36.7
63.5
54.6
39.9
94.5
—
—
—
55.7
42.1
97.8
34.8
36.0
70.8
51.2
40.8
92.0
—
—
—
59.5
44.5
104.0
30.8
34.9
65.7
53.5
42.5
96.0
64
(1) Excludes net
investment
income and net realized investment gains, which are not allocated to the
Company’s segments.
(2) Excludes corporate and other operating expenses and interest expense, which are not allocated to the
(3)
(4)
Company’s segments.
Includes excise tax of $1,265 related to cessions from the Company’s Personal Lines to the Company’s
Reinsurance Operations for 2015.
Includes excise tax of $1,051, $1,114, and $1,026 related to cessions from the Company’s Commercial
Lines to its Reinsurance Operations for 2015, 2014, and 2013, respectively.
(5) The Company’s insurance combined ratios are GAAP financial measures that are generally viewed in the
insurance industry as indicators of underwriting profitability. The loss ratio is the ratio of net losses and loss
adjustment expenses to net premiums earned. The expense ratio is the ratio of acquisition costs and other
underwriting expenses to net premiums earned. The combined ratio is the sum of the loss and expense
ratios.
(6) On December 31, 2013, Diamond State Insurance Company sold all the outstanding shares of capital stock
of one of its wholly owned subsidiaries, United National Casualty Insurance Company. Financial results for
2013 include United National Casualty Insurance Company. This was an asset sale which did not have a
significant impact on the Company’s ongoing business operations.
65
Results of Operations
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Management’s discussion and analysis of financial condition and results of operation references various non-
GAAP measures related to combined ratio, loss ratio, expense ratio, net losses and loss adjustment expenses, and
acquisition cost and other underwriting expenses throughout the discussion and should be read in conjunction
with GAAP measures and the reconciliations of non-GAAP measures.
Personal Lines
The components of income from the Company’s Personal Lines segment and corresponding underwriting ratios
are as follows:
(Dollars in thousands)
Years Ended
December 31,
Increase / (Decrease)
2015
2014 (1)
$
%
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$326,282
$339,248
$(12,966)
(3.8%)
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$254,035
$255,182
$ (1,147)
(0.4%)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$253,048
2,872
$254,641
1,912
$ (1,593)
960
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
255,920
256,553
(633)
Losses and expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses (2) . . . . . . . . . . . . . . . . . .
163,986
99,140
154,856
106,131
9,130
(6,991)
(0.6%)
50.2%
(0.2%)
5.9%
(6.6%)
Income (loss) from segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (7,206) $ (4,434) $ (2,772)
(62.5%)
Underwriting Ratios:
Loss ratio:
Current accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior accident year
Calendar year loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64.8
0.0
64.8
39.2
56.8
4.0
60.8
41.7
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104.0
102.5
8.0
(4.0)
4.0
(2.5)
1.5
Reconciliation of Non-GAAP Measures
Loss ratio excluding the effect of prior accident year (3) (8) . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non catastrophe loss ratio excluding the effect of prior accident
year (4) (8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non catastrophe loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64.8
0.0
64.8
51.4
0.0
51.4
56.8
4.0
60.8
50.4
4.0
54.4
Non catastrophe losses excluding the effect of prior accident
year (5) (8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$130,003
0
$128,344
10,267
Non catastrophe losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$130,003
$138,611
Catastrophe loss ratio excluding the effect of prior accident
year (6) (8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Catastrophe loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.4
0.0
13.4
6.4
0.0
6.4
Catastrophe losses excluding the effect of prior accident
year (7) (8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 33,983
—
$ 16,245
—
Catastrophe losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 33,983
$ 16,245
66
(1) Represent unaudited pro forma results of operation for the year ended December 31, 2014 as if the
(2)
acquisition had occurred on January 1, 2014 as opposed to January 1, 2015.
Includes excise tax of $1,265 and $1,273 related to cessions from the Company’s Personal Lines to its
Reinsurance Operations for the years ended December 31, 2015 and 2014, respectively.
(3) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the loss ratio.
(4) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the non-catastrophe loss ratio.
(5) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the non-catastrophe losses.
(6) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the catastrophe loss ratio.
(7) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the catastrophe losses.
(8) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when
evaluating the Company’s underwriting performance as trends in the Company’s Personal Lines may be
obscured by prior accident year adjustments. This non-GAAP ratio should not be considered as a substitute
for its most directly comparable GAAP measure and does not reflect the overall underwriting profitability of
the Company.
Gross premiums written, which represent the amount received or to be received for insurance policies written
without reduction for reinsurance costs or other deductions, were $326.3 million for the year ended December 31,
2015, compared with $339.2 million for year ended December 31, 2014, a decrease of $13.0 million or 3.8%.
The decrease is primarily due to a reduction in premiums on business written by American Reliable that is ceded
to insurance entities owned by Assurant under a 100% quota share reinsurance agreement.
Net premiums written, which equal gross premiums written less ceded premiums written, were $254.0 million for
the year ended December 31, 2015, compared with $255.2 million for the year ended December 31, 2014, a
decrease of $1.1 million or 0.4%. The ratio of net premiums written to gross premiums written was 77.9% for the
year ended December 31, 2015 and 75.2% for the year ended December 31, 2014, an increase of 2.7 points.
Net premiums earned were $253.0 million for the year ended December 31, 2015, compared with $254.6 million
for the year ended December 31, 2014, a decrease of $1.6 million or 0.6%. Property net premiums earned for the
year ended December 31, 2015 and 2014 were $216.7 million and $217.0 million, respectively. Casualty net
premiums earned were $36.3 million and $37.6 million for the years ended December 31, 2015 and 2014,
respectively.
Other Income
Other income was $2.9 million and $1.9 million for the years ended December 31, 2015 and 2014, respectively.
Other income is primarily comprised of fee income on installments, commission income and accrued interest on
the anticipated indemnification of unpaid loss and loss adjustment expense reserves. In accordance with a dispute
resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., any variance
paid related to the loss indemnification will be subject to interest of 5% compounded semi-annually. See note 3
for additional information pertaining to the loss indemnification.
Net Losses and Loss Adjustment Expenses
The loss ratio for the Company’s Personal Lines was 64.8% for the year ended December 31, 2015 compared
with 60.8% for the year ended December 31, 2014. The loss ratio is a GAAP financial measure that is generally
viewed in the insurance industry as an indicator of underwriting profitability and is calculated by dividing net
losses and loss adjustment expenses by net premiums earned.
67
The current accident year loss ratio for the year ended December 31, 2015 was 64.8%, an increase of 8.0 points
from 56.8%, for the year ended December 31, 2014:
• The non-catastrophe loss ratio increased 1.0 points from 50.4% in the year ended December 31, 2014
to 51.4% in the year ended December 31, 2015. Non-catastrophe losses were $130.0 million and
$128.3 million for the years ended December 31, 2015 and 2014, respectively.
• The catastrophe loss ratio increased 7.0 points from 6.4% in the year ended December 31, 2014 to
13.4% in the year ended December 31, 2015 mainly due to wild fires in California. Catastrophe losses
were $34.0 million and $16.2 million for the years ended December 31, 2015 and 2014, respectively.
For the years ended December 31, 2015, the Company had no changes to prior accident year losses. In 2014,
losses related to prior years resulted in an increase in the loss ratio by 4.0 points. When analyzing loss reserves
and prior year development, the Company considers many factors, including the frequency and severity of
claims, loss trends, case reserve settlements that may have resulted in significant development, and any other
additional or pertinent factors that may impact reserve estimates.
Acquisition Costs and Other Underwriting Expenses
Acquisition costs and other underwriting expenses were $99.1 million for the year ended December 31, 2015,
compared with $106.1 million for the year ended December 31, 2014, a decrease of $7.0 million or 6.6%. The
decrease is primarily due to impact on underwriting expenses from the acquisition date adjustments to fair value
of deferred acquisition costs and intangible assets.
Expense and Combined Ratios
The expense ratio for the Company’s Personal Lines was 39.2% for the year ended December 31, 2015,
compared with 41.7% for the year ended December 31, 2014. The decrease in the expense ratio is primarily due
to impact on underwriting expenses from the acquisition date adjustments to fair value of deferred acquisition
costs and intangible assets. The expense ratio is a GAAP financial measure that is calculated by dividing the sum
of acquisition costs and other underwriting expenses by net premiums earned.
The combined ratio for the Company’s Personal Lines was 104.0% for the year ended December 31, 2015,
compared with 102.5% for the year ended December 31, 2014. The combined ratio is a GAAP financial measure
and is the sum of the Company’s loss and expense ratios. See discussion of loss ratio included in “Net Losses and
Loss Adjustment Expenses” above and discussion of expense ratio in preceding paragraph for an explanation of
the increase.
Income (loss) from Segment
The factors described above resulted in loss from the Company’s Personal Lines of 7.2 million for the year ended
December 31, 2015, compared to a loss of $4.4 million in the year ended December 31, 2014.
68
Commercial Lines
The components of income from the Company’s Commercial Lines segment and corresponding underwriting
ratios are as follows:
Years Ended
December 31,
Increase / (Decrease)
(Dollars in thousands)
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $214,218 $229,978 $(15,760)
2015
2014
$
%
(6.9%)
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $197,526 $212,965 $(15,439)
(7.2%)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $199,304 $211,165 $(11,861)
1
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $199,925 $211,785 $(11,860)
621
620
(5.6%)
0.2%
(5.6%)
Losses and expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses (1) . . . . . . . . . . . . . . . . . .
97,530
83,170
Income from segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,225 $
(20,056)
117,586
88,983
(5,813)
5,216 $ 14,009
(17.1%)
(6.5%)
268.6%
0.2
(7.0)
(6.8)
(0.4)
(7.2)
Underwriting Ratios:
Loss ratio:
Current accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calendar year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Non-GAAP Measures
Combined ratio excluding the effect of prior accident year (2) (11) . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss ratio excluding the effect of prior accident year (3) (11)
. . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property loss ratio excluding the effect of prior accident year (4) (11) . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-catastrophe property loss ratio excluding the effect of prior accident year (5)
(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-catastrophe property loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61.8
(12.9)
48.9
41.7
90.6
103.5
(12.9)
90.6
61.8
(12.9)
48.9
55.3
(1.1)
54.2
46.1
(1.4)
44.7
61.6
(5.9)
55.7
42.1
97.8
103.7
(5.9)
97.8
61.6
(5.9)
55.7
51.8
1.6
53.4
40.8
0.8
41.6
Non-catastrophe property losses excluding the effects of prior accident year (6)
(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-catastrophe property losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,078
(1,633)
53,445
51,697
1,038
52,735
Catastrophe loss ratio excluding the effect of prior accident year (7) (11) . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Catastrophe loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.2
0.2
9.4
Catastrophe losses excluding the effects of prior accident year (8) (11) . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Catastrophe losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,014
249
11,263
11.0
0.8
11.8
13,950
985
14,935
Casualty loss ratio excluding the effect of prior accident year (9) (11) . . . . . . . . . .
Effect of prior accident year casualty loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casualty loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71.4
(30.3)
41.1
76.2
(17.2)
59.0
Net losses and loss adjustment expenses excluding the effects of prior accident
year (10) (11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123,158
(25,628)
97,530
130,077
(12,491)
117,586
69
(1)
Includes excise tax of $1,051 and $1,114 related to cessions from the Company’s Commercial Lines to its Reinsurance
Operations for 2015 and 2014, respectively.
(2) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the combined ratio.
(3) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the loss ratio.
(4) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the property loss ratio.
(5) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the non-catastrophe property loss ratio.
(6) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the non-catastrophe property losses.
(7) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. . The most directly comparable GAAP
measure is the catastrophe loss ratio.
(8) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the catastrophe losses.
(9) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the casualty loss ratio.
(10) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly comparable GAAP
measure is the net losses and loss adjustment expenses.
(11) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when evaluating the
Company’s underwriting performance as trends in the Company’s Commercial Lines may be obscured by prior accident year
adjustments. This non-GAAP ratio or measure 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.
Premiums
The Company’s Commercial Lines’ gross written, net written, and net earned premiums by product line are as follows:
(Dollars in thousands)
Year Ended December 31, 2015
Year Ended December 31, 2014
Gross
Written
Net
Written
Net
Earned
Gross
Written
Net
Written
Net
Earned
Small Business Binding Authority . . . . . . . . . . .
Property Brokerage . . . . . . . . . . . . . . . . . . . . . . .
Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$112,339
40,178
57,676
4,025
$107,615
33,012
53,050
3,849
$108,203
33,647
53,000
4,454
$122,387
40,822
61,225
5,544
$116,510
35,100
56,379
4,976
$109,222
33,297
56,114
12,532
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$214,218
$197,526
$199,304
$229,978
$212,965
$211,165
Gross premiums written were $214.2 million for 2015, compared with $230.0 million for 2014, a decrease of $15.8
million or 6.9%. The decrease is the result of underwriting actions taken to improve profitability.
Net premiums written were $197.5 million for 2015, compared with $213.0 million for 2014, a decrease of $15.4
million or 7.2%. The decrease was primarily due to the reduction in gross premiums written as noted above. The ratio
of net premiums written to gross premiums written was 92.2% for 2015 and 92.6% for 2014, a decrease of 0.4%.
Net premiums earned were $199.3 million for 2015, compared with $211.2 million for 2014, a decrease of $11.9
million or 5.6%. The decline in net premiums earned was primarily due to a reduction of gross premiums written as
noted above. Property net premiums earned for 2015 and 2014 were $119.4 million and $126.6 million, respectively.
Casualty net premiums earned for 2015 and 2014 were $79.9 million and $84.5 million, respectively.
70
Other Income
Other income was $0.6 million for each of the years ended December 31, 2015 and 2014, respectively. Other
income is primarily comprised of fee income.
Net Losses and Loss Adjustment Expenses
Net losses and loss adjustment expenses were $97.5 million for 2015, compared with $117.6 million for 2014, a
decrease of $20.1 million or 17.1%. Excluding the impact of prior year adjustments, the current accident year net
losses and loss adjustment expenses were $123.2 million and $130.1 million for the years ended December 31,
2015 and 2014, respectively. This decrease is primarily attributable to underwriting actions taken to reduce
exposure in the commercial automobile book. In addition, catastrophe losses are lower in 2015 due to a decrease
in the severity of the storms compared to 2014.
The loss ratio for the Company’s Commercial Lines was 48.9% for 2015 compared with 55.7% for 2014.
The current accident year loss ratio increased 0.2 points to 61.8 in 2015 from 61.6% in 2014.
• The current accident year property loss ratio increased 3.5 points from 51.8% in 2014 to 55.3% in
2015.
• The non-catastrophe property loss ratio increased 5.3 points from 40.8% in 2014 to 46.1% in 2015
which is mainly attributable to one large fire loss in Florida. Non-catastrophe property losses were
$55.1 million and $51.7 million for the years ended December 31, 2015 and 2014, respectively.
• The catastrophe loss ratio decreased 1.8 points from 11.0% in 2014 to 9.2% in 2015. Catastrophe
losses were $11.0 million and $14.0 million for the years ended December 31, 2015 and 2014,
respectively.
• The current accident year casualty loss ratio decreased 4.8 points from 76.2% in 2014 to 71.4% in
2015. During the last several years, rates were increased and unprofitable business was not renewed
contributing to this improvement.
In 2015, the Company reduced its prior accident year loss reserves by $25.6 million, which primarily consisted of
the following:
• General Liability: A $20.4 million reduction in aggregate with $5.9 million of favorable development
in the construction defect reserve category and $14.5 million of favorable development in the other
general liability reserve categories. In the construction defect reserve category, a reduction in both
claims frequency and severity was observed across several accident years which contributed to the
recognition of favorable development primarily in accident years 2008 through 2014. For general
liability excluding construction defect, lower than expected claims severity was experienced across
multiple accident years leading to the recognition of favorable development in accident years 2004
through 2014.
• Professional: A $6.2 million decrease in aggregate primarily related to better than anticipated claims
frequency and severity in accident years 2006 through 2011.
In 2014, the Company reduced its prior accident year loss reserves by $12.5 million, which primarily consisted of
the following:
• Property: A $2.1 million increase due to higher than expected emergence on non-catastrophe claims
primarily in accident years 2007, 2012, and 2013.
• General Liability: A $3.1 million reduction due to less than anticipated frequency in accident year
2001 and less than anticipated frequency and severity on claims from accident years 2007 through 2010
partially offset by greater than anticipated loss emergence in accident year 2013.
71
• Asbestos and Environmental: A $7.1 million increase related to policies written prior to 1990 as a
result of recent severity being higher than expected due to faster erosion of underlying policy limits.
• Professional: A $19.4 million reduction primarily due to expected loss emergence being much less
than anticipated for accident years 2007 through 2011.
• Umbrella: A $2.7 million decrease primarily driven by less than anticipated frequency in accident
years 2002 through 2007.
• Commercial Auto: A $3.6 million increase primarily related to accident years 2011 through 2013.
Larger vehicles were written prior to 2014 and industry loss development factors were used to project
losses.
Acquisition Costs and Other Underwriting Expenses
Acquisition costs and other underwriting expenses were $83.2 million for 2015, compared with $89.0 million for
2014, a decrease of $5.8 million or 6.5%. This decrease is primarily due to certain costs which were allocated
solely to Commercial Lines in 2014 now being allocated to both Commercial Lines and Personal Lines. In
addition, commission expense is slightly lower due to a reduction in net premiums earned as noted above.
Expense and Combined Ratios
The expense ratio for the Company’s Commercial Lines was 41.7% for 2015, compared with 42.1% for 2014.
This decrease is primarily due to certain costs which were allocated solely to Commercial Lines in 2014 now
being allocated to both Commercial Lines and Personal Lines.
The combined ratio for the Company’s Commercial Lines was 90.6% for 2015, compared with 97.8% for 2014.
Excluding the impact of prior accident year adjustments, the current accident year combined ratio decreased from
103.7% in 2014 to 103.5% in 2015. See discussion of loss ratio included in “Net Losses and Loss Adjustment
Expenses” above and discussion of expense ratio in preceding paragraph above for an explanation of this
decrease.
Income from Segment
The factors described above resulted in income from the Company’s Commercial Lines of $19.2 million for
2015, compared with income of $5.2 million for 2014, an improvement of $14.0 million.
72
Reinsurance Operations
The components of
underwriting ratios are as follows:
income from the Company’s Reinsurance Operations segment and corresponding
(Dollars in thousands)
Years Ended
December 31,
Increase /
(Decrease)
2015
2014
$
%
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,733
$61,275
$(11,542)
(18.8%)
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,683
$60,216
$(10,533)
(17.5%)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,791
(93)
Other loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,354
(65)
$ (5,563)
(28)
(9.7%)
(43.1%)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,698
$57,289
$ (5,591)
(9.8%)
Losses and expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . . . . . . . . .
13,852
18,993
19,975
20,636
(6,123)
(1,643)
(30.7%)
(8.0%)
Income from segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,853
$16,678
$ 2,175
13.0%
2.6
(10.6)
(8.0)
0.7
(7.3)
Underwriting Ratios:
Loss ratio:
Current accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44.3
(17.5)
Calendar year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Non-GAAP Measures
Combined ratio excluding the effect of prior accident year (1) (4) . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year
26.8
36.7
63.5
81.0
(17.5)
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63.5
Loss ratio excluding the effect of prior accident year (2) (4) . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year
44.3
(17.5)
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.8
41.7
(6.9)
34.8
36.0
70.8
77.7
(6.9)
70.8
41.7
(6.9)
34.8
Net losses and loss adjustment expenses excluding the effects of prior
accident year (3) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year
22,922
(9,070)
23,917
(3,942)
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . .
13,852
19,975
(1) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the combined ratio.
(2) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the loss ratio.
(3) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the net losses and loss adjustment expenses.
(4) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when
evaluating the Company’s underwriting performance as trends in the Company’s reinsurance operations
may be obscured by prior accident year adjustments. This non-GAAP ratio or measure 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.
73
Premiums
Gross premiums written were $49.7 million for 2015, compared $61.3 million for 2014, a decrease of $11.5
million or 18.8%. This decrease is mainly due to competition in the property catastrophe reinsurance
marketplace. The market is still very competitive due to excess capital resulting in property rates declining and
smaller portfolios. One of the treaties was non-renewed in 2016 to reduce catastrophe exposure. In addition, due
to the nature of the property catastrophe reinsurance marketplace, gross written premiums within the Companies’
Reinsurance Operations might continue to decline in 2016.
Net premiums written were $49.7 million for 2015, compared with $60.2 million for 2014, a decrease of $10.5
million or 17.5%. This decrease is due to a decline in gross premiums written as noted above.
Net premiums earned were $51.8 million for 2015, compared with $57.4 million for 2014, a decrease of $5.6
million or 9.7%. The decrease is primarily due to a decline in gross premiums written as noted above. Property
net premiums earned for 2015 and 2014 were $49.5 million and $55.3 million, respectively. Casualty net
premiums earned for 2015 and 2014 were $2.3 million and $2.0 million, respectively.
Other Loss
The Company recognized an other loss of less than $0.1 million for both 2015 and 2014. Other loss is comprised
of foreign exchange gains and losses.
Net Losses and Loss Adjustment Expenses
Net losses and loss adjustment expenses were $13.9 million for 2015, compared with $20.0 million for 2014, a
decrease of $6.1 million or 30.7%. Excluding the impact of prior year adjustments, the current accident year net
losses and loss adjustment expenses decreased from $23.9 million for 2014 to $22.9 million for 2015.
The loss ratio for the Company’s Reinsurance Operations was 26.8% for 2015 compared with 34.8% for 2014.
The current accident year loss ratio increased 2.6 points from 41.7% for 2014 to 44.3% for 2015 primarily due to
slightly higher premium volume in professional lines which generally has a higher loss ratio than property as
well as increased marine property losses due to the Tianjin explosion in China.
There was a decrease in net losses and loss adjustment expenses for prior accident years of $9.1 million in 2015
which decreased the loss ratio by 17.5 points compared to a decrease in net losses and loss adjustment expenses
for prior accident years of $3.9 million in 2014 which decreased the loss ratio by 6.9 points.
The $9.1 million decrease in prior accident year loss reserves in 2015 was driven by $6.8 million of favorable
development in property primarily from accident years 2011 through 2014 and $2.8 million of favorable
development in the marine product primarily from accident years 2010 and 2011, partially offset by adverse
development of $1.0 million in workers compensation primarily due to accident year 2010. Ultimate losses from
quota share underwriting years 2013 & prior were booked to the amount reported from cedants and reserve
releases on legacy contracts due to better than anticipated case incurred emergence led to the recognition of
favorable development.
The $3.9 million decrease in prior accident year loss reserves in 2014 was primarily due to better than anticipated
loss emergence on property lines partially offset by adverse development related to commercial auto and higher
than anticipated severity on the Company’s marine product.
74
Acquisition Costs and Other Underwriting Expenses
Acquisition costs and other underwriting expenses were $19.0 million for 2015, compared with $20.6 million for
2014, a decrease of $1.6 million or 8.0%. The decrease is primarily due to a lower premium base and a reduction
in contingent commissions due to lower reserve release on contracts with contingent commission.
Expense and Combined Ratios
The expense ratio for the Company’s Reinsurance Operations was 36.7% for 2015, compared with 36.0% for
2014. The increase is primarily due to consulting fees incurred and bonuses awarded during 2015 offset by a
reduction in current accident year contingent commissions due to lower premium earned on one of the property
catastrophe contracts.
The combined ratio for the Company’s Reinsurance Operations was 63.5% for 2015, compared 70.8% for 2014.
Excluding the impact of prior accident year adjustments, the combined current accident year ratio increased from
to 77.7% in 2014 to 81.0% in 2015. See discussion of loss ratio included in “Net Losses and Loss Adjustment
Expenses” above and discussion of expense ratio in preceding paragraph above for an explanation of this
increase.
Income from Segment
The factors described above resulted in income from the Company’s Reinsurance Operations of $18.9 million in
2015, compared to $16.7 million in 2014, an increase of $2.2 million or 13.0%.
Unallocated Corporate Items
The following items are not allocated to the Company’s Commercial Lines, Personal Lines, or Reinsurance
Operations segments:
Year Ended
December 31,
Increase / (Decrease)
(Dollars in thousands)
2015
2014
$
%
Net investment income . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains (losses) . . . . . . . . . . .
Corporate and other operating expenses . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . . . .
$ 34,609
(3,374)
(24,448)
(4,913)
8,723
$ 28,821
35,860
(14,559)
(822)
(8,338)
$ 5,788
(39,234)
9,889
4,091
(17,061)
20.1%
(109.4%)
67.9%
497.7%
(204.6%)
Net Investment Income
Net investment income, which is gross investment income less investment expenses, was $34.6 million for 2015,
compared with $28.8 million for 2014, an increase of $5.8 million or 20.1%.
• Gross investment income, which excludes realized gains and losses, was $37.9 million for 2015,
compared with $32.4 million for 2014, an increase of $5.5 million or 17.0%. The increase was
primarily due to the acquisition of American Reliable.
•
Investment expenses were $3.3 million for 2015, compared with $3.6 million for 2014, a decrease of
$0.3 million or 8.1%. The decrease is primarily due to a reduction of the Company’s equity portfolio
during 2014.
As of December 31, 2015, the Company held agency mortgage-backed securities with a book value of $100.4
million. Excluding the agency mortgage-backed securities,
the average duration of the Company’s fixed
maturities portfolio was 2.4 years as of December 31, 2015, compared with 2.0 years as of December 31, 2014.
75
Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio,
excluding agency mortgage-backed securities was 2.3 years as of December 31, 2015, compared with 1.9 years
as of December 31, 2014. Changes in interest rates can cause principal payments on certain investments to extend
or shorten which can impact duration. At December 31, 2015, the Company’s embedded book yield on its fixed
maturities, not including cash, was 2.2% compared with 2.1% at December 31, 2014. As of December 31, 2015,
the Company’s investment portfolio held $93.5 million in tax-free municipal bonds with an embedded book yield
of 2.7% compared with an embedded book yield of 3.3% on $69.5 million in tax-free municipal bonds as of
December 31, 2014.
Net Realized Investment Gains (Losses)
Net realized investment losses were $3.4 million for 2015, compared with a net realized investment gains of
$35.9 million for 2014. The net realized investment loss for 2015 consist primarily of net gains of $1.4 million
related to the Company’s fixed maturities and $9.5 million related to its equity securities, offset by losses of $7.0
million related to its interest rate swaps and other than temporary impairment losses of $7.3 million. The net
realized investment gains for 2014 consist primarily of net gains of $2.2 million related to the Company’s fixed
maturities and $55.0 million related to its equity securities, offset by losses of $20.8 million related to its interest
rate swaps and other than temporary impairment losses of $0.5 million.
See Note 4 of the notes to the consolidated financial statements in Item 8 of Part II of this report for an analysis
of total investment return on a pre-tax basis for the years ended December 31, 2015, 2014, and 2013.
Corporate and Other Operating Expenses
Corporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees,
management fees, salaries and benefits for holding company personnel, development costs for new products, and
taxes incurred which are not directly related to operations. Corporate and other operating expenses were $24.4
million for 2015, compared with $14.6 million for 2014, an increase of $9.9 million or 67.9%. The increase is
primarily due to incurring costs as a result of the acquisition of American Reliable.
Interest Expense
Interest expense was $4.9 million for 2015 compared with $0.8 million for 2014, an increase of $4.1 million.
This is primarily due to the new debt offering in August, 2015 as well as higher balances outstanding under the
margin borrowing facilities in 2015 as compared to 2014. See Note 11 of the notes to the consolidated financial
statements in Item 8 of Part II of this report for details on the Company’s debt.
Income Tax Expense (Benefit)
Income tax benefit was $8.7 million for 2015 compared with income tax expense of $8.3 million for 2014. See
Note 9 of the notes to the consolidated financial statements in Item 8 of Part II of this report for an analysis of
income tax expense (benefit) between periods.
Net Income
The factors described above resulted in net income of $41.5 million in 2015, compared with net income of $62.9
million in 2014, a decrease of $21.4 million.
Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Prior to January 1, 2015, the Company did not have a Personal Lines business.
76
Commercial Lines
The components of income from the Company’s Commercial Lines segment and corresponding underwriting
ratios are as follows:
(Dollars in thousands)
Years Ended December 31,
Increase / (Decrease)
2014
2013
$
%
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $229,978
$232,373
$ (2,395)
(1.0%)
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $212,965
$213,705
$ (740)
(0.3%)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $211,165
620
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$196,302
5,795
$14,863
(5,175)
7.6%
(89.3%)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $211,785
$202,097
$ 9,688
4.8%
Losses and expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses (1) . . . . . . . .
117,586
88,983
116,837
87,360
749
1,623
0.6%
1.9%
Income (loss) from segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,216
$ (2,100)
$ 7,316
(348.4%)
(1.8)
(2.0)
(3.8)
(2.4)
(6.2)
Underwriting Ratios:
Loss ratio:
Current accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calendar year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Non-GAAP Measures
Combined ratio excluding the effect of prior accident year (2) (9) . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio excluding the effect of prior accident year and
premium deficiency (3) (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of premium deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss ratio excluding the effect of prior accident year (9) (12) . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property loss ratio excluding the effect of prior accident
year (4) (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year
Property loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casualty loss ratio excluding the effect of prior accident
year (5) (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year casualty loss . . . . . . . . . . . . . . . . . . . . . .
Casualty loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio excluding the effect of premium deficiency (6) (11) . .
Effect of premium deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
61.6
(5.9)
55.7
42.1
97.8
103.7
(5.9)
97.8
104.4
(5.9)
(0.7)
97.8
61.6
(5.9)
55.7
51.8
1.6
53.4
76.2
(17.2)
59.0
42.8
(0.7)
42.1
63.4
(3.9)
59.5
44.5
104.0
107.9
(3.9)
104.0
107.3
(3.9)
0.6
104.0
63.4
(3.9)
59.5
50.4
(8.0)
42.4
81.5
1.9
83.4
43.9
0.6
44.5
(Dollars in thousands)
Years Ended December 31,
Increase / (Decrease)
2014
2013
$
%
Net losses and loss adjustment expenses excluding the effects of
prior accident year (7) (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,077
(12,491)
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124,470
(7,633)
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . 117,586
116,837
Acquisition costs and other underwriting expenses excluding the
effects of premium deficiency (8) (11) . . . . . . . . . . . . . . . . . . . . . .
Effect of premium deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,314
(1,331)
Acquisition cost and other underwriting expenses . . . . . . . . . . . . . . .
88,983
86,164
1,196
87,360
(1)
Includes excise tax of $1,114 and $1,026 related to cessions from the Company’s Commercial Lines to its
Reinsurance Operations for 2014 and 2013, respectively.
(2) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the combined ratio.
(3) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments and premium
deficiency charges. The most directly comparable GAAP measure is the combined ratio.
(4) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the property loss ratio.
(5) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the casualty loss ratio.
(6) This is a non-GAAP ratio that excludes the impact of premium deficiency charges. The most directly
comparable GAAP measure is the expense ratio.
(7) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the net losses and loss adjustment expenses.
(8) This is a non-GAAP measure that excludes the impact of premium deficiency charges. The most directly
comparable GAAP measure is the acquisition cost and other underwriting expenses.
(9) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when
evaluating the Company’s underwriting performance as trends in the Company’s Commercial Lines may be
obscured by prior accident year adjustments. This non-GAAP ratio or measure 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.
(10) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when
evaluating the Company’s underwriting performance as trends in the Company’s Commercial Lines may be
obscured by prior accident year adjustments and premium deficiency charges. This non-GAAP ratio or
measure 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.
(11) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when
evaluating the Company’s underwriting performance as trends in the Company’s U.S. Commercial Lines
may be obscured by premium deficiency charges. This non-GAAP ratio or measure 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.
(12) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the loss ratio.
78
Premiums
The Company’s Commercial Lines’ gross written, net written, and net earned premiums by product line are as follows:
(Dollars in thousands)
Year Ended December 31, 2014
Year Ended December 31, 2013
Gross
Written
Net
Written
Net
Earned
Gross
Written
Net
Written
Net
Earned
Small Business Binding Authority . . . . . .
Property Brokerage . . . . . . . . . . . . . . . . . .
Programs . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$122,387
40,822
61,225
5,544
$116,510
35,100
56,379
4,976
$109,222
33,297
56,114
12,532
$110,412
40,313
60,347
21,301
$103,726
34,469
55,524
19,986
$ 95,070
30,294
53,094
17,844
Total
. . . . . . . . . . . . . . . . . . . . . . . . .
$229,978
$212,965
$211,165
$232,373
$213,705
$196,302
Gross premiums written, which represents the amount received or to be received for insurance policies written
without reduction for reinsurance costs or other deductions, was $230.0 million for 2014, compared with $232.4
million for 2013, a decrease of $2.4 million or 1.0%. The decrease was due to a reduction in other which was
primarily due to the culling of unprofitable business within the Company’s commercial automobile lines.
Excluding commercial automobile, which is included in the other category in the table above, gross written
premiums increased by $13.1 million or 6.1% due to growth in small business driven by both higher retention
rates and rate increases.
Net premiums written, which equals gross premiums written less ceded premiums written, was $213.0 million for
2014, compared with $213.7 million for 2013, a decrease of $0.7 million or 0.3%. As noted above, the decrease
was primarily due to a reduction in gross premium written for commercial automobile partially offset by an
increase in gross written premiums due to growth in small business. The ratio of net premiums written to gross
premiums written was 92.6% for 2014 and 92.0% for 2013.
Net premiums earned were $211.2 million for 2014, compared with $196.3 million for 2013, an increase of $14.9
million or 7.6%. The growth in net premiums earned was primarily due to increases in net premiums written within
the previous year. Property net premiums earned for 2014 and 2013 were $126.6 million and $114.1 million,
respectively. Casualty net premiums earned for 2014 and 2013 were $84.5 million and $82.2 million, respectively.
Other Income
Other income was $0.6 million and $5.8 million for the years ended December 31, 2014 and 2013, respectively.
In 2014, other income is primary comprised of fee income. In 2013, other income is primarily comprised of the
net gain on the asset sale of the Company’s wholly owned subsidiary, United National Casualty Insurance
Company of $5.2 million and fee income.
Net Losses and Loss Adjustment Expenses
Net losses and loss adjustment expenses were $117.6 million for 2014, compared with $116.8 million for 2013,
an increase of $0.7 million or 0.6%. Excluding the impact of prior year adjustments, the current accident year net
losses and loss adjustment expenses were $130.1 million and $124.5 million for the years ended December 31,
2014 and 2013, respectively. This increase is primarily attributable to growth in earned premium volume, as
noted above, as well as an increase in catastrophe losses in 2014.
The loss ratio for the Company’s Commercial Lines was 55.7% for 2014 compared with 59.5% for 2013.
The current accident year loss ratio decreased 1.8 points to 61.6% in 2014 from 63.4% in 2013.
• The current accident year property loss ratio increased 1.4 points from 50.4% in 2013 to 51.8% in 2014.
• The non-catastrophe property loss ratio decreased 0.8 points from 41.6% in 2013 to 40.8% in
2014. Non-catastrophe property losses were $51.7 million and $47.5 million for the years ended
December 31, 2014 and 2013, respectively.
79
• The catastrophe loss ratio increased 2.3 points from 8.7% in 2013 to 11.0% in 2014. Catastrophe losses
were $14.0 million and $10.0 million for the years ended December 31, 2014 and 2013, respectively.
• The current accident year casualty loss ratio decreased 5.3 points from 81.5% in 2013 to 76.2% in
2014. During the last several years, rates were increased and unprofitable business was not renewed
contributing to this decrease.
In 2014, the Company reduced its prior accident year loss reserves by $12.5 million, which primarily consisted of
the following:
• Property: A $2.1 million increase due to higher than expected emergence on non-catastrophe claims
primarily in accident years 2007, 2012, and 2013.
• General Liability: A $3.1 million reduction due to less than anticipated frequency in accident year
2001 and less than anticipated frequency and severity on claims from accident years 2007 through 2010
partially offset by greater than anticipated loss emergence in accident year 2013.
• Asbestos and Environmental: A $7.1 million increase related to policies written prior to 1990 as a
result of recent severity being higher than expected due to faster erosion of underlying policy limits.
• Professional: A $19.4 million reduction primarily due to expected loss emergence being much less
than anticipated for accident years 2007 through 2011.
• Umbrella: A $2.7 million decrease primarily driven by less than anticipated frequency in accident
years 2002 through 2007.
• Commercial Auto: A $3.6 million increase primarily related to accident years 2011 through 2013. Larger
vehicles were written prior to 2014 and industry loss development factors were used to project losses.
In 2013, the Company reduced its prior accident year loss reserves by $7.6 million, which primarily consisted of
the following:
• Property: A $9.2 million reduction primarily driven by better than expected development from
accident years 2010, 2011, and 2012 related primarily to lower than expected non-catastrophe severity.
• General Liability: A $6.7 million reduction primarily due to better than expected emergence in nearly
all accident years between 2003 through 2011 partially offset by an increase to accident years 1998
through 2002 and 2012 due to higher than anticipated loss emergence.
• Asbestos and Environmental: A $6.8 million increase primarily related to policies written prior to 1990.
• Professional: A $0.7 million increase primarily driven by $2.2 million increase in aggregate from
unexpected loss emergence in accident years 2006 to 2008 and 2010 offset by $1.5 million of favorable
emergence from accident years 1998 and 2011.
• Umbrella: A $1.1 million decrease primarily driven by better than expected loss emergence in accident
years 2002 to 2010 offset by increases in 2011 and 2012.
• Commercial Auto: A $0.9 million increase primarily related to accident year 2011.
• Marine: A $0.9 million increase primarily related to accident years 2011 and 2012.
Acquisition Costs and Other Underwriting Expenses
Acquisition costs and other underwriting expenses were $89.0 million for 2014, compared with $87.4 million for
2013, an increase of $1.6 million or 1.9%. The increase is primarily due to increased commissions as a result of
growth in net premiums earned offset by the impact of the premium deficiency charge recognized in 2013.
Expense and Combined Ratios
The expense ratio for the Company’s Commercial Lines was 42.1% for 2014, compared with 44.5% for 2013.
The decrease in the expense ratio is primarily due to the growth in earned premium volume as well as the impact
of the premium deficiency charge recognized in 2013 as noted above.
80
The combined ratio for the Company’s Commercial Lines was 97.8% for 2014, compared with 104.0% for 2013.
Excluding the impact of prior accident year adjustments, the current accident year combined ratio decreased from
107.9% in 2013 to 103.7% in 2014. See discussion of loss ratio included in “Net Losses and Loss Adjustment
Expenses” above and discussion of expense ratio in preceding paragraph above for an explanation of this decrease.
Income (Loss) from Segment
The factors described above resulted in income from the Company’s Commercial Lines of $5.2 million for 2014,
compared with a loss of $2.1 million for 2013, an improvement of $7.3 million.
Reinsurance Operations
The components of
underwriting ratios are as follows:
income from the Company’s Reinsurance Operations segment and corresponding
(Dollars in thousands)
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
$61,275
2013
$58,350
$
$ 2,925
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$60,216
$58,279
$ 1,937
%
5.0%
3.3%
Years Ended
December 31,
Increase /
(Decrease)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses and expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from segment
Underwriting Ratios:
Loss ratio:
Current accident year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calendar year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Non-GAAP Measures
Combined ratio excluding the effect of prior accident year (1) (5)
. . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss ratio excluding the effect of prior accident year (2) (5) . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net losses and loss adjustment expenses excluding the effects of prior
accident year (3) (5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of prior accident year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses excluding the effects
of premium deficiency (4) (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of premium deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition cost and other underwriting expenses . . . . . . . . . . . . . . . . . . .
$57,354
(65)
$57,289
$52,420
(4)
$52,416
$ 4,934
9.4%
(61) NM
$ 4,873
9.3%
19,975
20,636
$16,678
16,154
18,291
$17,971
3,821
2,345
$(1,293)
23.7%
12.8%
(7.2%)
10.4
(6.4)
4.0
1.1
5.1
41.7
(6.9)
34.8
36.0
70.8
77.7
(6.9)
70.8
41.7
(6.9)
34.8
31.3
(0.5)
30.8
34.9
65.7
66.2
(0.5)
65.7
31.3
(0.5)
30.8
23,917
(3,942)
19,975
16,403
(249)
16,154
20,653
(17)
20,636
18,322
(31)
18,291
NM—not meaningful
(1) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the combined ratio.
81
(2) This is a non-GAAP ratio that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the loss ratio.
(3) This is a non-GAAP measure that excludes the impact of prior accident year adjustments. The most directly
comparable GAAP measure is the net losses and loss adjustment expenses.
(4) This is a non-GAAP measure that excludes the impact of premium deficiency charges. The most directly
comparable GAAP measure is the acquisition cost and other underwriting expenses.
(5) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when
evaluating the Company’s underwriting performance as trends in the Company’s reinsurance operations
may be obscured by prior accident year adjustments. This non-GAAP ratio or measure 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.
(6) The Company’s management believes that this non-GAAP ratio or measure is useful to investors when
evaluating the Company’s underwriting performance as trends in the Company’s reinsurance operations
may be obscured by premium deficiency charges. This non-GAAP ratio or measure 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.
Premiums
Gross premiums written was $61.3 million for 2014, compared $58.4 million for 2013, an increase of $2.9
million or 5.0%. This increase is mainly due to a change in the Company’s quota share participation on several
property treaties as well as several new professional liability placements.
Net premiums written was $60.2 million for 2014, compared with $58.3 million for 2013, an increase of $1.9
million or 3.3%. The increase is mainly due to a change in the Company’s quota share participation on several
property treaties as well as several new professional liability placements.
Net premiums earned were $57.4 million for 2014, compared with $52.4 million for 2013, an increase of $4.9
million or 9.4%. The increase is primarily due to premiums resulting from new treaties written during 2013.
Property net premiums earned for 2014 and 2013 were $55.3 million and $48.8 million, respectively. Casualty
net premiums earned for 2014 and 2013 were $2.1 million and $3.6 million, respectively.
Other Income (Loss)
The Company recognized a loss of less than $0.1 million for both 2014 and 2013. Other income or loss is
comprised of foreign exchange gains and losses.
Net Losses and Loss Adjustment Expenses
Net losses and loss adjustment expenses were $20.0 million for 2014, compared with $16.2 million for 2013, an
increase of $3.8 million or 23.7%. Excluding the impact of prior year adjustments, the current accident year net
losses and loss adjustment expenses increased from $16.4 million for 2013 to $23.9 million for 2014. This
increase is primarily attributable to an increase in net premiums earned and an increase in property line losses as
noted above.
The loss ratio for the Company’s Reinsurance Operations was 34.8% for 2014 compared with 30.8% for 2013.
The current accident year loss ratio increased 10.4 points from 31.3% for 2013 to 41.7% for 2014 primarily due
to an increase in losses for property lines. The property lines current accident year loss ratio increased to 39.7%
for 2014 from 28.7% for 2013.
There was a decrease in net losses and loss adjustment expenses for prior accident years of $3.9 million in 2014
which decreased the loss ratio by 6.9 points compared to a decrease in net losses and loss adjustment expenses
for prior accident years of $0.3 million in 2013 which decreased the loss ratio by 0.5 points.
82
In 2014, the Company decreased its prior accident year loss reserves for its Reinsurance Operations by $3.9
million primarily due to better than anticipated loss emergence on property lines partially offset by adverse
development related to commercial auto and higher than anticipated severity on the Company’s marine product.
In 2013, the Company decreased its prior accident year loss reserves by $0.3 million primarily due to better than
anticipated loss emergence on property lines partially offset by adverse development on director and officer,
general liability, automobile, and marine.
Acquisition Costs and Other Underwriting Expenses
Acquisition costs and other underwriting expenses were $20.6 million for 2014, compared with $18.3 million for
2013, an increase of $2.3 million or 12.8%. The increase is primarily due to higher commission expense as a
result of growth in premiums earned in 2014 as well as increased profit commission charges due to a reduction of
prior accident year loss reserves for property. These increases were offset by a reduction in current accident year
contingent commissions as a result of higher losses on one of the property catastrophe contracts.
Expense and Combined Ratios
The expense ratio for the Company’s Reinsurance Operations was 36.0% for 2014, compared with 34.9% for
2013. The increase is mainly related to an increase in profit commission charges as a result of reduction of prior
accident year loss reserves for property offset by a reduction in current accident year contingent commissions due
to higher losses on one of the property catastrophe contracts.
The combined ratio for the Company’s Reinsurance Operations was 70.8% for 2014, compared 65.7% for 2013.
Excluding the impact of prior accident year adjustments, the combined current accident year ratio increased from
to 66.2% in 2013 to 77.7% in 2014. See discussion of loss ratio included in “Net Losses and Loss Adjustment
Expenses” above and discussion of expense ratio in preceding paragraph above for an explanation of this
increase.
Income from Segment
The factors described above resulted in income from the Company’s Reinsurance Operations of $16.7 million in
2014, compared to $18.0 million in 2013, a decrease of $1.3 million.
Unallocated Corporate Items
The following items are not allocated to the Company’s Commercial Lines, Personal Lines, or Reinsurance
Operations segments:
(Dollars in thousands)
Year Ended
December 31,
Increase / (Decrease)
2014
2013
$
%
Net investment income . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains . . . . . . . . . . . . . . . . . .
Corporate and other operating expenses . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . .
$ 28,821
35,860
(14,559)
(822)
(8,338)
$ 37,209
27,412
(11,614)
(6,169)
(1,019)
$(8,388)
8,448
2,945
(5,347)
7,319
(22.5%)
30.8%
25.4%
(86.7%)
718.3%
83
Net Investment Income
Net investment income, which is gross investment income less investment expenses, was $28.8 million for 2014,
compared with $37.2 million for 2013, a decrease of $8.4 million or 22.5%.
• Gross investment income, which excludes realized gains and losses, was $32.4 million for 2014,
compared with $41.4 million for 2013, a decrease of $9.0 million or 21.7%. The decrease was
primarily due to the redemption of the Company’s corporate loans portfolio during the first quarter of
2014 and lower reinvestment yields.
•
Investment expenses were $3.6 million for 2014, compared with $4.2 million for 2013, a decrease of
$0.6 million or 13.9%. The decrease is primarily due to the sale of the corporate loan portfolio and a
reduction in trust fees which is partially offset by an increase in internal management fees.
As of December 31, 2014, the Company held agency mortgage-backed securities with a book value of $156.3
million. Excluding the agency mortgage-backed securities,
the average duration of the Company’s fixed
maturities portfolio was 2.0 years as of December 31, 2014, compared with 1.9 years as of December 31, 2013.
Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio,
excluding agency mortgage-backed securities was 1.9 years as of December 31, 2014 and December 31, 2013.
Changes in interest rates can cause principal payments on certain investments to extend or shorten which can
impact duration. At December 31, 2014, the Company’s embedded book yield on its fixed maturities, not
including cash, was 2.1% compared with 2.6% at December 31, 2013. As of December 31, 2014, the Company’s
investment portfolio held $69.5 million in tax-free municipal bonds with an embedded book yield of 3.3%
compared with an embedded book yield of 3.0% on $98.7 million in tax-free municipal bonds as of
December 31, 2013.
Net Realized Investment Gains
Net realized investment gains were $35.9 million for 2014, compared with $27.4 million for 2013. The net
realized investment gains for 2014 consist primarily of net gains of $2.2 million related to the Company’s fixed
maturities and $55.0 million related to its equity securities, offset by losses of $20.8 million related to its interest
rate swaps and other than temporary impairment losses of $0.5 million. The net realized investment gains for
2013 consist primarily of net gains of $1.4 million related to the Company’s fixed maturities, $25.8 million
related to its equity securities, and $1.4 million related to its interest rate swaps, offset by other than temporary
impairment losses of $1.2 million.
See Note 4 of the notes to the consolidated financial statements in Item 8 of Part II of this report for an analysis
of total investment return on a pre-tax basis for the years ended December 31, 2014 and 2013.
Corporate and Other Operating Expenses
Corporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees,
management fees, salaries and benefits for holding company personnel, development costs for new products, and
taxes incurred which are not directly related to operations. Corporate and other operating expenses were $14.6
million for 2014, compared with $11.6 million for 2013, an increase of $2.9 million or 25.4%. The increase is
primarily due to incurring cost of approximately $3.4 million in connection with the acquisition of American
Reliable offset by a reduction in salary expense of $0.7 million
Interest Expense
Interest expense was $0.8 million and $6.2 million for 2014 and 2013, respectively. This reduction was primarily
due to the repayment of the Company’s senior notes payable and junior subordinated debentures in 2013. See
Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for details on the
Company’s debt.
84
Income Tax Expense (Benefit)
Income tax expense was $8.3 million and $1.0 million for 2014 and 2013, respectively. See Note 9 of the notes to
the consolidated financial statements in Item 8 of Part II of this report for an analysis of income tax expense
between periods.
Net Income (Loss)
The factors described above resulted in net income of $62.9 million in 2014, compared with net income of $61.7
million in 2013, an increase of $1.2 million.
Liquidity and Capital Resources
Sources and Uses of Funds
Global Indemnity is a holding company. Its principal asset is its ownership of the shares of its direct and indirect
subsidiaries, including those of its U.S. insurance companies: United National Insurance Company, Diamond
State Insurance Company, United National Specialty Insurance Company, Penn-America Insurance Company,
Penn-Star Insurance Company, Penn-Patriot Insurance Company, and American Reliable Insurance Company;
and its Reinsurance Operations: Global Indemnity Reinsurance.
The principal sources of cash that Global Indemnity needs to meet its short term and long term liquidity needs,
including the payment of corporate expenses, debt service payments, and share repurchases, includes dividends,
other permitted disbursements from its direct and indirect subsidiaries, reimbursement for equity awards granted
these direct and indirect
to employees and intercompany borrowings. The principal sources of funds at
subsidiaries include underwriting operations, investment income, and proceeds from sales and redemptions of
investments. Funds are used principally by these operating subsidiaries to pay claims and operating expenses, to
make debt payments, fund margin requirements on interest rate swap agreements, to purchase investments, and to
make dividend payments. The future liquidity of Global Indemnity is dependent on the ability of its subsidiaries
to pay dividends.
On August 12, 2015, the Company issued $100.0 million in aggregate principal amount of its 2045 Subordinated
Notes through an underwritten public offering. The notes bear interest at an annual rate equal to 7.75%, payable
quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, commencing
November 15, 2015. The notes mature on August 15, 2045. The Company has the right to redeem the notes in
$25 increments, in whole or in part, on and after August 15, 2020, or on any interest payment date thereafter, at a
redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid
interest to, but not including, the date of redemption. See note 11 of the notes to the consolidated financial
statements in Item 8 of Part II of this report for additional information on the 2045 Subordinated Notes.
On October 29, 2015, Global Indemnity entered into a redemption agreement with certain affiliates of Fox
Paine & Company and agreed to redeem 8,260,870 of its ordinary shares for $190 million in the aggregate from
affiliates of Fox Paine & Company. Global Indemnity also acquired rights, expiring December 31, 2019, to
redeem an additional 3,397,031 ordinary shares for $78.1 million, which is subject to an annual 3% increase.
Other than these redemption requirements and the Company’s debt service payments as noted above, Global
Indemnity has no commitments that could have a material impact on its short-term or long-term liquidity needs.
Global Indemnity’s U.S. insurance companies are restricted by statute as to the amount of dividends that they
may pay without the prior approval of regulatory authorities. The dividend limitations imposed by state laws are
based on the statutory financial results of each insurance company within the Insurance Operations that are
determined by using statutory accounting practices that differ in various respects from accounting principles used
in financial statements prepared in conformity with GAAP. See “Regulation—Statutory Accounting Principles.”
Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes,
reserve calculation assumptions and surplus notes.
85
Under Indiana law, Diamond State Insurance Company may not pay any dividend or make any distribution of
cash or other property, the fair market value of which, together with that of any other dividends or distributions
made within the 12 consecutive months ending on the date on which the proposed dividend or distribution is
scheduled to be made, exceeds the greater of (1) 10% of its surplus as of the 31st day of December of the last
preceding year, or (2) its net income for the 12 month period ending on the 31st day of December of the last
preceding year, unless the commissioner approves the proposed payment or fails to disapprove such payment
within 30 days after receiving notice of such payment. An additional limitation is that Indiana does not permit a
domestic insurer to declare or pay a dividend except out of unassigned surplus unless otherwise approved by the
commissioner before the dividend is paid.
Under Pennsylvania law, United National Insurance Company, Penn-America Insurance Company, and Penn-
Star Insurance Company may not pay any dividend or make any distribution that, together with other dividends
or distributions made within the preceding 12 consecutive months, exceeds the greater of (1) 10% of its surplus
as shown on its last annual statement on file with the commissioner or (2) its net income for the period covered
by such statement, not including pro rata distributions of any class of its own securities, unless the commissioner
has received notice from the insurer of the declaration of the dividend and the commissioner approves the
proposed payment or fails to disapprove such payment within 30 days after receiving notice of such payment. An
additional limitation is that Pennsylvania does not permit a domestic insurer to declare or pay a dividend except
out of unassigned funds (surplus) unless otherwise approved by the commissioner before the dividend is paid.
Furthermore, no dividend or other distribution may be declared or paid by a Pennsylvania insurance company
that would reduce its total capital and surplus to an amount that is less than the amount required by the Insurance
Department for the kind or kinds of business that it is authorized to transact. Pennsylvania law allows loans to
affiliates up to 10% of statutory surplus without prior regulatory approval.
Under Virginia law, Penn-Patriot Insurance Company may not pay any dividend or make any distribution of cash or
other property, the fair market value of which, together with that of any other dividends or distributions made within
the preceding 12 consecutive months exceeds the lesser of either (1) 10% of its surplus as of the 31st day of December
of the last preceding year, or (2) its net income, not including net realized capital gains, for the 12 month period ending
on the 31st day of December of the last preceding year, not including pro rata distributions of any class of its securities,
unless the commissioner approves the proposed payment or fails to disapprove such payment within 30 days after
receiving notice of such payment. In determining whether the dividend must be approved, undistributed net income
from the second and third preceding years, not including net realized capital gains, may be carried forward.
Under Wisconsin law, United National Specialty Insurance Company may not pay any dividend or make any
distribution of cash or other property, other than a proportional distribution of its stock, the fair market value of
which, together with that of other dividends paid or credited and distributions made within the preceding 12
months, exceeds the lesser of (1) 10% of its surplus as of the preceding 31st day of December, or (2) the greater
of (a) its net income for the calendar year preceding the date of the dividend or distribution, minus realized
capital gains for that calendar year or (b) the aggregate of its net income for the three calendar years preceding
the date of the dividend or distribution, minus realized capital gains for those calendar years and minus dividends
paid or credited and distributions made within the first two of the preceding three calendar years, unless it reports
the extraordinary dividend to the commissioner at least 30 days before payment and the commissioner does not
disapprove the extraordinary dividend within that period. Additionally, under Wisconsin law, all authorizations
of distributions to shareholders, other than stock dividends, shall be reported to the commissioner in writing and
no payment may be made until at least 30 days after such report.
Under Arizona law, American Reliable Insurance Company may not pay any dividend or make any distribution
of cash or other property, the fair market value of which, together with that of any other dividends or
distributions made within the preceding 12 months exceeds the lesser of either (1) 10% of its surplus as of the
31st day of December of the last preceding year, or (2) its net income for the 12 month period ending on the 31st
day of December of the last preceding year, not including pro rata distributions of any class of its securities,
unless the commissioner approves the proposed payment or fails to disapprove such payment within 30 days after
receiving notice of such payment.
86
See Note 18 of the notes to consolidated financial statements in Item 8 of Part II of this report for the dividends
declared and paid by Global Indemnity’s U.S. insurance companies in 2015 and the maximum amount of
distributions that U.S. insurance companies could pay as dividends in 2016.
Global Indemnity Reinsurance is prohibited, without the approval of the BMA, from reducing by 15% or more its
total statutory capital as set out in its previous year’s statutory financial statements, and any application for such
approval must include such information as the BMA may require. Based upon the total statutory capital plus the
statutory surplus as set out in its 2015 statutory financial statements that will be filed in 2016, the Company
believes Global Indemnity Reinsurance could pay a dividend of up to $234.8 million without requesting BMA
approval. Global Indemnity Reinsurance did not declare or pay any dividends during 2015. For 2016, the
including distributions it could receive from its
Company believes that Global Indemnity Reinsurance,
subsidiaries, should have sufficient liquidity and solvency to pay dividends.
Surplus Levels
Global Indemnity’s U.S. insurance companies are required by law to maintain a certain minimum level of
policyholders’ surplus on a statutory basis. Policyholders’ surplus is calculated by subtracting total liabilities
from total assets. The NAIC has risk-based capital standards that are designed to identify property and casualty
insurers that may be inadequately capitalized based on the inherent risks of each insurer’s assets and liabilities
and mix of net premiums written. Insurers falling below a calculated threshold may be subject to varying degrees
of regulatory action. Based on the standards currently adopted, the policyholders’ surplus of each of the U.S.
insurance companies is in excess of the prescribed minimum company action level risk-based capital
requirements.
Cash Flows
Sources of operating funds consist primarily of net premiums written and investment income. Funds are used
primarily to pay claims and operating expenses and to purchase investments.
The Company’s reconciliation of net income to cash provided from operations is generally influenced by the
following:
•
•
•
the fact that the Company collect premiums, net of commission, in advance of losses paid;
the timing of the Company’s settlements with its reinsurers; and
the timing of the Company’s loss payments.
Net cash provided by (used for) operating activities in 2015, 2014, and 2013 was $3.8 million, $12.0 million and
$4.9 million, respectively.
In 2015, the increase in operating cash flows of approximately $15.8 million from the prior year was primarily a
net result of the following items:
2015
2014
Change
Net premiums collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net losses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriting and corporate expenses . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net federal income taxes recovered (paid) . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 527,123
(336,316)
(229,738)
46,709
(102)
(3,926)
$ 255,053
(169,386)
(121,302)
38,298
(13,861)
(804)
$ 272,070
(166,930)
(108,436)
8,411
13,759
(3,122)
Net cash provided by (used for) operating activities . . . .
$
3,750(1) $ (12,002)
$ 15,752
87
(1) The net cash used for operating activities for the year ended December 31, 2015 was negatively impacted in
the amount of $23.8 million due to the commutation of a policy with one of Global Indemnity Reinsurance’s
cedants. The commutation of this policy had no impact on net income.
In 2014, the decrease in operating cash flows of approximately $7.1 million from the prior year was primarily a
net result of the following items:
2014
2013
Change
Net premiums collected . . . . . . . . . . . . . . . . . . . . . . .
Net losses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriting and corporate expenses . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . .
Net federal income taxes recovered (paid) . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 255,053
(169,386)
(121,302)
38,298
(13,861)
(804)
$ 250,987
(188,690)
(111,358)
44,367
7,451
(7,678)
$ 4,066
19,304
(9,944)
(6,069)
(21,312)
6,874
Net cash used for operating activities . . . . . . . .
$ (12,002)
$
(4,921)
$ (7,081)
See the consolidated statement of cash flows in the financial statements in Item 8 of Part II of this report for
details concerning the Company’s investing and financing activities.
Liquidity
the Company believes each company in its Insurance Operations and Reinsurance Operations
Currently,
maintains sufficient liquidity to pay claims through cash generated by operations and liquid investments. The
holding companies also maintain sufficient liquidity to meet their obligations. The Company monitors its
investment portfolios to assure liability and investment durations are closely matched.
Prospectively, as fixed income investments mature and new cash is obtained, the cash available to invest will be
invested in accordance with the Company’s investment policy. The Company’s investment policy allows the
Company to invest in taxable and tax-exempt fixed income investments as well as publicly traded and private
equity investments. With respect to bonds, the Company’s credit exposure limit for each issuer varies with the
issuer’s credit quality. The allocation between taxable and tax-exempt bonds is determined based on market
conditions and tax considerations. The fixed income portfolio currently has a duration of 1.99 years which allows
the Company to defensively position itself during the current low interest rate environment.
The Company has access to various capital sources including dividends from insurance subsidiaries, invested
assets in its non-U.S. subsidiaries, and access to the debt and equity capital markets. The Company believes it has
sufficient liquidity to meet its capital needs. See Note 18 of the notes to the consolidated financial statements in
Item 8 of Part II of this report for a discussion of the Company’s dividend capacity. However, the Company’s
future capital requirements depend on many factors, including the incurring of significant net catastrophe losses,
its ability to write new business successfully and to establish premium rates and reserves at levels sufficient to
cover losses. To the extent that the Company needs to raise additional funds, any equity or debt financing for this
purpose, if available at all, may be on terms that are not favorable to the Company. If the Company cannot obtain
adequate capital, its business, results of operations and financial condition could be adversely affected.
On August 12, 2015, the Company issued Subordinated Notes due in 2045 in the aggregate principal amount of
$100.0 million through an underwritten public offering. See Note 11 of the notes to consolidated financial
statements in Item 8 of Part II of this report for additional information on this debt issuance.
On October 29, 2015, Global Indemnity entered into a redemption agreement with certain affiliates of Fox
Paine & Company and agreed to redeem 8,260,870 of its ordinary shares for $190 million in the aggregate from
88
affiliates of Fox Paine & Company. Global Indemnity also acquired rights, expiring December 31, 2019, to
redeem an additional 3,397,031 ordinary shares for $78.1 million, which is subject to an annual 3% increase.
In connection with the redemption, the Company sold $279.9 million of securities from its consolidated
investment portfolio during October, 2015. $102.0 million was used to pay down margin debt which freed up
collateral which was used to partially fund the redemption.
Stop Loss Agreement, Quota Share Arrangements and Intercompany Pooling Arrangement
Global Indemnity’s U.S. insurance companies, excluding Personal Lines, and Global Indemnity Reinsurance
currently participate in a stop loss agreement that provides protection to the U.S. insurance companies, excluding
Personal Lines, in a loss corridor from 70% to 90% subject to certain restrictions.
The Company’s U.S. insurance companies participate in quota share reinsurance agreements with Global
Indemnity Reinsurance whereby 50% of the net retained business of the U.S. insurance companies is ceded to
Global Indemnity Reinsurance. These agreements exclude named storms. Global Indemnity Reinsurance is an
unauthorized reinsurer. As a result, any losses and unearned premiums that are ceded to Global Indemnity
Reinsurance by the U.S. insurance companies must be collateralized. To satisfy this requirement, Global
Indemnity Reinsurance has set up custodial trust accounts on behalf of the U.S. insurance companies.
Global Indemnity Reinsurance also has established trust accounts to collateralize exposure it has to third party
ceding companies. The Company invests the funds in securities that have durations that closely match the
expected duration of the liabilities assumed. The Company believes that Global Indemnity Reinsurance will have
sufficient liquidity to pay claims prospectively.
Global Indemnity’s U.S. insurance companies participate in an intercompany pooling arrangement whereby
premiums, losses, and expenses are shared pro rata amongst the U.S. insurance companies. United National
Insurance Company is not an authorized reinsurer in all states. As a result, any losses and unearned premiums
that are ceded to United National Insurance Company are collateralized. The state insurance departments that
regulate the parties to the intercompany pooling agreements require United National Insurance Company to place
assets on deposit subject to trust agreements for the protection of the other members of the U.S. insurance
companies.
Capital Resources
On January 18, 2006, U.A.I. (Luxembourg) Investment S.à.r.l. loaned $6.0 million to United America Indemnity,
Ltd. The loan was used to pay operating expenses that arise in the normal course of business. The loan is a
demand loan and bears interest at 4.38%. At December 31, 2015, there was $1.0 million outstanding on this loan
with accrued interest of $1.9 million. United America Indemnity, Ltd. is dependent on its subsidiaries to pay its
dividends and operating expenses.
On November 12, 2007, Global Indemnity Reinsurance issued a $50.0 million demand line of credit to United
America Indemnity, Ltd. which bore interest at 5.25%. The proceeds of the line were used to fund purchases of
the Company’s A ordinary shares as part of two $50.0 million share buyback programs that were initiated in
November 2007 and February 2008, respectively. On February 13, 2008, the demand line of credit was amended.
The interest rate was decreased to 3.75% per annum, and the loan amount was increased to $100.0 million. In
June 2008, Global Indemnity Reinsurance declared and paid a dividend of $50.0 million to United America
Indemnity, Ltd. United America Indemnity, Ltd. used proceeds from the dividend to repay a portion of the line of
credit. In February, 2010 the line of credit was converted to a non-interest bearing note payable for the full
amount of principal and accrued interest to date. In May, 2014, United America Indemnity, Ltd. repaid $20
million of the outstanding balance due under this note. As of December 31, 2015, there was $33.0 million
outstanding on the note payable.
89
U.A.I. (Luxembourg) Investment S.à.r.l. holds two promissory notes in the amounts of $175.0 million and $110.0
million and two loans in the amount of $125.0 million and $100.0 million from Global Indemnity Group, Inc.
The $175.0 million and $110.0 million notes bear interest at a rate of 6.64% and 6.20%, respectively, and mature
in 2018 and 2020, respectively. The $125.0 million and the $100.0 million loan bears interest at 5.78% and
8.06%, respectively, and matures in 2024 and 2045, respectively. Interest on these agreements is paid annually.
Other than its investment portfolio, Global Indemnity Group, Inc. has no income producing operations. The
ability of Global Indemnity Group, Inc. to generate cash to repay the notes and loan is dependent on dividends
that it receives from its subsidiaries or using other assets it holds.
In November, 2011, U.A.I. (Luxembourg) Investment S.à.r.l. issued a $100.0 million demand line of credit to
Global Indemnity (Cayman) Ltd. which bears interest at 1.2%. The proceeds of the line were loaned from Global
Indemnity (Cayman) Ltd. to Global Indemnity plc, bearing interest at 1.2%, to fund purchases of the Company’s
A ordinary shares as part of the $100.0 million share repurchase program announced in September, 2011. In
August, 2012, the demand line of credit was increased to $125.0 million to fund additional purchases under the
Company’s $25.0 million share repurchase authorization. In September, 2015, U.A.I. (Luxembourg) Investment
S.à.r.l. increased the demand line of credit that it previously issued to Global Indemnity (Cayman) Limited from
$125.0 million to $225.0 million. As of December 31, 2015, Global Indemnity plc owed Global Indemnity
(Cayman) Ltd. $108.0 million under this arrangement, with accrued interest of $4.8 million, and Global
Indemnity (Cayman) Ltd. had $181.5 million outstanding on the line of credit with U.A.I. (Luxembourg)
Investment S.à.r.l., with accrued interest of $4.8 million.
In November, 2012, American Insurance Service, Inc. (“AIS”) issued a $35.0 million loan to Global Indemnity
Reinsurance, bearing interest at the six month London Interbank Offered Rate (“LIBOR”) plus 3.5%. The
proceeds of the loan were used to fund trust accounts in the normal course of business. Effective October 31,
2013, American Insurance Service, Inc. (“AIS”) assigned all of its rights, obligations, duties, and liabilities under
the note to Global Indemnity Group, Inc. As of December 31, 2015, there was $5.0 million outstanding on the
note payable, with accrued interest of $0.2 million payable to AIS and $0.8 million payable to Global Indemnity
Group, Inc.
The Company has available two margin borrowing facilities. The borrowing rate is tied to LIBOR and was
approximately 1.3% as of December 31, 2015. These facilities are due on demand. The borrowings are subject to
maintenance margin, which is a minimum account balance that must be maintained. A decline in market
conditions could require an additional deposit of collateral. As of December 31, 2015, approximately $95.6
million in collateral was deposited to support the borrowings. The amount borrowed against the margin accounts
may fluctuate as routine investment transactions, such as dividends received, investment income received,
maturities and pay-downs, impact cash balances. The margin facilities contains customary events of default,
including, without limitation,
insolvency, failure to make required payments, failure to comply with any
representations or warranties, failure to adequately assure future performance, and failure of a guarantor to
perform under its guarantee. The amount outstanding on the Company’s margin borrowing facilities was $75.6
million and $174.7 million as of December 31, 2015 and 2014, respectively.
On May 12, 2014, Global Indemnity Group, Inc. entered into an agreement to loan $200 million to Global
Indemnity (Cayman) Limited which bears interest at 0.28% and matures in 2017. In December, 2014, Global
Indemnity (Cayman) Limited repaid $125.0 million of the outstanding principal. As of December 31, 2015,
Global Indemnity (Cayman) Limited owed $75.0 million under this loan agreement with accrued interest of $0.6
million.
In December, 2014, Global Indemnity Group, Inc. declared and paid a dividend of $125 million to U.A.I.
(Luxembourg) Investment S.à.r.l. and U.A.I. (Luxembourg) Investment S.à.r.l. declared and paid a dividend of
$125 million to U.A.I. (Luxembourg) IV S.à.r.l. In accordance with the Luxembourg Treaty, the $125 million
dividend from Global Indemnity Group, Inc. to U.A.I. (Luxembourg) Investment S.à.r.l. was subject to a 5% U.S.
withholding tax amounting to $6.3 million.
90
In August, 2015, Global Indemnity plc advanced an interest free loan to Global Indemnity (Cayman) Limited in
the amount of $96.9 million which was repaid during the 4th quarter of 2015.
Global Indemnity (Cayman) Limited made a capital contribution in the amount of $100.0 million during the
fourth quarter of 2015. Through a series of capital contributions, the ultimate recipient of this capital contribution
of $100.0 million was U.A.I. (Luxembourg) IV S.à.r.l. who loaned $100.0 million to U.A.I. (Luxembourg)
Investment S.à.r.l. who loaned $100.0 million to Global Indemnity Group, Inc.
The Company entered into two $100 million derivative instruments. Due to declines in interest rates, the
Company has paid $6.6 million and $20.6 million in connection with these derivative instruments for the years
ended December 31, 2015 and 2014, respectively.
Contractual Obligations
The Company has commitments in the form of operating leases, commitments to fund limited partnerships,
subordinated notes, and unpaid losses and loss expense obligations. As of December 31, 2015, contractual
obligations related to Global Indemnity’s commitments, including any principal and interest payments, were as
follows:
(Dollars in thousands)
Operating leases (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments to fund limited partnerships . . . . . . . .
Subordinated notes due 2045 (2) . . . . . . . . . . . . . . . .
Unpaid losses and loss adjustment expenses
$
Total
11,828
20,014
330,563
$
2016
3,263
20,014
7,750
Payment Due by Period
2017 and
2018
2019 and
2020
$
6,329
—
15,500
$
2,236
—
15,500
Thereafter
$ —
—
291,813
obligations (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
680,047
233,185
243,296
108,758
94,808
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,042,452
$264,212
$265,125
$126,494
$386,621
(1) The Company leases office space and equipment as part of its normal operations. The amounts shown above
represent future commitments under such operating leases.
(2) On August 12, 2015, the Company issued Subordinated Note due in 2045 in the aggregate principal amount
of $100.0 million through an underwritten public offering. The notes bear interest at an annual rate equal to
7.75% payable quarterly. The notes mature on August 15, 2045. The Company has the right to redeem the
notes in $25 increments, in whole or in part, on and after August 15, 2020, or on any interest payments date
thereafter, at a redemption price equal to 100% of the principal amount of the notes being redeemed plus
accrued and unpaid interest to, but not including, the date of redemption.
(3) These amounts represent the gross future amounts needed to pay losses and related loss adjustment expenses
and do not reflect amounts that are expected to be recovered from the Company’s reinsurers. See discussion
in “Liability for Unpaid Losses and Loss Adjustment Expenses” for more details. See note 11 of the notes to
the consolidated financial statements in Item 8 of Part II of this report for additional information on the 2045
Subordinated Notes.
The Company has no off balance sheet arrangements.
Off Balance Sheet Arrangements
Inflation
Property and casualty insurance premiums are established before the Company knows the amount of losses and
loss adjustment expenses or the extent to which inflation may affect such amounts. The Company attempts to
anticipate the potential impact of inflation in establishing its reserves.
91
Future increases in inflation could result in future increases in interest rates, which in turn are likely to result in a
decline in the market value of the investment portfolio and resulting in unrealized losses and reductions in
shareholders’ equity.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements under “Business,” “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 of this report 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 undertake no obligation to publicly update or review any forward-looking statement,
whether as a result of new information, future developments or otherwise.
92
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial
instrument as the result of changes in interest rates, equity prices, credit risk, illiquidity, foreign exchange rates
and commodity prices. The Company’s consolidated balance sheet includes the estimated fair values of assets
that are subject to market risk. The Company’s primary market risks are interest rate risk and credit risks
associated with investments in fixed maturities, equity price risk associated with investments in equity securities,
and foreign exchange risk associated with premium received that is denominated in foreign currencies. Each of
these risks is discussed in more detail below. The Company has no commodity risk.
Interest Rate Risk
The Company’s primary market risk exposure is to changes in interest rates. The Company’s fixed income
investments are exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market
valuation of these securities. As interest rates rise, the market value of the Company’s fixed income investments
fall, and the converse is also true. The Company seeks to manage interest rate risk through an active portfolio
management strategy that involves the selection, by the Company’s managers, of investments with appropriate
characteristics, such as duration, yield, currency, and liquidity that are tailored to the anticipated cash outflow
characteristics of the Company’s liabilities. The Company’s strategy for managing interest rate risk also includes
maintaining a high quality bond portfolio with a relatively short duration to reduce the effect of interest rate
changes on book value. A significant portion of the Company’s investment portfolio matures each year, allowing
for reinvestment at current market rates.
As of December 31, 2015, assuming identical shifts in interest rates for securities of all maturities, the table
below illustrates the sensitivity of market value in Global Indemnity’s bonds to selected hypothetical changes in
basis point increases and decreases:
(Dollars in thousands)
Change in Market Value
Basis Point Change
Market Value
(200)
(100)
No change
100
200
$1,338,101
1,329,674
1,306,149
1,282,706
1,259,209
$
$ 31,952
23,525
—
(23,443)
(46,940)
%
2.4%
1.8%
0.0%
(1.8%)
(3.6%)
The Company’s interest rate swaps are also exposed to interest rate risk. Fluctuations in interest rates have a
direct impact on the market valuation of these financial instruments. As interest rates decline, the market value of
the Company’s interest rate swaps fall, and the converse is also true. Since the Company has designated the
interest rate swaps as non-hedge instruments, the changes in the fair value is recognized as net realized
investment gains in the consolidated statement of operations. Therefore, changes in interest rates will have a
direct impact to the Company’s results of operations. In addition, on a daily basis, a margin requirement is
calculated. If interest rates decline, the Company is required to pay a margin call equal to the change in the fair
market value of the interest rate swap. When interest rates rise, the counterparty is required to pay to the
Company a margin call equal to the change in fair market value of the interest rate swap.
93
As of December 31, 2015, the table below illustrates the sensitivity of market value of the Company’s interest
rate swaps as well as the impact on the consolidated statement of operation to selected hypothetical changes in
basis point increases and decreases:
(Dollars in thousands)
Basis Point Change
Market Value
(200)
(100)
No change
100
200
$ (48,906)
(31,371)
(15,256)
(441)
13,182
Credit Risk
Change in Market
Value and Impact to
Consolidated
Statement of Income
$(33,650)
(16,115)
—
14,815
28,438
The Company’s investment policy requires that its investments in debt instruments are of high credit quality
issuers and limit the amount of credit exposure to any one issuer based upon the rating of the security.
As of December 31, 2015, the Company had approximately $47.7 million worth of investment exposure to
subprime and Alt-A investments. As of December 31, 2015, approximately $46.8 million of those investments
have been rated BBB+ to AAA by Standard & Poor’s and $0.9 million were rated below investment grade. As of
December 31, 2014, the Company had approximately $38.7 million worth of investment exposure to subprime
and Alt-A investments. As of December 31, 2014, approximately $38.1 million of those investments have been
rated BBB+ to AAA by Standard & Poor’s and $0.6 million were rated below investment grade. There were no
impairments recognized on these investments during the years ended December 31, 2015 or 2014.
In addition, the Company has credit risk exposure to its general agencies and reinsurers. The Company seeks to
mitigate and control its risks to producers by typically requiring its general agencies to render payments within
no more than 45 days after the month in which a policy is effective and including provisions within the
Company’s general agency contracts that allow it to terminate a general agency’s authority in the event of non-
payment.
With respect to its credit exposure to reinsurers, the Company seeks to mitigate and control its risk by ceding
business to only those reinsurers having adequate financial strength and sufficient capital to fund their obligation.
In addition, the Company seeks to mitigate credit risk to reinsurers through the use of trusts and letters of credit
for collateral.
Equity Price Risk
In 2015, the strategy for the Company’s equity portfolio followed a large cap value approach. This investment
style placed primary emphasis on selecting the best relative values from those issues having a projected
normalized price-earnings ratio at a discount to the market multiple.
The Company compares the results of the Company’s equity portfolio to a customized benchmark which is the
S&P 500 Value excluding financials. To protect against equity price risk, the sector exposures within the
Company’s equity portfolio closely correlate to the sector exposures within the custom benchmark index. In
2015, the Company’s common stock portfolio returned a net loss of 6.0%, not including investment advisor fees,
compared to the benchmark loss of 3.5%.
The carrying values of investments subject to equity price risk are based on quoted market prices as of the
balance sheet dates. Market prices are subject to fluctuation and thus the amount realized in the subsequent sale
of an investment may differ from the reported market value. Fluctuation in the market price of an equity security
results from perceived changes in the underlying economic makeup of a stock,
the price of alternative
investments and overall market conditions.
94
The Company attempts to mitigate its unsystemic risk, which is the risk that is associated with holding a
particular security, by holding a large number of securities in that market. At year end, no security represented
more than 4.7% of the market value of the equity portfolio. The Company continues to have systemic risk, which
is the risk inherent in the general market due to broad macroeconomic factors that affect all companies in the
market.
As of December 31, 2015, the table below summarizes the Company’s equity price risk and reflects the effect of
a hypothetical 10% and 20% increase or decrease in market prices. The selected hypothetical changes do not
indicate what could be the potential best or worst scenarios.
Hypothetical Price
Change
(20%)
(10%)
No change
10%
20%
(Dollars in thousands)
Estimated Fair Value
after Hypothetical
Change in Prices
Hypothetical Percentage
Increase (Decrease) in
Shareholders’ Equity(1)
$ 88,252
99,284
110,315
121,347
132,378
(1.9%)
(1.0%)
—
1.0%
1.9%
(1) Net of 35% tax
Foreign Currency Exchange Risk
The Company has foreign currency exchange risk associated with a portion of the business written at Global
Indemnity Reinsurance, as well as a small portion of expenses related to corporate overhead in its Ireland and
Luxembourg offices. The Company also maintains investments in foreign denominated securities and cash
accounts in foreign currencies in order to pay expenses in foreign countries. At period-end, the Company re-
measures those non-U.S. currency financial assets to their current U.S. dollar equivalent. Financial liabilities, if
any, are generally adjusted within the reserving process. However, for known losses on claims to be paid in
foreign currencies, the Company re-measures the liabilities to their current U.S. dollar equivalent each period
end.
95
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GLOBAL INDEMNITY PLC
Index to Financial Statements
Report of Independent Registered Public Accounting Firm as of and for the Year Ended December 31,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97
Report of Independent Registered Public Accounting Firm as of December 31, 2014 and for the Years
Ended December 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
99
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104
Index to Financial Statement Schedules
Schedule I
Summary of Investments—Other Than Investments in Related Parties . . . . . . . . . . . . . . . . S-1
Schedule II
Condensed Financial Information of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Schedule III
Supplementary Insurance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Schedule IV
Reinsurance Earned Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Schedule V
Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Schedule VI
Supplementary Information for Property Casualty Underwriters . . . . . . . . . . . . . . . . . . . . . S-8
96
Report of Independent Registered Public Accounting Firm
The Board of Directors and
Shareholders of Global Indemnity plc
We have audited the accompanying consolidated balance sheet of Global Indemnity plc and subsidiaries as of
December 31, 2015, and the related consolidated statements of operations, comprehensive income, shareholders’
equity and cash flows for the year then ended. Our audit also included the financial statement schedules listed in
the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedules based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Global Indemnity plc and subsidiaries at December 31, 2015, and the consolidated results of
their operations and their cash flows for the year then ended in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all material respects the information set forth
therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Global Indemnity plc’s internal control over financial reporting as of December 31, 2015, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), and our report dated March 14, 2016, expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, PA
March 14, 2016
97
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Global Indemnity, plc
In our opinion, the consolidated balance sheet as of December 31, 2014 and the related consolidated statements
of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of two years in the
period ended December 31, 2014 present fairly, in all material respects, the financial position of Global
Indemnity, plc and its subsidiaries at December 31, 2014, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 2014, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule
for each of the two years in the period ended December 31, 2014 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 16, 2015
98
GLOBAL INDEMNITY PLC
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31,
2015
December 31,
2014
Fixed maturities:
ASSETS
Available for sale, at fair value (amortized cost: $1,308,333 and $1,272,948) . . .
$1,306,149
$1,283,475
Equity securities:
Available for sale, at fair value (cost: $100,157 and $99,297) . . . . . . . . . . . . . . .
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance receivables, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funds held by ceding insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable for securities sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110,315
32,592
1,449,056
67,037
—
89,245
115,594
16,037
4,828
34,687
56,517
23,607
6,521
44,363
172
49,630
122,048
33,663
1,439,186
58,823
113,696
56,586
125,718
25,176
3,139
20,250
25,238
17,636
4,820
4,725
60
34,980
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,957,294
$1,930,033
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded balances payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 680,047
286,285
4,589
11,069
172,034
53,344
$ 675,472
120,815
2,800
12,985
174,673
34,998
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,207,368
1,021,743
Commitments and contingencies (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity:
Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A
ordinary shares issued: 16,424,546 and 16,331,577, respectively; A ordinary
shares outstanding: 13,313,751 and 13,266,762 , respectively; B ordinary shares
issued and outstanding: 4,133,366 and 12,061,370, respectively . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income, net of taxes . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A ordinary shares in treasury, at cost: 3,110,795 and 3,064,815 shares,
—
—
3
529,872
4,078
318,416
3
519,590
23,384
466,717
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(102,443)
(101,404)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
749,926
908,290
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,957,294
$1,930,033
See accompanying notes to consolidated financial statements.
99
GLOBAL INDEMNITY PLC
Consolidated Statements of Operations
(In thousands, except shares and per share data)
Revenues:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains (losses):
Other than temporary impairment losses on investments . . . . . .
Other net realized investment gains . . . . . . . . . . . . . . . . . . . . . .
Total net realized investment gains (losses) . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2015
2014
2013
$
$
$
590,233
501,244
504,143
34,609
$
$
$
291,253
273,181
268,519
28,821
$
$
$
290,723
271,984
248,722
37,209
(7,335)
3,961
(3,374)
3,400
(501)
36,361
35,860
555
(1,239)
28,651
27,412
5,791
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
538,778
333,755
319,134
Losses and Expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . . . . . . . . . . .
Corporate and other operating expenses . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit)
275,368
201,303
24,448
4,913
32,746
(8,723)
137,561
109,619
14,559
822
71,194
8,338
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
41,469
$
62,856
$
132,991
105,651
11,614
6,169
62,709
1,019
61,690
Per share data:
Net income
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.71
1.69
$
$
2.50
2.48
$
$
2.46
2.45
Weighted-average number of shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,253,657
25,131,811
25,072,712
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,505,851
25,331,420
25,174,015
See accompanying notes to consolidated financial statements.
100
GLOBAL INDEMNITY PLC
Consolidated Statements of Comprehensive Income
(In thousands)
Years Ended December 31,
2015
2014
2013
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 41,469
$ 62,856
$ 61,690
Other comprehensive income (loss), net of tax:
Unrealized holding gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portion of other than temporary impairment losses recognized in other
comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for (gains) losses included in net income . . . .
Unrealized foreign currency translation gains (losses) . . . . . . . . . . . . . . . .
(17,457)
6,878
17,466
(4)
(1,985)
140
(4)
(37,177)
(341)
—
(16,951)
163
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
(19,306)
(30,644)
678
Comprehensive income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,163
$ 32,212
$ 62,368
See accompanying notes to consolidated financial statements.
101
GLOBAL INDEMNITY PLC
Consolidated Statements of Changes in Shareholders’ Equity
(In thousands, except share amounts)
Years Ended December 31,
2015
2014
2013
Number of A ordinary shares issued:
Number at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ordinary shares issued under share incentive plans . . . . . . . . . . . . . . . . . . . . . .
Ordinary shares issued to directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B ordinary shares converted to A ordinary shares . . . . . . . . . . . . . . . . . . . . . . .
Ordinary shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ordinary shares issued in connection with American Reliable acquisition . . . .
16,331,577
121,812
36,321
7,928,004
(8,260,870)
267,702
16,200,406
94,563
36,608
—
—
—
16,087,939
74,400
38,067
—
—
—
Number at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,424,546
16,331,577
16,200,406
Number of B ordinary shares issued:
Number at beginning and end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B Ordinary shares converted to A ordinary shares . . . . . . . . . . . . . . . . . . . . . . .
12,061,370
(7,928,004)
12,061,370
—
12,061,370
—
Number at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,133,366
12,061,370
12,061,370
Par value of A ordinary shares:
Balance at beginning and end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Par value of B ordinary shares:
Balance at beginning and end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2 $
1 $
2 $
1 $
2
1
Additional paid-in capital:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Share compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit on share-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
519,590 $
10,272
10
516,653 $
2,900
37
512,304
4,349
—
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
529,872 $
519,590 $
516,653
Accumulated other comprehensive income, net of deferred income tax:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss):
23,384 $
54,028 $
53,350
Change in unrealized holding gains (losses)
Change in other than temporary impairment losses recognized in other
. . . . . . . . . . . . . . . . . . . . . . .
comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Unrealized foreign currency translation gains (losses)
(19,436)
(30,299)
(10)
140
(4)
(341)
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19,306)
(30,644)
514
1
163
678
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,078 $
23,384 $
54,028
Retained earnings:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Ordinary shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
466,717 $
(189,770)
41,469
403,861 $
—
62,856
342,171
—
61,690
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
318,416 $
466,717 $
403,861
Number of treasury shares:
Number at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A ordinary shares purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination of shares indirectly owned by subsidiary . . . . . . . . . . . . . . . . . . . .
3,064,815
11,895
34,085
3,059,371
5,444
—
3,057,001
2,370
—
Number at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,110,795
3,064,815
3,059,371
Treasury shares, at cost:
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (101,404) $ (101,265) $ (101,210)
(55)
A ordinary shares purchased, at cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Elimination of shares indirectly owned by subsidiary . . . . . . . . . . . . . . . . . . . .
(139)
—
(333)
(706)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (102,443) $ (101,404) $ (101,265)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
749,926 $
908,290 $
873,280
See accompanying notes to consolidated financial statements.
102
GLOBAL INDEMNITY PLC
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Amortization of trust preferred securities issuance costs . . . . . . . . . . . . . . . . . . . . .
Amortization of the value of business acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock and stock option expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of bond premium and discount, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in the earnings of a partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on the disposition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in:
Premiums receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funds held by ceding insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded balances payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal income tax receivable/payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition costs, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) operating activities . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Cash release from escrow for business acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturity of fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from limited partnership distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposition of subsidiary, net of cash and cash equivalents disposed
of $679 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash deposited in escrow for purchase of American Reliable . . . . . . . . . . . . . . . . .
Amount paid in connection with derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) investing activities . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net borrowings (repayments) under margin borrowing facilities . . . . . . . . . . . . . . .
Redemption of ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of A ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit on share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement of junior subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments of term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2015
2014
2013
$ 41,469
$ 62,856
$ 61,690
—
25,500
5,284
47
10,271
(7,201)
13,643
3,374
(2,533)
—
25,325
23,966
9,147
(84,914)
(6,764)
(11,430)
(6,070)
(6,264)
(1,689)
(31,279)
3,868
3,750
113,696
(92,336)
647,404
39,723
1,540
157,845
5,959
—
—
—
(6,604)
(627,983)
(38,451)
(3,550)
197,243
(99,027)
(189,770)
100,000
(3,659)
(333)
10
—
—
(192,779)
8,214
58,823
$ 67,037
—
—
3,466
—
2,900
(828)
9,103
(35,860)
—
—
(6,698)
72,169
(6,514)
(103,994)
4,186
(2,377)
(3,398)
308
(4,734)
(3,061)
474
(12,002)
77
—
3,807
—
4,349
(3)
6,696
(27,412)
—
(5,166)
(12,136)
43,940
(11,252)
(99,639)
22,515
976
(1,436)
2,766
8,473
(3,912)
746
(4,921)
—
—
415,739
191,765
—
—
12
—
—
292,200
101,379
—
—
—
108,556
143,034
—
(113,696)
(20,550)
(615,867)
(45,077)
(30,120)
(109,238)
25,885
—
(5,421)
(465,318)
(100,806)
(16)
(9,063)
74,673
—
—
—
(139)
37
—
—
74,571
(46,669)
105,492
$ 58,823
100,000
—
—
—
(55)
—
(30,929)
(54,000)
15,016
1,032
104,460
$ 105,492
See accompanying notes to consolidated financial statements.
103
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Principles of Consolidation and Basis of Presentation
Global Indemnity plc (“Global Indemnity” or “the Company”) was incorporated on March 9, 2010 and is
domiciled in Ireland. Global Indemnity replaced the Company’s predecessor, United America Indemnity, Ltd., as
the ultimate parent company as a result of a re-domestication transaction in July, 2010. The Company’s A
ordinary shares are publicly traded on the NASDAQ Global Select Market under the trading symbol “GBLI.”
Starting in the 1st quarter of 2015, the Company manages its business through three reportable business segments:
Commercial Lines, Personal Lines, and Reinsurance Operations. The Company’s Commercial Lines, managed in
Bala Cynwyd, PA, offers specialty property and casualty insurance products in the excess and surplus lines
marketplace. The Company manages its Commercial Lines by differentiating them into three product
classifications: Penn-America, which markets property and general liability products to small commercial
businesses through a select network of wholesale general agents with specific binding authority; United National,
which markets insurance products for targeted insured segments, including specialty products, such as property,
general liability, and professional lines through program administrators with specific binding authority; and
Diamond State, which markets property, casualty, and professional lines products, which are developed by the
Company’s underwriting department by individuals with expertise in those lines of business, through wholesale
brokers and also markets through program administrators having specific binding authority. These product
classifications comprise the Company’s Commercial Lines business segment and are not considered individual
business segments because each product has similar economic characteristics, distribution, and coverage. The
Company’s Personal Lines segment, via the American Reliable product classification, offers specialty personal
lines and agricultural coverage through general and specialty agents with specific binding authority on an
admitted basis and is managed in Scottsdale, AZ. Collectively, the Company’s U.S. insurance subsidiaries are
licensed in all 50 states and the District of Columbia. The Company’s Reinsurance Operations consist solely of
the operations of its Bermuda-based wholly-owned subsidiary, Global Indemnity Reinsurance. Global Indemnity
Reinsurance is a treaty reinsurer of specialty property and casualty insurance and reinsurance companies. The
Company’s Reinsurance Operations segment provides reinsurance solutions through brokers and primary writers
including insurance and reinsurance companies.
The consolidated financial statements have been prepared in conformity with United States of America generally
accepted accounting principles (“GAAP”), which differs in certain respects from those principles followed in
reports to insurance regulatory authorities. The preparation of consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The consolidated financial statements include the accounts of Global Indemnity and its wholly owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The Consolidated Statement of Cash Flows for the year ended December 31, 2013 that was included in the Form
10-K for the annual period ended December 31, 2013 classified $3.0 million as “Other assets and liabilities, net”
within the “Cash flows from operating activities” section. These amounts were properly reclassified to the line item
“Amortization and depreciation” in the Consolidated Statement of Cash Flows for the year ended December 31,
2013 as included in this Form 10-K for the annual period ended December 31, 2015 (“the December 31, 2015
10K”). These reclassifications do not impact “Net cash flows used for operating activities” nor does it impact any
other financial metric or disclosure within the December 31, 2015 10K. The Company does not believe that these
adjustments are material to the current or to any prior years’ consolidated financial statements.
Certain other prior period amounts have been reclassified to conform to the current period presentation.
104
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2.
Summary of Significant Accounting Policies
Restricted Cash
At December 31, 2014, the Company had $113.7 million of cash in escrow to fund the acquisition of American
Reliable on January 1, 2015. The funds were released from escrow when the transaction settled on January 1,
2015. See note 3 for further information on the acquisition of American Reliable.
Investments
The Company’s investments in fixed maturities and equity securities are classified as available for sale and are
carried at their fair value. Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. The fair values
of the Company’s available for sale portfolio, excluding limited partnership interests, are determined on the basis
of quoted market prices where available. If quoted market prices are not available, the Company uses third party
pricing services to assist in determining fair value. In many instances, these services examine the pricing of
similar instruments to estimate fair value. The Company purchases bonds with the expectation of holding them to
their maturity; however, changes to the portfolio are sometimes required to assure it is appropriately matched to
liabilities. In addition, changes in financial market conditions and tax considerations may cause the Company to
sell an investment before it matures. The difference between amortized cost and fair value of the Company’s
available for sale investments, net of the effect of deferred income taxes, is reflected in accumulated other
comprehensive income in shareholders’ equity and, accordingly, has no effect on net income other than for the
credit loss component of impairments deemed to be other than temporary.
For investments in limited liability partnerships where the ownership interest is less than 3%, the Company
carries these investments at fair value, and the change in the difference between cost and the fair value of the
partnership interests, net of the effect of deferred income taxes, is reflected in accumulated other comprehensive
income in shareholders’ equity and, accordingly, has no effect on net income other than for impairments deemed
to be other than temporary. The Company uses the equity method to account for an investment in a limited
partnership where its ownership interest exceeds 3%. The equity method of accounting for an investment in a
limited partnership requires that its cost basis be updated to account for the income or loss earned on the
investment. The income or loss associated with the partnerships is reflected in the Statement of Operations and
the adjusted cost basis approximates fair value.
The Company’s investments in other invested assets were valued at $32.6 million and $33.7 million as of
December 31, 2015 and 2014, respectively. Both of these amounts relate to investments in limited partnerships.
The Company does not have access to daily valuations, therefore; the estimated fair value of the limited
partnerships are based on net asset value as a practical expedient for the limited partnerships.
Net realized gains and losses on investments are determined based on the first-in, first-out method.
The Company regularly performs various analytical valuation procedures with respect to its investments,
including reviewing each fixed maturity security in an unrealized loss position to assess whether the security has
a credit loss. Specifically, the Company considers credit rating, market price, and issuer specific financial
information, among other factors,
to assess the likelihood of collection of all principal and interest as
contractually due. Securities for which the Company determines that a credit loss is likely are subjected to further
analysis through discounted cash flow testing to estimate the credit loss to be recognized in earnings, if any. The
specific methodologies and significant assumptions used by asset class are discussed below. Upon identification
of such securities and periodically thereafter, a detailed review is performed to determine whether the decline is
considered other than temporary. This review includes an analysis of several factors, including but not limited to,
the credit ratings and cash flows of the securities and the magnitude and length of time that the fair value of such
105
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities is below cost.
For fixed maturities, the factors considered in reaching the conclusion that a decline below cost is other than
temporary include, among others, whether:
(1)
the issuer is in financial distress;
(2)
the investment is secured;
(3) a significant credit rating action occurred;
(4)
scheduled interest payments were delayed or missed;
(5) changes in laws or regulations have affected an issuer or industry;
(6)
(7)
the investment has an unrealized loss and was identified by the Company’s investment manager as an
investment to be sold before recovery or maturity; and
the investment failed cash flow projection testing to determine if anticipated principal and interest
payments will be realized.
According to accounting guidance for debt securities in an unrealized loss position, the Company is required to
assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt
security before the anticipated recovery. If either of these conditions is met the Company must recognize an other
than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in
an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a
security is other than temporary. If the impairment is deemed to be other than temporary, the Company must
separate the other than temporary impairment into two components: the amount representing the credit loss and
the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of
the amortized book value in excess of the net present value of the projected future cash flows discounted at the
effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other
than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit
losses is recorded in other comprehensive income, net of taxes.
For equity securities, management carefully reviews all securities with unrealized losses to determine if a
security should be impaired and further focuses on securities that have either:
(1) persisted with unrealized losses for more than twelve consecutive months or
(2)
the value of the investment has been 20% or more below cost for six continuous months or more.
The amount of any write-down, including those that are deemed to be other than temporary, is included in
earnings as a realized loss in the period in which the impairment arose.
For an analysis of other than temporary losses that were recorded for the years ended December 31, 2015, 2014,
and 2013, please see Note 4 below.
106
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Variable Interest Entities
The Company has variable interest in a Variable Interest Entity (‘VIE”) for which it is not the primary
beneficiary and accounts for this VIE under the equity method since its ownership interest exceeds 3%. This
partnership is deemed to be a VIE because the equity holders invest as passive limited partners and as a group
lack power to direct the activities that most significantly impact the respective entity’s economic performance.
The VIE generates variability from investment portfolio performance and that variability is passed to the equity
holders. For this VIE, the Company absorbs a portion, but not the majority of this variability, based on its
proportional equity interest. The fair value of the non-consolidated VIE, in which the Company has a significant
variable interest, was $32.6 million and $30.3 million as of December 31, 2015 and 2014, respectively. The
Company’s maximum exposure to loss was $52.6 million and $50.3 million as of December 31, 2015 and 2014,
respectively. Maximum exposure to loss includes the fair value of the Company’s investment in this VIE and its
unfunded commitment to the VIE. The Company’s investment in this VIE is included in other invested assets on
the consolidated balance sheet with changes in fair value recorded in the statement of operations.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all liquid instruments with an original
maturity of three months or less to be cash equivalents. The Company has a cash management program that
instruments.
provides for the investment of excess cash balances primarily in short-term money market
Generally, bank balances exceed federally insured limits. The carrying amount of cash and cash equivalents
approximates fair value.
At December 31, 2015, the Company had approximately $61.8 million of cash and cash equivalents that was
invested in a diversified portfolio of high quality short-term debt securities.
Valuation of Premium Receivable
The Company evaluates the collectability of premium receivable based on a combination of factors. In instances
in which the Company is aware of a specific circumstance where a party may be unable to meet its financial
obligations to the Company, a specific allowance for bad debts against amounts due is recorded to reduce the net
receivable to the amount reasonably believed by management to be collectible. For all remaining balances,
allowances are recognized for bad debts based on the length of time the receivables are past due. The allowance
for bad debts was $1.6 million and $1.5 million as of December 31, 2015 and 2014, respectively.
Goodwill and Intangible Assets
The Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in
accordance with applicable accounting guidance. Accounting guidance allows for the testing of goodwill for
impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the
carrying amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. The
amount of the impairment loss would be equal to the excess carrying value of the goodwill over the implied fair
value of the reporting unit goodwill. Based on the qualitative assessment performed, there was no impairment of
goodwill as of December 31, 2015.
Impairment of intangible assets with an indefinite useful life is tested at least annually and more frequently as
circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the
testing of indefinite lived intangible assets for impairment using both qualitative and quantitative factors.
Impairment of indefinite lived intangible assets is recognized only if the carrying amount of the intangible assets
107
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
exceeds the fair value of said assets. The amount of the impairment loss would be equal to the excess carrying
value of the assets over the fair value of said assets. Based on the qualitative assessment performed, there were
no impairments of indefinite lived intangible assets as of December 31, 2015.
Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful
lives. The carrying amounts of definite lived intangible assets are regularly reviewed for indicators of impairment
in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the
intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the
difference between the carrying amount and the estimated fair value of the asset. As of December 31, 2015, there
were no triggering events that occurred during the year that would result in an impairment of definite lived
intangible assets.
See note 7 for additional information on goodwill and intangible assets.
Reinsurance
In the normal course of business, the Company seeks to reduce the loss that may arise from events that cause
unfavorable underwriting results by reinsuring certain levels of risk from various areas of exposure with
reinsurers. Amounts receivable from reinsurers are estimated in a manner consistent with the reinsured policy
and the reinsurance contract.
The Company regularly reviews the collectability of reinsurance receivables. An allowance for uncollectible
reinsurance receivable is recognized based on the financial strength of the reinsurers and the length of time any
balances are past due. Any changes in the allowance resulting from this review are included in net losses and loss
adjustment expenses on the statement of operations during the period in which the determination is made. The
allowance for uncollectible reinsurance was $9.7 million and $9.4 million as of December 31, 2015 and 2014,
respectively.
The applicable accounting guidance requires that the reinsurer must assume significant insurance risk under the
reinsured portions of the underlying insurance contracts and that there must be a reasonably possible chance that
the reinsurer may realize a significant loss from the transaction. The Company has evaluated its reinsurance
contracts and concluded that each contract qualifies for reinsurance accounting treatment pursuant to this
guidance.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will
not be realized. The deferred tax asset balance is analyzed regularly by management. This assessment requires
significant judgment and considers, among other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the duration of carryforward periods, and tax planning
strategies and/or actions. Management believes that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the remaining deferred income tax assets, and accordingly, the
Company has not established any valuation allowances.
108
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred Acquisition Costs
The costs of acquiring new and renewal insurance and reinsurance contracts include commissions, premium taxes
and certain other costs that are directly related to the successful acquisition of new and renewal insurance and
reinsurance contracts. The excess of the Company’s costs of acquiring new and renewal
insurance and
reinsurance contracts over the related ceding commissions earned from reinsurers is capitalized as deferred
acquisition costs and amortized over the period in which the related premiums are earned.
The amortization of deferred acquisition costs for the years ended December 31, 2015, 2014, and 2013 was $86.2
million, $57.1 million, and $53.8 million, respectively.
Premium Deficiency
A premium deficiency is recognized if the sum of expected loss and loss adjustment expenses and unamortized
acquisition costs exceeds related unearned premium after consideration of investment income. This evaluation is
done at a product line level in Insurance Operations and at a treaty level in Reinsurance Operations. Any future
expected loss on the related unearned premium is recorded first by impairing the unamortized acquisition costs
on the related unearned premium followed by an increase to loss and loss adjustment expense reserves on
additional expected loss in excess of unamortized acquisition costs.
For the years ended December 31, 2015, 2014, and 2013, the total premium deficiency charges were $0.2
million, $0.4 million, and $1.7 million, respectively, comprised solely of reductions to unamortized deferred
acquisition costs within the commercial automobile lines in the Commercial Lines Segment. Based on the
Company’s analysis, the Company expensed acquisition cost as incurred for the remainder of 2013, 2014 and
2015 for the commercial automobile lines in the Commercial Lines Segment. As the charges were a reduction of
unamortized deferred acquisition costs in each respective period, no premium deficiency reserve existed as of
December 31, 2015 or 2014.
Derivative Instruments
The Company uses derivative instruments to manage its exposure to cash flow variability from interest rate risk.
The derivative instruments are carried on the balance sheet at fair value and included in other assets or other
liabilities. Changes in the fair value of the derivative instruments and the periodic net interest settlements under
the derivatives instruments are recognized as net realized investment gains on the consolidated statement of
operations.
Margin Borrowing Facilities
The carrying amounts reported in the balance sheet represent the outstanding borrowings. The outstanding
borrowings are due on demand; therefore, the cash receipts and cash payments related to the margin borrowing
facilities are shown net in the consolidated statement of cash flows.
Subordinated Notes
The carrying amounts reported in the balance sheet represent the outstanding balances, net of deferred issuance
cost. See note 11 for details.
Notes and Debentures Payable
In 2013, the Company repaid the entire outstanding principal due on the junior subordinated debentures. The
Company’s business trust subsidiaries were cancelled in the 4th quarter of 2013.
109
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Unpaid Losses and Loss Adjustment Expenses
The liability for unpaid losses and loss adjustment expenses represents the Company’s best estimate of future
amounts needed to pay losses and related settlement expenses with respect to events insured by the Company.
This liability is based upon the accumulation of individual case estimates for losses reported prior to the close of
the accounting period with respect to direct business, estimates received from ceding companies with respect to
assumed reinsurance, and estimates of unreported losses.
The process of establishing the liability for unpaid losses and loss adjustment is complex, requiring the use of
informed actuarially based estimates and management’s judgment. In some cases, significant periods of time, up
to several years or more, may elapse between the occurrence of an insured loss and the reporting of that loss to
the Company. To establish this liability, the Company regularly reviews and updates the methods of making such
estimates and establishing the resulting liabilities. Any resulting adjustments are recorded in statement of
operations during the period in which the determination is made.
Premiums
Premiums are recognized as revenue ratably over the term of the respective policies and treaties. Unearned
premiums are computed on a pro rata basis to the day of expiration.
Contingent Commissions
Certain professional general agencies of the Insurance Operations are paid special incentives, referred to as
contingent commissions, when results of business produced by these agencies are more favorable than
predetermined thresholds. Similarly, in some circumstances, companies that cede business to the Reinsurance
Operations are paid profit commissions based on the profitability of the ceded portfolio. These commissions are
charged to other underwriting expenses when incurred.
Share-Based Compensation
The Company accounts for stock options and other equity based compensation using the modified prospective
application of the fair value-based method permitted by the appropriate accounting guidance. See Note 15 for
details.
Earnings per Share
Basic earnings per share have been calculated by dividing net income available to common shareholders by the
weighted-average ordinary shares outstanding. Diluted earnings per share has been calculated by dividing net
income available to common shareholders by the sum of the weighted-average ordinary shares outstanding and
the weighted-average common share equivalents outstanding, which include options and other equity awards. See
Note 17 for details.
Foreign Currency
The Company maintains investments and cash accounts in foreign currencies related to the operations of its
business. At period-end, the Company re-measures non-U.S. currency financial assets to their current U.S. dollar
equivalent. The resulting gain or loss for foreign denominated investments is reflected in accumulated other
comprehensive income in shareholders’ equity; whereas, the gain or loss on foreign denominated cash accounts
is reflected in income during the period. Financial liabilities, if any, are generally adjusted within the reserving
process. However, for known losses on claims to be paid in foreign currencies, the Company re-measures the
liabilities to their current U.S. dollar equivalent each period end with the resulting gain or loss reflected in
110
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
income during the period. Net transaction gains, primarily comprised of re-measurement of known losses on
claims to be paid in foreign currencies, were $0.4 million, $0.5 million and $0.3 million for the years ended
December 31, 2015, 2014, and 2013, respectively.
Other income
On December 31, 2013, Diamond State Insurance Company sold all the outstanding shares of capital stock of one
of its wholly owned subsidiaries, United National Casualty Insurance Company to an unrelated party. Diamond
State Insurance Company received a one-time payment of $26.6 million and recognized a pretax gain of $5.2
million which is reflected in other income in 2013. Management deemed this transaction to be an asset sale with
the assets primarily comprised of investments and insurance licenses. This transaction did not have a significant
impact on the ongoing business operations of the Company.
In addition, other income is comprised of fee income on policies issued, commission income, accrued interest on
the anticipated indemnification of unpaid loss and loss adjustment expense reserve, and foreign exchange gains
and losses.
3. Acquisition
On January 1, 2015, Global Indemnity Group, Inc., a subsidiary of the Company, acquired 100% of the voting
equity interest of American Reliable from American Bankers Insurance Group, Inc. by paying $113.7 million in
cash and assuming $283.9 million of customary insurance related liabilities, obligations, and mandates. Per the
American Reliable SPA, the ultimate purchase price is subject to (i) accounting procedures that were performed
in 2015 to determine GAAP book value and (ii) indemnification on future development on recorded loss and loss
adjustment expenses as of December 31, 2014. In accordance with the American Reliable SPA, on the third
calendar year following the calendar year of the closing, if loss and loss adjustment expenses for accident years
2014 and prior are lower than recorded unpaid loss and loss adjustment expenses as of December 31, 2014,
Global Indemnity Group, Inc. will pay the variance to American Bankers Group, Inc. Conversely, if loss and loss
adjustment expenses for accident years 2014 and prior exceed recorded unpaid loss and loss adjustment expenses
as of December 31, 2014, American Bankers Group, Inc. will pay the variance to Global Indemnity Group, Inc.
In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers
Group, Inc., any variance paid related to the loss indemnification will be subject to interest of 5% compounded
semi-annually. The Company’s current estimate of the purchase price, based on available financial information,
is approximately $99.8 million.
The results of American Reliable’s operations have been included in the Company’s consolidated financial
statements since the date of the acquisition on January 1, 2015.
The purchase of American Reliable expanded Global Indemnity’s product offerings. American Reliable is a
specialty company that distributes personal lines products written on an admitted basis that are unusual and
harder to place. It complements Global Indemnity’s existing US Insurance Operations that primarily distribute
commercial lines products on an excess and surplus lines basis.
American Reliable is domiciled in Arizona and as such is subject to its state insurance department regulations.
For the year ended December 31, 2015, American Reliable had total revenues of $259.0 million and pre-tax loss
of $4.2 million. These amounts are included in the Company’s results of operations for the year ended
December 31, 2015.
111
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the Company’s unaudited pro forma consolidated results of operations for the years
December 31, 2015 and 2014 as if the acquisition had occurred on January 1, 2014 instead of January 1, 2015.
(Dollars in thousands except per share data)
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Net Income (Loss) per share (diluted)
Pro Forma
Years Ended December 31,
2015
$ 538,778
$ 46,864
1.91
$
2014
$ 597,583
$ 63,053
2.46
$
The pro forma results were calculated by applying the Company’s accounting policies and adjusting the result of
American Reliable to reflect (i) the impact of intercompany reinsurance with Global Indemnity Reinsurance,
(ii) the impact on interest expense resulting from changes to the Company’s capital structure in connection with
the acquisition, (iii) the impact on investment income from the acquisition date adjustments to fair value of
investments, (iv) the impact on underwriting expenses from the acquisition date adjustments to fair value of
deferred acquisition costs and intangible assets, (v) the impact of excluding transaction costs related to the
acquisition and (vi) the tax effects of the above adjustments.
The pro forma results do not include any anticipated cost synergies or other effects of the integration of
American Reliable. Such pro forma amounts are not indicative of the results that actually would have occurred
had the acquisition been completed on January 1, 2014, nor are they indicative of the future operating results of
the combined company.
The Company has finalized its process of valuing the assets acquired and liabilities assumed. The following table
summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition as
of December 31, 2015 compared to September 30, 2015 along with changes in estimates made during the quarter.
(Dollars in thousands)
ASSETS:
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES:
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . .
Reinsurance balances payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated fair value of net assets acquired . . . . . . . . . . . . . . . . . . .
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112
As of
December 31, 2015
September 30, 2015 Change
$226,458
21,360
26,102
11,311
13,842
43,506
32,000
915
6,473
381,967
172,234
89,489
13,219
3,903
5,026
283,871
98,096
99,797
1,701
$
$226,458
21,360
25,941
11,311
13,842
43,506
32,000
1,139
6,550
382,107
172,234
89,489
13,219
3,876
5,608
284,426
97,681
99,797
2,116
$
$ —
—
161
—
—
—
—
(224)
(77)
(140)
—
—
—
27
(582)
(555)
415
—
$(415)
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The transaction is being accounted for using the purchase method of accounting. The assets and liabilities
acquired by the Company were adjusted to estimated fair value. The $1.7 million excess of cash and acquisition
cost over the estimated fair value of assets acquired was recognized as goodwill. Under the purchase method of
accounting, goodwill is not amortized but is tested for impairment at least annually.
Goodwill of $1.7 million, arising from the acquisition, consists largely of the synergies and economies of scales
expected from combining the operations of Global Indemnity and American Reliable. The Company has
determined that the goodwill of $1.7million will be assigned to the Personal Lines segment. There is no tax
goodwill.
An identification and valuation of intangible assets was performed that resulted in the recognition of intangible
assets of $32.0 million with values assigned as follows:
(Dollars in thousands)
Description
Useful Life
Amount
State insurance licenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value of business acquired . . . . . . . . . . . . . . . . . . . . . . . . .
Agent relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite
< 1 year
10 years
7 years
$ 5,000
25,500
900
600
$32,000
Intangible assets arising from the acquisition will be deductible for income tax purposes over 15 years.
The following table presents details of the Company’s intangible assets arising from the American Reliable
acquisition as of December 31, 2015:
(Dollars in thousands)
Description
Useful Life
Cost
Accumulated
Amortization
Net
Value
State insurance licenses . . . . . . . . . . . . . . .
Value of business acquired . . . . . . . . . . . .
Agent relationships . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite
< 1 year
10 years
7 years
$ 5,000
25,500
900
600
$32,000
$ —
25,500
90
86
$25,676
$5,000
0
810
514
$6,324
Amortization related to the Company’s definite lived intangible assets resulting from American Reliable
acquisition was $25.7 million for the year ended December 31, 2015.
The Company expects that amortization expense for the next five years related to the American Reliable
acquisition will be as follows:
(Dollars in thousands)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 176
176
176
176
176
113
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value, gross contractual amounts due, and contractual cash flows not expected to be collected of
acquired receivables are as follows:
(Dollars in thousands)
Premium receivables . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance receivables . . . . . . . . . . . . . . . . . . . .
Gross
Contractual
Amounts Due
$26,896
11,311
13,842
Contractual
cash flows not
expected to be
collected
$794
—
—
Fair Value
$26,102
11,311
13,842
In connection with the acquisition, the Company agreed to pay to Fox Paine & Company an investment banking
fee of 3% of the amount paid plus the additional capital required to operate American Reliable on a standalone
basis and a $1.5 million investment advisory fee, which in the aggregate, totaled $6.5 million. This amount is
included in corporate and other operating expenses on the Company’s Consolidated Statements of Operations
during the year ended December 31, 2015. As payment for these fees, 267,702 A ordinary shares of Global
Indemnity were issued under the Global Indemnity plc Share Incentive Plan in May, 2015. These shares will be
registered but cannot be sold until the earlier of five years or a change of control. See Note 15 for additional
information on the Global Indemnity plc Share Incentive Plan.
Additional costs, mainly professional fees, of $5.1 million were incurred in connection with the acquisition of
American Reliable. Of this amount, $1.8 million and $3.3 million was recorded as corporate and other operating
expenses on the Company’s Consolidated Statements of Operations during the years ended December 31, 2015
and 2014, respectively. No acquisition costs were incurred during the year ended December 31, 2013.
During the year ended December 31, 2015, the Company paid approximately $1.6 million in employee compensation
related cost, which were related to periods prior to the Acquisition. These costs were accrued by American Reliable
and were included in the fair value of net assets acquired by Global Indemnity Group, Inc. on January 1, 2015.
4.
Investments
The amortized cost and estimated fair value of investments were as follows as of December 31, 2015 and 2014:
(Dollars in thousands)
As of December 31, 2015
Fixed maturities:
U.S. treasury and agency obligations . . . . . .
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . .
Commercial mortgage-backed securities . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . .
Foreign corporate bonds . . . . . . . . . . . . . . . .
Total fixed maturities . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other invested assets . . . . . . . . . . . . . . . . . . . . . .
1,308,333
100,157
32,592
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Other than
temporary
impairments
recognized
in AOCI (1)
$ 106,303
$ 1,140
$
(321) $ 107,122
$—
203,121
157,753
261,008
142,742
334,720
102,686
2,576
2,113
435
—
685
194
7,143
16,118
—
(457)
(743)
(1,421)
(2,352)
(3,294)
(739)
(9,327)
(5,960)
—
205,240
159,123
260,022
140,390
332,111
102,141
1,306,149
110,315
32,592
—
—
(9)
—
—
—
(9)
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,441,082
$23,261
$(15,287) $1,449,056
$ (9)
114
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) Represents the total amount of other than temporary impairment losses relating to factors other than credit
losses recognized in accumulated other comprehensive income (“AOCI”).
(Dollars in thousands)
As of December 31, 2014
Fixed maturities:
U.S. treasury and agency obligations . . . . . .
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . .
Commercial mortgage-backed securities . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . .
Foreign corporate bonds . . . . . . . . . . . . . . . .
Total fixed maturities . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other invested assets . . . . . . . . . . . . . . . . . . . . . .
1,272,948
99,297
33,174
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Other than
temporary
impairments
recognized
in AOCI (1)
$
78,569
$ 2,281
$
(83) $
80,767
$—
188,452
205,814
177,853
133,984
380,704
107,572
3,718
3,709
713
21
3,421
625
14,488
25,689
489
(697)
(764)
(303)
(847)
(709)
(558)
191,473
208,759
178,263
133,158
383,416
107,639
(3,961)
(2,938)
—
1,283,475
122,048
33,663
—
(4)
(13)
—
—
—
(17)
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,405,419
$40,666
$(6,899) $1,439,186
$ (17)
(1) Represents the total amount of other than temporary impairment losses relating to factors other than credit
losses recognized in accumulated other comprehensive income (“AOCI”).
Excluding U.S. treasuries and agency bonds, the Company did not hold any debt or equity investments in a single
issuer that was in excess of 5% and 4% of shareholders’ equity at December 31, 2015 and 2014, respectively.
The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available
for sale at December 31, 2015, by contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
(Dollars in thousands)
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . .
Due in one year through five years . . . . . . . . . . . . . . .
Due in five years through ten years . . . . . . . . . . . . . . .
Due in ten years through fifteen years . . . . . . . . . . . .
Due after fifteen years . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage-backed securities . . . . . . . . . .
Amortized
Cost
Estimated
Fair Value
$ 107,010
595,977
38,048
1,738
4,057
157,753
261,008
142,742
$ 107,582
594,859
38,016
2,137
4,020
159,123
260,022
140,390
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,308,333
$1,306,149
115
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table contains an analysis of the Company’s securities with gross unrealized losses, categorized by
the period that the securities were in a continuous loss position as of December 31, 2015:
(Dollars in thousands)
Fixed maturities:
U.S. treasury and agency
Less than 12 months
12 months or longer (1)
Total
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
obligations . . . . . . . . . . . . . . . . . . . .
$ 79,496
$
(321) $ —
$ —
$ 79,496
$
(321)
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . .
Asset-backed securities . . . . . . . . . . . .
Commercial mortgage-backed
securities . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . .
Foreign corporate bonds . . . . . . . . . . .
Total fixed maturities . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . .
49,708
63,759
203,381
118,813
211,364
63,860
790,381
36,798
(373)
(743)
(1,404)
(2,005)
(3,269)
(697)
(8,812)
(5,960)
7,732
—
4,843
21,577
2,120
5,129
41,401
—
(84)
—
(17)
(347)
(25)
(42)
(515)
—
57,440
63,759
208,224
140,390
213,484
68,989
831,782
36,798
(457)
(743)
(1,421)
(2,352)
(3,294)
(739)
(9,327)
(5,960)
Total . . . . . . . . . . . . . . . . . . . . . . .
$827,179
$(14,772) $41,401
$(515)
$868,580
$(15,287)
(1) Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of
non-credit losses on investment grade securities where management does not intend to sell, and it is more
likely than not that the Company will not be forced to sell the security before recovery. The Company has
analyzed these securities and has determined that they are not other than temporarily impaired.
The following table contains an analysis of the Company’s securities with gross unrealized losses, categorized by
the period that the securities were in a continuous loss position as of December 31, 2014:
(Dollars in thousands)
Fixed maturities:
U.S. treasury and agency
Less than 12 months
12 months or longer (1)
Total
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
obligations . . . . . . . . . . . . . . . . . . .
$ 11,728
$
(9) $
3,343
$
(74) $ 15,071
$
(83)
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . .
Asset-backed securities . . . . . . . . . . .
Commercial mortgage-backed
securities . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . .
Foreign corporate bonds . . . . . . . . . .
Total fixed maturities . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . .
28,684
2,818
92,123
92,664
144,505
60,518
433,040
20,002
(314)
(7)
(283)
(525)
(656)
(558)
28,061
51,203
1,683
26,280
3,216
—
(383)
(757)
(20)
(322)
(53)
—
(2,352)
(2,808)
113,786
1,577
(1,609)
(130)
56,745
54,021
93,806
118,944
147,721
60,518
546,826
21,579
(697)
(764)
(303)
(847)
(709)
(558)
(3,961)
(2,938)
Total . . . . . . . . . . . . . . . . . . . . . .
$453,042
$(5,160) $115,363
$(1,739) $568,405
$(6,899)
116
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of
non-credit losses on investment grade securities where management does not intend to sell, and it is more
likely than not that the Company will not be forced to sell the security before recovery. The Company has
analyzed these securities and has determined that they are not other than temporarily impaired.
Subject to the risks and uncertainties in evaluating the potential impairment of a security’s value, the impairment
evaluation conducted by the Company as of December 31, 2015 concluded the unrealized losses discussed above
are not other than temporary impairments. The impairment evaluation process is discussed in the “Investment”
section of Note 2 (“Summary of Significant Accounting Policies”).
The following is a description, by asset type, of the methodology and significant inputs that the Company used to
measure the amount of credit loss recognized in earnings, if any:
U.S. treasury and agency obligations—As of December 31, 2015, gross unrealized losses related to U.S.
treasury and agency obligations were $0.321 million. All unrealized losses have been in an unrealized loss
position for less than 12 months and are rated AA+ or better. Macroeconomic and market analysis is conducted
in evaluating these securities. The analysis is driven by moderate interest rate anticipation, yield curve
management, and security selection.
Obligations of states and political subdivisions—As of December 31, 2015, gross unrealized losses related to
obligations of states and political subdivisions were $0.457 million. Of this amount, $0.084 million have been in an
unrealized loss position for twelve months or greater and are rated A or better. All factors that influence performance
of the municipal bond market are considered in evaluating these securities. The aforementioned factors include
investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. The
analysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform
extensive in-house fundamental analysis on each issuer, regardless of their rating by the major agencies.
Mortgage-backed securities (“MBS”)—As of December 31, 2015, gross unrealized losses related to mortgage-
backed securities were $0.743 million. All unrealized losses have been in an unrealized loss position for less than
12 months and are rated investment grade. Mortgage-backed securities are modeled to project principal losses
under downside, base, and upside scenarios for the economy and home prices. The primary assumption that
drives the security and loan level modeling is the Home Price Index (“HPI”) projection. The model first projects
HPI at the national level, then at the zip-code level based on the historical relationship between the individual zip
code HPI and the national HPI. The model utilizes loan level data and borrower characteristics including FICO
score, geographic location, original and current loan size, loan age, mortgage rate and type (fixed rate / interest-
only / adjustable rate mortgage), issuer / originator, residential type (owner occupied / investor property),
dwelling type (single family / multi-family), loan purpose, level of documentation, and delinquency status as
inputs. The model also includes the explicit treatment of silent second liens, utilization of loan modification
history, and the application of roll rate adjustments.
Asset backed securities (“ABS”)—As of December 31, 2015, gross unrealized losses related to asset backed
securities were $1.421 million. Of this amount, $0.017 million have been in an unrealized loss position for twelve
months or greater and are rated AAA. The weighted average credit enhancement for the Company’s asset backed
portfolio is 23.4. This represents the percentage of pool losses that can occur before an asset backed security will
incur its first dollar of principal losses. Every ABS transaction is analyzed on a stand-alone basis. This analysis
involves a thorough review of the collateral, prepayment, and structural risk in each transaction. Additionally, the
analysis includes an in-depth credit analysis of the originator and servicer of the collateral. The analysis projects an
expected loss for a deal given a set of assumptions specific to the asset type. These assumptions are used to calculate
at what level of losses the deal will incur its first dollar of principal loss. The major assumptions used to calculate
this ratio are loss severities, recovery lags, and no advances on principal and interest.
117
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Commercial mortgage-backed securities (“CMBS”)—As of December 31, 2015, gross unrealized losses
related to the CMBS portfolio were $2.352 million. Of this amount, $0.347 million have been in an unrealized
loss position for twelve months or greater and are rated AA or better. The weighted average credit enhancement
for the Company’s CMBS portfolio is 35.6. This represents the percentage of pool losses that can occur before a
mortgage-backed security will incur its first dollar of principal loss. For the Company’s CMBS portfolio, a loan
level analysis is utilized where every underlying CMBS loan is re-underwritten based on a set of assumptions
reflecting expectations for the future path of the economy. In the analysis, the focus is centered on stressing the
significant variables that influence commercial
loan defaults and collateral losses in CMBS deals. These
variables include: (1) a projected drop in occupancies; (2) capitalization rates that vary by property type and are
forecasted to return to more normalized levels as the capital markets repair and capital begins to flow again; and
(3) property value stress testing using projected property performance and projected capitalization rates. Term
risk is triggered if the projected debt service coverage rate falls below 1x. Balloon risk is triggered if a property’s
projected performance does not satisfy new, tighter mortgage standards.
Corporate bonds—As of December 31, 2015, gross unrealized losses related to corporate bonds were $3.294
million. Of this amount, $0.025 million have been in an unrealized loss position for twelve months or greater and
are rated BBB or better. The analysis for this sector includes maintaining detailed financial models that include a
projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital
structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment,
industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to
changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders,
issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to
evaluate the expected likelihood of default as well as potential losses in the event of default.
Foreign bonds—As of December 31, 2015, gross unrealized losses related to foreign bonds were $0.739 million.
Of this amount, $0.042 million have been in an unrealized loss position for twelve months or greater and are
rated A. For this sector, detailed financial models are maintained that include a projection of each issuer’s future
financial performance, including prospective debt servicing capabilities, capital structure composition, and the
value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which
the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and
regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset
protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of
default as well as potential losses in the event of default.
Common stock—As of December 31, 2015, gross unrealized losses related to common stock were $5.960
million. All unrealized losses have been in an unrealized loss position for less than 12 months. To determine if an
other than temporary impairment of an equity security has occurred, the Company considers, among other things,
the severity and duration of the decline in fair value of the equity security. The Company also examines other
factors to determine if the equity security could recover its value in a reasonable period of time.
118
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for
the years ended December 31, 2015, 2014, and 2013:
(Dollars in thousands)
Fixed maturities:
OTTI losses, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
Portion of loss recognized in other comprehensive income (pre-tax)
$
Years Ended December 31,
2015
2014
2013
(24) $ (31) $ (280)
—
—
—
Net impairment losses on fixed maturities recognized in earnings . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(24)
(7,311)
(31)
(470)
(280)
(959)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(7,335) $(501) $(1,239)
The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the
Company as of December 31, 2015, 2014, and 2013 for which a portion of the OTTI loss was recognized in other
comprehensive income.
(Dollars in thousands)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions where no OTTI was previously recorded . . . . . . . . . . . . . . . . . . . . .
Additions where an OTTI was previously recorded . . . . . . . . . . . . . . . . . . . . .
Reductions for securities for which the company intends to sell or more
likely than not will be required to sell before recovery . . . . . . . . . . . . . . . .
Reductions reflecting increases in expected cash flows to be collected . . . . . .
Reductions for securities sold during the period . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2015
$ 50
—
—
—
—
(19)
2014
$ 54
—
—
—
—
(4)
2013
$ 86
—
—
—
—
(32)
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31
$ 50
$ 54
Accumulated Other Comprehensive Income, Net of Tax
Accumulated other comprehensive income, net of tax, as of December 31, 2015 and 2014 was as follows:
(Dollars in thousands)
Net unrealized gains (losses) from:
December 31,
2015
2014
Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,184)
10,158
—
(3,896)
$ 10,527
22,751
369
(10,263)
Accumulated other comprehensive income, net of tax . . . . . . . . . . . .
$ 4,078
$ 23,384
119
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present the changes in accumulated other comprehensive income, net of tax, by component
for the years ended December 31, 2015 and 2014:
Year Ended December 31, 2015
(Dollars in thousands)
Unrealized Gains
and Losses on
Available for Sale
Securities, Net of
Tax
Foreign Currency
Items, Net of Tax
Accumulated Other
Comprehensive
Income, Net of Tax
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,647
Other comprehensive income (loss) before
reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(17,065)
Amounts reclassified from accumulated other
comprehensive income (loss) . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . .
(2,382)
(19,447)
$(263)
(256)
397
141
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,200
$(122)
$ 23,384
(17,321)
(1,985)
(19,306)
$ 4,078
Year Ended December 31, 2014
(Dollars in thousands)
Unrealized Gains
and Losses on
Available for Sale
Securities, Net of
Tax
Foreign Currency
Items, Net of Tax
Accumulated Other
Comprehensive
Income, Net of Tax
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 53,950
Other comprehensive income (loss) before
reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,820
Amounts reclassified from accumulated other
comprehensive income (loss) . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . .
(37,123)
(30,303)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,647
$ 78
(287)
(54)
(341)
$(263)
$ 54,028
6,533
(37,177)
(30,644)
$ 23,384
The reclassifications out of accumulated other comprehensive income for the years ended December 31, 2015
and 2014 were as follows:
Dollars in thousands)
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains and losses on available for
sale securities . . . . . . . . . . . . . . . . . . . . . . Other net realized investment (gains)
Amounts Reclassified from
Accumulated Other
Comprehensive Income
Years Ended December 31,
Affected Line Item in the
Consolidated Statements of Operations
2015
2014
Other than temporary impairment
losses on investments
Total before tax
Income tax expense
Unrealized gains and losses on
available for sale securities, net of
tax
$(11,559)
$(57,114)
7,335
(4,224)
1,842
501
(56,613)
19,490
$ (2,382)
$(37,123)
$
610
(213)
$
397
$ (1,985)
$
(83)
29
$
(54)
$(37,177)
Foreign currency items . . . . . . . . . . . . . . . . . Other net realized investment (gains)
losses
Income tax expense (benefit)
Foreign currency items, net of tax
Total reclassifications . . . . . . . . . . . . . . . . . . Total reclassifications, net of tax
120
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net Realized Investment Gains (Losses)
The components of net realized investment gains (losses) for the years ended December 31, 2015, 2014, and
2013 were as follows:
(Dollars in thousands)
Fixed maturities:
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock:
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock:
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives:
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains (losses)
. . . . . . . . . . . . . . . . . . . . . . . .
Total net realized investment gains (losses) . . . . . . . . . . .
Years Ended December 31,
2015
2014
2013
$ 3,565
(2,180)
1,385
$ 2,843
(703)
2,140
$ 1,857
(691)
1,166
10,379
(8,246)
2,133
55,907
(1,351)
54,556
27,302
(2,483)
24,819
96
—
96
0
0
0
0
0
0
—
(6,988)
(6,988)
$ (3,374)
—
(20,836)
(20,836)
$ 35,860
1,668
(241)
1,427
$27,412
The proceeds from sales of available for sale securities resulting in net realized investment gains (losses) for the
years ended December 31, 2015, 2014, and 2013 were as follows:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Fixed maturities . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . .
$647,404
39,723
1,540
$415,739
191,765
—
$292,200
101,379
—
Net Investment Income
The sources of net investment income for the years ended December 31, 2015, 2014, and 2013 were as follows:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . .
Other invested assets . . . . . . . . . . . . . . . . . . . . .
$32,091
3,125
82
2,620
$26,788
5,484
61
87
$35,669
5,452
126
141
Total investment income . . . . . . . . . . . . . .
Investment expense . . . . . . . . . . . . . . . . . . . . . .
37,918
(3,309)
32,420
(3,599)
41,388
(4,179)
Net investment income . . . . . . . . . . . . . . . .
$34,609
$28,821
$37,209
121
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company’s total investment return on a pre-tax basis for the years ended December 31, 2015, 2014, and
2013 were as follows:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
34,609
$
28,821
$
37,209
Net realized investment gains(losses) . . . . . . . . . . . . . . . . .
Change in unrealized holding gains and losses . . . . . . . . . .
Net realized and unrealized investment returns . . . . . . . . .
(3,374)
(25,673)
(29,047)
35,860
(45,861)
(10,001)
27,412
7,301
34,713
Total investment return . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,562
$
18,820
$
71,922
Total investment return % . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3%
1.2%
4.6%
Average investment portfolio . . . . . . . . . . . . . . . . . . . . . . .
$1,752,785
$1,533,104
$1,549,747
Insurance Enhanced Asset-Backed and Credit Securities
As of December 31, 2015, the Company held insurance enhanced asset-backed and credit securities with a
market value of approximately $39.3 million. Approximately $18.6 million of these securities were tax-free
municipal bonds, which represented approximately 1.2% of the Company’s total cash and invested assets, net of
payable/ receivable for securities purchased and sold. These securities had an average rating of “A+.”
Approximately $8.5 million of these bonds are pre-refunded with U.S. treasury securities, of which $0.5 million
are backed by financial guarantors, meaning that funds have been set aside in escrow to satisfy the future interest
and principal obligations of the bond. Of the remaining $10.1 million of insurance enhanced municipal bonds,
$0.5 million would have carried a lower credit rating had they not been insured. The following table provides a
breakdown of the ratings for these municipal bonds with and without insurance.
(Dollars in thousands)
Rating
AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Ratings
with
Insurance
$507
—
$507
Ratings
without
Insurance
$—
507
$507
A summary of the Company’s insurance enhanced municipal bonds that are backed by financial guarantors,
including the pre-refunded bonds that are escrowed in U.S. government obligations, as of December 31, 2015, is
as follows:
(Dollars in thousands)
Financial Guarantor
Ambac Financial Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assured Guaranty Corporation . . . . . . . . . . . . . . . . . . . . . . .
Municipal Bond Insurance Association . . . . . . . . . . . . . . . .
Gov’t National Housing Association . . . . . . . . . . . . . . . . . .
Total backed by financial guarantors . . . . . . . . . . . . . . . . . .
Other credit enhanced municipal bonds . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-refunded
Securities
Government
Guaranteed
Securities
Exposure Net
of Pre-refunded
& Government
Guaranteed
Securities
$ 469
—
—
—
469
7,982
$8,451
$—
—
—
551
551
—
$551
$1,072
3,616
4,865
—
9,553
—
$9,553
Total
$ 1,541
3,616
4,865
551
10,573
7,982
$18,555
122
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In addition to the tax-free municipal bonds, the Company held $20.7 million of insurance enhanced asset-backed
and taxable municipal bonds, which represented approximately 1.4% of the Company’s total invested assets, net
of receivable/payable for securities purchased and sold. The financial guarantors of the Company’s $20.7 million
of insurance enhanced asset-backed and taxable municipal securities include Municipal Bond Insurance
Association ($5.0 million), Ambac Financial Group ($1.3 million), Assured Guaranty Corporation ($14.2
million), and Financial Guaranty Insurance Group ($0.2 million).
The Company had no direct investments in the entities that have provided financial guarantees or other credit
support to any security held by the Company at December 31, 2015.
Bonds Held on Deposit
Certain cash balances, cash equivalents, equity securities, and bonds available for sale were deposited with
various governmental authorities in accordance with statutory requirements, were held as collateral pursuant to
borrowing arrangements, or were held in trust pursuant to intercompany reinsurance agreements. The fair values
were as follows as of December 31, 2015 and 2014:
(Dollars in thousands)
Estimated Fair Value
December 31,
2015
December 31,
2014
On deposit with governmental authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany trusts held for the benefit of U.S. policyholders . . . . . . . . . . . . . . . . . . .
Held in trust pursuant to third party requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letter of credit held for third party requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities held as collateral for borrowing arrangements (1) . . . . . . . . . . . . . . . . . . . .
$ 38,815
643,216
66,544
5,598
95,647
$ 32,790
495,301
95,828
9,340
222,809
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$849,820
$856,068
(1) Amount required to collateralize margin borrowing facilities.
5. Derivative Instruments
Interest rate swaps are used by the Company primarily to reduce risks from changes in interest rates. Under the
terms of the interest rate swaps, the Company agrees with another party to exchange, at specified intervals, the
difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional
amount.
The Company accounts for the interest rate swaps as non-hedge instruments and recognizes the fair value of the
interest rate swaps in other assets or other liabilities on the consolidated balance sheets with the changes in fair
value recognized as net realized investment gains in the consolidated statement of operations. The Company is
ultimately responsible for the valuation of the interest rate swaps. To aid in determining the estimated fair value
of the interest rate swaps, the Company relies on the forward interest rate curve and information obtained from a
third party financial institution.
The following table summarizes information on the location and the gross amount of the derivatives’ fair value
on the consolidated balance sheets as of December 31, 2015 and 2014:
(Dollars in thousands)
Derivatives Not Designated as Hedging
Instruments under ASC 815
Interest rate swap agreements . . . . . . . . . . . . . . . Other liabilities
Balance Sheet
Location
December 31, 2015
December 31, 2014
Notional
Amount
Fair
Value
Notional
Amount
Fair Value
$200,000
$(15,256) $200,000
$(13,675)
123
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the net gains (losses) included in the consolidated statement of operations for
changes in the fair value of the derivatives and the periodic net interest settlements under the derivatives for the
years ended December 31, 2015, 2014, and 2013:
(Dollars in thousands)
Interest rate swap agreements . . . . . . . . . . . . . . . . Net realized investment gains
Statement of Operations Line
Years Ended December 31,
2015
2014
2013
(losses)
$(6,988) $(20,836) $1,427
As of December 31, 2015 and 2014, the Company is due $4.5 million and $5.4 million, respectively, for funds it
needed to post to execute the swap transaction and $17.3 million and $15.3 million, respectively, for margin calls
made in connection with the interest rate swaps. These amounts are included in other assets on the consolidated
balance sheets.
6.
Fair Value Measurements
The accounting standards related to fair value measurements define fair value, establish a framework for
measuring fair value, outline a fair value hierarchy based on inputs used to measure fair value, and enhance
disclosure requirements for fair value measurements. These standards do not change existing guidance as to
its fair value
whether or not an instrument
measurements are in accordance with the requirements of these accounting standards.
is carried at fair value. The Company has determined that
The Company’s invested assets and derivative instruments are carried at their fair value and are categorized
based upon a fair value hierarchy:
• Level 1—inputs utilize quoted prices (unadjusted) in active markets for identical assets that the
Company has the ability to access at the measurement date.
• Level 2—inputs utilize other than quoted prices included in Level 1 that are observable for similar
assets, either directly or indirectly.
• Level 3—inputs are unobservable for the asset, and include situations where there is little, if any,
market activity for the asset.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In
such cases, the level in the fair value hierarchy within which the fair value measurement falls has been
determined based on the lowest level input that is significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the asset.
Effective October 1, 2015, the Company retrospectively adopted new accounting guidance that no longer
requires investments measured at fair value using the net asset value per share practical expedient to be
categorized within the fair value hierarchy. Therefore, the Company no longer includes its investments in limited
partnerships within the fair value hierarchy disclosed below. Prior period amounts within the fair value hierarchy
disclosures contained in this section have been revised to conform to the current period presentation.
124
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents information about the Company’s invested assets and derivative instruments
measured at fair value on a recurring basis as of December 31, 2015 and 2014, and indicates the fair value
hierarchy of the valuation techniques utilized by the Company to determine such fair value.
As of December 31, 2015
(Dollars in thousands)
Assets:
Fixed maturities:
Fair Value Measurements
Level 1
Level 2
Level 3
Total
U.S. treasury and agency obligations . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage-backed securities . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$101,264
—
—
—
—
—
—
101,264
110,315
$
5,858
205,240 —
159,123 —
140,390 —
260,022 —
332,111 —
102,141 —
$— $ 107,122
205,240
159,123
140,390
260,022
332,111
102,141
1,204,885 —
—
—
1,306,149
110,315
Total assets measured at fair value (1) . . . . . . . . . . . . . . . . . .
$211,579
$1,204,885
$— $1,416,464
Liabilities:
Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $
15,256
$— $
15,256
Total liabilities measured at fair value . . . . . . . . . . . . . . . . . .
$ — $
15,256
$— $
15,256
(1) Excluded from the table above are limited partnerships of $32.6 million at December 31, 2015 whose fair
value is based on net asset value as a practical expedient. Based on new accounting guidance adopted this
quarter, these investments are excluded from the hierarchy table.
As of December 31, 2014
(Dollars in thousands)
Assets:
Fixed maturities:
Fair Value Measurements
Level 1
Level 2
Level 3
Total
U.S. treasury and agency obligations . . . . . . . . . . . . . . . . . . .
Obligations of states and political subdivisions . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial mortgage-backed securities . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74,765
—
—
—
—
—
—
74,765
122,048
$
6,002
$— $
191,473 —
208,759 —
133,158 —
178,263 —
383,416 —
107,639 —
80,767
191,473
208,759
133,158
178,263
383,416
107,639
1,208,710 —
—
—
1,283,475
122,048
Total assets measured at fair value . . . . . . . . . . . . . . . . . . . . .
$196,813
$1,208,710
$— $1,405,523
Liabilities:
Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $
13,675
$— $
13,675
Total liabilities measured at fair value . . . . . . . . . . . . . . . . . .
$ — $
13,675
$— $
13,675
(1) Excluded from the table above are limited partnerships of $33.7 million at December 31, 2014 whose fair
value is based on net asset value as a practical expedient. Based on new accounting guidance adopted this
quarter, these investments are excluded from the hierarchy table.
125
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The securities classified as Level 1 in the above table consist of U.S. Treasuries and equity securities actively
traded on an exchange.
The securities classified as Level 2 in the above table consist primarily of fixed maturity securities and derivative
instruments. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities,
security prices are derived through recent reported trades for identical or similar securities making adjustments
through the reporting date based upon available market observable information. If there are no recent reported
trades, matrix or model processes are used to develop a security price where future cash flow expectations are
developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing
of asset-backed securities, collateralized mortgage obligations, and mortgage-backed securities are estimates of
the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived
based on the characteristics of the underlying structure and prepayment speeds previously experienced at the
interest rate levels projected for the underlying collateral. The estimated fair value of the interest rate swaps is
obtained from a third party financial institution who utilizes observable inputs such as the forward interest rate
curve.
For the Company’s material debt arrangements, the current fair value of the Company’s debt at December 31,
2015 and 2014 was as follows:
(Dollars in thousands)
December 31, 2015
December 31, 2014
Carrying Value
Fair Value Carrying Value
Fair Value
Margin Borrowing Facilities . . . . . . . . . . . . . . . . . . . . . . .
7.75% Subordinated Notes due 2045 (1) . . . . . . . . . . . . . .
$ 75,646
96,388
$ 75,646
91,748
$174,673
—
$174,673
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$172,034
$167,394
$174,673
$174,673
(1) As of December 31, 2015, the carrying value and fair value of the 7.75% Subordinated Notes due 2045 are
net of unamortized debt issuance cost of $3.6 million.
The fair value of the margin borrowing facilities approximates its carrying value due to the facilities being due on
demand. The 7.75% subordinated notes due 2045 are publicly traded instruments and are classified as Level 1 in
the fair value hierarchy.
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2015, 2014, and
2013.
Fair Value of Alternative Investments
Other invested assets consist of limited liability partnerships whose fair value is based on net asset value per
share practical expedient. In accordance with the accounting guidance adopted this quarter, these investments
have been excluded from the fair value hierarchy listed above. The following table provides the fair value and
future funding commitments related to these investments at December 31, 2015 and 2014.
December 31, 2015
December 31, 2014
(Dollars in thousands)
Fair
Value
Future
Funding
Commitment
Equity Fund, LP (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Estate Fund, LP (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
European Non-Performing Loan Fund, LP (3) . . . . . . . . . . . . . . .
$ —
—
32,592
$ —
—
20,014
Fair
Value
$ 3,401
—
30,262
Future
Funding
Commitment
$ 2,436
—
20,064
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32,592
$20,014
$33,663
$22,500
126
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) Prior to November 9, 2015, this limited partnership invested in companies, from various business sectors,
whereby the partnership had acquired control of the operating business as a lead or organizing investor. The
Company did not have the ability to sell or transfer its limited partnership interest without consent from the
general partner. The Company did not have the contractual option to redeem its limited partnership interest
but received distributions based on the liquidation of the underlying assets. As of November 10, 2015, the
Company no longer holds an interest in this limited partnership. In connection with the Company’s share
redemption, Global Indemnity Reinsurance elected to redeem its shares. See Note 12 and 13 for further
information regarding the redemption.
(2) This limited partnership invests in real estate assets through a combination of direct or indirect investments
in partnerships, limited liability companies, mortgage loans, and lines of credit. The Company does not have
the contractual option to redeem its limited partnership interest but receives distributions based on the
liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limited
partnership interest without consent from the general partner. The Company continues to hold an investment
in this limited partnership and has written the fair value down to zero.
(3) This limited partnership invests in distressed securities and assets through senior and subordinated, secured
and unsecured debt and equity, in both public and private large-cap and middle-market companies. The
Company does not have the ability to sell or transfer its limited partnership interest without consent from the
general partner. The Company does not have the contractual option to redeem its limited partnership interest
but receives distributions based on the liquidation of the underlying assets. Based on the terms of the
partnership agreement, the Company anticipates its interest in this partnership to be redeemed in 2020.
Limited Partnerships with ownership interest exceeding 3%
The Company uses the equity method to account for an investment in a limited partnership where its ownership
interest exceeds 3%. The equity method of accounting for an investment in a limited partnership requires that its
cost basis be updated to account for the income or loss earned on the investment. The income or loss associated
with the partnership is reflected in the statement of operations, and the adjusted cost basis approximates fair
value.
The income or loss associated with this limited partnership, which was included in investment income, was
$2.5 million during the year end December 31, 2015. No income or loss associated with this limited partnership
was recorded during the years ended December 31, 2014 and 2013.
Pricing
The Company’s pricing vendors provide prices for all investment categories except for investments in limited
partnerships whose fair value is based on net asset values as a practical expedient. Two vendors provide prices
for equity and fixed maturity securities.
The following is a description of the valuation methodologies used by the Company’s pricing vendors for
investment securities carried at fair value:
• Common stock prices are received from all primary and secondary exchanges.
• Corporate and agency bonds are evaluated by utilizing a multi-dimensional relational model. For bonds
with early redemption options, an option adjusted spread model is utilized. Both asset classes use
standard inputs and incorporate security set up, defined sector breakdown, benchmark yields, apply
base spreads, yield to maturity, and adjust for corporate actions.
• Data from commercial vendors is aggregated with market
then converted into a
prepayment/spread/LIBOR curve model used for commercial mortgage obligations (“CMO”). CMOs
information,
127
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
are categorized with mortgage-backed securities in the tables listed above. For asset-backed securities,
data derived from market information along with trustee and servicer reports is converted into spreads
to interpolated swap yield curve. For both asset classes, evaluations utilize standard inputs plus new
issue data, monthly payment information, and collateral performance. The evaluated pricing models
incorporate discount rates, loan level information, prepayment speeds, treasury benchmarks, and
LIBOR and swap curves.
•
For obligations of state and political subdivisions, a multi-dimensional relational model is used to
evaluate securities. The pricing models incorporate security set-up, benchmark yields, apply base
spreads, yield to worst or market convention, ratings updates, prepayment schedules and adjustments
for material events notices.
• U.S. treasuries are evaluated by obtaining feeds from a number of live data sources including active
market makers and inter-dealer brokers.
•
For mortgage-backed securities, a matrix model correlation to TBA (a forward MBS trade) or
benchmarking is utilized to value a security.
The Company performs certain procedures to validate whether the pricing information received from the pricing
vendors is reasonable, to ensure that the fair value determination is consistent with accounting guidance, and to
ensure that its assets are properly classified in the fair value hierarchy. The Company’s procedures include, but
are not limited to:
• Reviewing periodic reports provided by the Investment Manager that provide information regarding
rating changes and securities placed on watch. This procedure allows the Company to understand why
a particular security’s market value may have changed or should potentially change.
• Understanding and periodically evaluating the various pricing methods and procedures used by the
Company’s pricing vendors to ensure that investments are properly classified within the fair value
hierarchy.
• On a quarterly basis, the Company corroborates investment security prices received from its pricing
vendors by obtaining pricing from a second pricing vendor for a sample of securities.
During 2015 or 2014, the Company has not adjusted quotes or prices obtained from the pricing vendors.
7. Goodwill and Intangible Assets
Goodwill
As a result of acquisitions in 2015 and 2010, the Company has goodwill of $6.5 million and $4.8 million as of
December 31, 2015 and 2014, respectively, which represents the excess purchase price over the Company’s best
estimate of the fair value of the assets acquired. Impairment testing performed in 2015 and 2014 did not result in
impairment of the goodwill acquired.
128
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The changes in the carrying amount of goodwill, by segment, for the years ended December 31, 2014 and 2015
are as follows:
(Dollars in thousands)
Commercial
Lines
Personal Lines
Total
Balance at January 1, 2014 . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2014 . . . . . . . . . . . . . . . . .
Acquisition of American Reliable . . . . . . . . . . . . . .
$4,820
—
4,820
—
$ —
—
—
1,701
$4,820
—
4,820
1,701
Balance at December 31, 2015 . . . . . . . . . . . . . . . . .
$4,820
$1,701
$6,521
Intangible assets
The following table presents details of the Company’s intangible assets as of December 31, 2015:
(Dollars in thousands)
Description
Useful Life
Cost
Accumulated
Amortization
Net
Value
Trademarks . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . .
State insurance licenses . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . .
Agent relationships . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . .
Value of business added (“VOBA”) . . . .
Indefinite
Indefinite
Indefinite
15 years
10 years
7 years
< 1 year
$ 4,800
4,200
10,000
5,300
900
600
25,500
$51,300
$ —
—
—
2,017
90
86
25,500
$27,693
$ 4,800
4,200
10,000
3,283
810
514
—
$23,607
The following table presents details of the Company’s intangible assets as of December 31, 2014:
(Dollars in thousands)
Description
Useful Life
Cost
Accumulated
Amortization
Net
Value
Trademarks . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . .
State insurance licenses . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . .
Indefinite
Indefinite
Indefinite
15 years
2 years
$ 4,800
4,200
5,000
5,300
50
$19,350
$ —
—
—
1,664
50
$1,714
$ 4,800
4,200
5,000
3,636
—
$17,636
As a result of the acquisition of American Reliable, the cost basis of intangible assets increased from $19.4
million at December 31, 2014 to $51.3 million at December 31, 2015.
Amortization related to the Company’s definite lived intangible assets, other than VOBA, was $0.5 million, $0.4
million, and $0.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. Amortization
related to VOBA was $25.5 million for the year ended December 31, 2015.
129
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company expects that amortization expense for the next five years will be as follows:
(Dollars in thousands)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 529
529
529
529
529
Intangible assets with indefinite lives
As of December 31, 2015 and 2014, indefinite lived intangible assets, which are comprised of trade names,
trademarks, and state insurance licenses, were $19.0 million and $14.0 million, respectively. The Company
reviewed internal business unit results, the growth of competitors and the overall property and casualty insurance
market for indicators of impairment of its indefinite lived intangible assets. Impairment testing performed in
2015 and 2014 indicated that there was no impairment of these assets.
Intangible assets with definite lives
As of December 31, 2015 and 2014, definite lived intangible assets were $4.6 million and $3.6 million, net of
accumulated amortization, and were comprised of customer relationships, agent relationships, trade names, and
non-compete agreements. VOBA of $25.5 million, which was related to the American Reliable acquisition, was
fully amortized in 2015. The Company reviewed internal business unit results, the growth of competitors and the
overall property and casualty insurance market for indicators of impairment of its definite lived intangible assets.
There was no impairment of these assets in 2015 or 2014.
8. Reinsurance
The Company cedes risk to unrelated reinsurers on a pro rata (“quota share”) and excess of loss basis in the
ordinary course of business to limit its net loss exposure on insurance contracts. Reinsurance ceded arrangements
do not discharge the Company of primary liability. Moreover, reinsurers may fail to pay the Company due to a
lack of reinsurer liquidity, perceived improper underwriting, and losses for risks that are excluded from
reinsurance coverage and other similar factors, all of which could adversely affect the Company’s financial
results.
The Company had the following reinsurance balances as of December 31, 2015 and 2014:
(Dollars in thousands)
December 31,
2015
December 31,
2014
Reinsurance receivables, net
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateral securing reinsurance receivables . . . . . . . . . . . . . . . .
$115,594
(6,445)
$125,718
(8,701)
Reinsurance receivables, net of collateral . . . . . . . . . . . . . . . . .
$109,149
$117,017
Allowance for uncollectible reinsurance receivables . . . . . . . .
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,675
44,363
$
9,350
4,725
The reinsurance receivables above are net of a purchase accounting adjustment related to discounting acquired
loss reserves to their present value and applying a risk margin to the discounted reserves. This adjustment was
$3.0 million and $4.0 million at December 31, 2015 and 2014, respectively.
130
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2015, the Company had one aggregate unsecured reinsurance receivable that exceeded 3%
of shareholders’ equity from the following reinsurer. Unsecured reinsurance receivables include amounts
receivable for paid and unpaid losses and loss adjustment expenses, less amounts secured by collateral.
(Dollars in thousands)
Reinsurance
Receivables
A.M. Best Ratings
(As of December 31, 2015)
Munich Re America Corporation . . . . . . . .
$53,381
A+
The effect of reinsurance on premiums written and earned is as follows:
(Dollars in thousands)
Written
Earned
For the year ended December 31, 2015:
Direct business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance ceded (1) . . . . . . . . . . . . . . . . . . . . . . . .
$458,185
132,048
(88,989)
$452,441
144,554
(92,852)
Net premiums . . . . . . . . . . . . . . . . . . . . . . . . . .
$501,244
$504,143
For the year ended December 31, 2014:
Direct business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . .
$229,978
61,275
(18,072)
$228,652
58,414
(18,547)
Net premiums . . . . . . . . . . . . . . . . . . . . . . . . . .
$273,181
$268,519
For the year ended December 31, 2013:
Direct business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . .
$232,373
58,350
(18,739)
$215,713
52,494
(19,485)
Net premiums . . . . . . . . . . . . . . . . . . . . . . . . . .
$271,984
$248,722
(1)
Includes ceded written premiums and ceded earned premiums of $55.8 million and $59.5 million,
respectively, to American Bankers Insurance Company.
9.
Income Taxes
The statutory income tax rates of the countries where the Company does business are 35% in the United States,
0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 29.22% in the Duchy of Luxembourg, and 25% on
non-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory
income tax rate of each country is applied against the annual taxable income of each country to calculate the
annual income tax expense.
131
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company’s income before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries, including the
results of the quota share and stop-loss agreements between Global Indemnity Reinsurance and the Insurance
Operations, for the years ended December 31, 2015, 2014, and 2013 were as follows:
Year Ended December 31, 2015:
(Dollars in thousands)
Non-U.S.
Subsidiaries
U.S.
Subsidiaries Eliminations
Total
Revenues:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$345,392
$540,500
$(295,659) $590,233
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$345,342
$155,902
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$283,448
44,534
(1,039)
(93)
$220,695
18,011
(2,335)
3,493
$
$
— $501,244
— $504,143
34,609
(3,374)
3,400
(27,936)
—
—
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
326,850
239,864
(27,936)
538,778
Losses and Expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . . . . . .
Corporate and other operating expenses . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141,444
122,999
5,928
4,492
133,924
78,304
18,520
28,357
—
—
—
(27,936)
275,368
201,303
24,448
4,913
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
$ 51,987
$ (19,241)
$
— $ 32,746
Year Ended December 31, 2014:
(Dollars in thousands)
Non-U.S.
Subsidiaries
U.S.
Subsidiaries Eliminations
Total
Revenues:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$173,563
$229,979
$(112,289) $291,253
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$172,504
$100,677
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$168,743
31,420
926
(65)
$ 99,776
16,715
34,934
620
$
$
— $273,181
— $268,519
28,821
35,860
555
(19,314)
—
—
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
201,024
152,045
(19,314)
333,755
Losses and Expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . . . . . .
Corporate and other operating expenses . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,669
70,479
5,243
852
74,892
39,140
9,316
19,284
—
—
—
(19,314)
137,561
109,619
14,559
822
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
$ 61,781
$
9,413
$
— $ 71,194
132
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Year Ended December 31, 2013:
(Dollars in thousands)
Non-U.S.
Subsidiaries
U.S.
Subsidiaries Eliminations
Total
Revenues:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$169,618
$232,374
$(111,269) $290,723
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$169,547
$102,437
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$154,987
35,750
175
(4)
$ 93,735
21,064
27,237
5,795
$
$
— $271,984
— $248,722
37,209
27,412
5,791
(19,605)
—
—
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190,908
147,831
(19,605)
319,134
Losses and Expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . . . . . .
Corporate and other operating expenses . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,337
64,822
4,745
1,165
67,654
40,829
6,869
24,609
—
—
—
(19,605)
132,991
105,651
11,614
6,169
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
$ 54,839
$
7,870
$
— $ 62,709
The following table summarizes the components of income tax expense (benefit):
(Dollars in thousands)
Current income tax expense (benefit):
Years Ended December 31,
2015
2014
2013
Non-resident withholding . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Federal
$ —
263
(1,785)
$6,250
129
2,787
$ —
163
859
Total current income tax expense (benefit)
. . . . . . . . . .
(1,522)
9,166
1,022
Deferred income tax benefit:
U.S. Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax benefit . . . . . . . . . . . . . . . . . .
(7,201)
(7,201)
(828)
(828)
(3)
(3)
Total income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . .
$(8,723)
$8,338
$1,019
The weighted average expected tax provision has been calculated using income (loss) before income taxes in
each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate.
133
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the differences between the tax provision for financial statement purposes and
the expected tax provision at the weighted average tax rate:
(Dollars in thousands)
Expected tax provision at weighted
Years Ended December 31,
2015
2014
2013
Amount
% of Pre-
Tax Income Amount
% of Pre-
Tax Income Amount
% of Pre-
Tax Income
average . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(6,434)
(19.6%) $ 3,465
4.9% $ 2,954
4.7%
Adjustments:
Non-resident withholding . . . . . . . . . . .
Tax exempt interest . . . . . . . . . . . . . . . .
Dividend exclusion . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(441)
(784)
(1,064)
—
(1.3)
(2.4)
(3.3)
6,250
(472)
(1,340)
435
8.8
(0.7)
(1.9)
0.6
—
(1,009)
(1,135)
209
—
(1.6)
(1.8)
0.3
Actual taxes on continuing operations . . . . .
$(8,723)
(26.6%) $ 8,338
11.7% $ 1,019
1.6%
The effective income tax benefit rate for 2015 was 26.6%, compared with an effective income tax rate of 11.7%
for 2014 and an effective income tax rate of 1.6% for 2013. The decrease in the effective income tax rate in 2015
compared to 2014 is primarily due to incurring acquisition expenses related to American Reliable, a decrease in
capital gains in 2015, and a $6.3 million withholding tax paid in 2014 in connection with the $125 million
dividend from Global Indemnity Group Inc. to U.A.I. Luxembourg S.à.r.l. The increase in the effective income
tax rate in 2014 compared with 2013 is primarily due to an increase in capital gains in 2014 and a $6.3 million
withholding tax paid in 2014 in connection with the $125 million dividend from Global Indemnity Group Inc. to
U.A.I. Luxembourg S.à.r.l.
134
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at
December 31, 2015 and 2014 are presented below:
(Dollars in thousands)
Deferred tax assets:
2015
2014
Discounted unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 163(j) carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax credit carryover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnership K1 basis differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital gain on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stat-to-GAAP reinsurance reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,222
7,884
3,135
10,868
1,934
245
5,340
2,635
2,635
—
1,364
1,612
36
4,545
$ 7,492
3,409
—
10,473
—
145
4,786
379
2,048
187
1,424
1,919
—
3,050
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,455
35,312
Deferred tax liabilities:
Purchase accounting adjustment for American Reliable . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on securities available-for-sale and investments in limited partnerships
included in accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . .
Investment basis differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,095
3,893
3,896
1,034
642
—
208
—
3,220
10,263
692
—
16
871
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,768
15,062
Total net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,687
$20,250
Management believes it is more likely than not that the deferred tax assets will be completely utilized in future
years. As a result, the Company has not recorded a valuation allowance at December 31, 2015 and 2014.
The Company has an alternative minimum tax (“AMT”) credit carryforward of $10.9 million and $10.5 million
as of December 31, 2015 and 2014, respectively, which can be carried forward indefinitely. As of December 31,
2015, the Company has a net operating loss (“NOL”) carryforward of $1.9 million which will expire in 2035.
The Company had no NOL carryforward as of December 31, 2014. The Company has a Section 163(j) (“163(j)”)
carryforward of $3.1 million as of December 31, 2015 which can be carried forward indefinitely. The Company
had no 163(j) carryforward as of December 31, 2014. The 163(j) carryforward is for disqualified interest paid or
accrued to a related entity that is not subject to U.S. tax.
The Company and some of its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various
states and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations by tax
authorities for tax years before 2010.
135
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Should the Company’s subsidiaries that are subject to income taxes imposed by the U.S. authorities pay a
dividend to their foreign affiliates, withholding taxes would apply. The Company has not recorded deferred taxes
for potential withholding tax on undistributed earnings. The Company believes, although there can be no
assurances, that it qualifies for treaty benefits under the Tax Convention with Luxembourg and would be subject
to a 5% withholding tax if it were to pay a dividend. Determination of the unrecognized deferred tax liability
related to these undistributed earnings is not practicable because of the complexities with its hypothetical
calculation. In December, 2014, Global Indemnity Group, Inc. paid a dividend of $125 million to U.A.I.
(Luxembourg) S.à.r.l. and paid a 5% withholding tax of $6.3 million. The Company did not pay any dividends
from a U.S. subsidiary to a foreign affiliate during 2015.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties whereby it only
recognizes those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the
taxing authorities. The Company had no unrecognized tax benefits during 2015 or 2014.
The Company classifies all interest and penalties related to uncertain tax positions as income tax expense. The
Company did not incur any interest and penalties related to uncertain tax positions during the years ended
December 31, 2015, 2014 and 2013. As of December 31, 2015, the Company did not record any liabilities for
tax-related interest and penalties on its consolidated balance sheets.
10. Liability for Unpaid Losses and Loss Adjustment Expenses
Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Ceded reinsurance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$675,472
123,201
$779,466
192,491
$879,114
240,566
Net balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased reserves, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Purchased reserves ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
552,271
89,489
12,800
586,975
—
—
638,548
—
—
Purchase reserves, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,689
—
—
Incurred losses and loss adjustment expenses related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
310,066
(34,698)
153,994
(16,433)
140,873
(7,882)
Total incurred losses and loss adjustment expenses . . . . . . . . . . . . .
275,368
137,561
132,991
Paid losses and loss adjustment expenses related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,058
168,353
55,485
116,780
50,732
133,832
Total paid losses and loss adjustment expenses . . . . . . . . . . . . . . . . .
332,411
172,265
184,564
Net balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Ceded reinsurance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
571,917
108,130
552,271
123,201
586,975
192,491
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$680,047
$675,472
$779,466
When analyzing loss reserves and prior year development, the Company considers many factors, including the
frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant
development, and any other additional or pertinent factors that may impact reserve estimates.
136
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2015, the Company reduced its prior accident year loss reserves by $34.7 million, which consisted of a
$25.6 million decrease related to Commercial Lines and a $9.1 million decrease related to Reinsurance
Operations.
The $25.6 million reduction of prior accident year loss reserves related to Commercial Lines primarily consisted
of the following:
• General Liability: A $20.4 million reduction in aggregate with $5.9 million of favorable development
in the construction defect reserve category and $14.5 million of favorable development in the other
general liability reserve categories. In the construction defect reserve category, a reduction in both
claims frequency and severity was observed across several accident years which contributed to the
recognition of favorable development primarily in accident years 2008 through 2014. For general
liability excluding construction defect, lower than expected claims severity was experienced across
multiple accident years leading to the recognition of favorable development in accident years 2004
through 2014.
• Professional: A $6.2 million decrease in aggregate primarily related to better than anticipated claims
frequency and severity in accident years 2006 through 2011.
The $9.1 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily
driven by $6.8 million of favorable development in property mainly due to accident years 2011 through 2014 and
$2.8 million of favorable development in the marine product mainly due to accident years 2010 and 2011,
partially offset by adverse development of $1.0 million in workers compensation mainly due to accident year
2010. Ultimate losses from quota share underwriting years 2013 and prior were booked to the amount reported
from cedants and reserve releases on legacy contracts due to better than anticipated case incurred emergence led
to the recognition of favorable development.
During 2014, the Company reduced its prior accident year loss reserves by $16.4 million, which consisted of a
$12.5 million decrease related to Commercial Lines and a $3.9 million decrease related to Reinsurance
Operations.
The $12.5 million reduction of prior accident year loss reserves related to Commercial Lines primarily consisted
of the following:
• Property: A $2.1 million increase due to higher than expected emergence on non-catastrophe claims
primarily in accident years 2007, 2012, and 2013.
• General Liability: A $3.1 million reduction due to less than anticipated frequency in accident year
2001 and less than anticipated frequency and severity on claims from accident years 2007 through 2010
partially offset by greater than anticipated loss emergence in accident year 2013.
• Asbestos and Environmental: A $7.1 million increase related to policies written prior to 1990 as a
result of recent severity being higher than expected due to faster erosion of underlying policy limits.
• Professional: A $19.4 million reduction primarily due to expected loss emergence being much less
than anticipated for accident years 2007 through 2011.
• Umbrella: A $2.7 million decrease primarily driven by less than anticipated frequency in accident
years 2002 through 2007.
• Commercial Auto: A $3.6 million increase primarily related to accident years 2011 through 2013.
Larger vehicles were written prior to 2014 and industry loss development factors were used to project
losses.
137
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The $3.9 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily
due to better than anticipated loss emergence on property lines partially offset by adverse development related to
commercial auto and higher than anticipated severity on the Company’s marine product.
During 2013, the Company reduced its prior accident year loss reserves by $7.9 million, which consisted of a
$7.6 million decrease related to Commercial Lines and a $0.3 million decrease related to Reinsurance
Operations.
The $7.6 million reduction of prior accident year loss reserves related to Commercial Lines primarily consisted
of the following:
• Property: A $9.2 million reduction primarily driven by better than expected development from
accident years 2010, 2011, and 2012 related primarily to lower than expected non-catastrophe severity.
• General Liability: A $6.7 million reduction primarily due to better than expected emergence in nearly
all accident years between 2003 through 2011 partially offset by an increase to accident years 1998
through 2002 and 2012 due to higher than anticipated loss emergence.
• Asbestos and Environmental: A $6.8 million increase primarily related to policies written prior to
1990.
• Professional: A $0.7 million increase primarily driven by $2.2 million increase in aggregate from
unexpected loss emergence in accident years 2006 to 2008 and 2010 offset by $1.5 million of favorable
emergence from accident years 1998 and 2011.
• Umbrella: A $1.1 million decrease primarily driven by better than expected loss emergence in accident
years 2002 to 2010 offset by increases in 2011 and 2012.
• Commercial Auto: A $0.9 million increase primarily related to accident year 2011.
• Marine: A $0.9 million increase primarily related to accident years 2011 and 2012.
The $0.3 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily
due to better than anticipated loss emergence on property lines partially offset by adverse development on
director and officer, general liability, automobile, and marine.
Prior to 2001, the Company underwrote multi-peril business insuring general contractors, developers, and sub-
contractors primarily involved in residential construction that has resulted in significant exposure to construction
defect (“CD”) claims. The Company’s reserves for CD claims ($62.2 million and $69.8 million as of
December 31, 2015 and 2014, net of reinsurance, respectively) are established based upon management’s best
estimate in consideration of known facts, existing case law and generally accepted actuarial methodologies.
However, due to the inherent uncertainty concerning this type of business, the ultimate exposure for these claims
may vary significantly from the amounts currently recorded.
The Company has exposure to asbestos and environmental (“A&E”) claims. The asbestos exposure primarily
arises from the sale of product liability insurance, and the environmental exposure arises from the sale of general
liability and commercial multi-peril insurance. In establishing the liability for unpaid losses and loss adjustment
expenses related to A&E exposures, management considers facts currently known and the current state of the law
and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when
sufficient information has been developed to indicate the involvement of a specific insurance policy, and
management can reasonably estimate its liability. In addition, liabilities have been established to cover additional
exposures on both known and unasserted claims. Estimates of the liabilities are reviewed and updated regularly.
Case law continues to evolve for such claims, and uncertainty exists about the outcome of coverage litigation and
138
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
whether past claim experience will be representative of future claim experience. Included in net unpaid losses
and loss adjustment expenses as of December 31, 2015, 2014, and 2013 were IBNR reserves of $26.0 million,
$26.4 million, and $18.2 million, respectively, and case reserves of approximately $4.5 million, $4.8 million, and
$4.8 million, respectively, for known A&E-related claims.
The following table shows the Company’s gross reserves for A&E losses:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Gross reserve for A&E losses and loss adjustment expenses—beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Incurred losses and loss adjustment expenses—case reserves . . . . . . . .
Plus: Incurred losses and loss adjustment expenses—IBNR . . . . . . . . . . . . . .
Less: Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,535
2,666
(2,663)
2,714
$50,155
4,333
7,340
5,293
$44,767
2,154
5,961
2,727
Gross reserves for A&E losses and loss adjustment expenses—end of period . . . .
$53,824
$56,535
$50,155
The following table shows the Company’s net reserves for A&E losses:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Net reserve for A&E losses and loss adjustment expenses—beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Incurred losses and loss adjustment expenses—case reserves . . . . . . . .
Plus: Incurred losses and loss adjustment expenses—IBNR . . . . . . . . . . . . . .
Less: Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,185
395
(394)
657
$23,038
2,754
8,241
2,848
$20,134
1,351
3,506
1,953
Net reserves for A&E losses and loss adjustment expenses—end of period . . . . . .
$30,529
$31,185
$23,038
Establishing reserves for A&E and other mass tort claims involves more judgment than other types of claims due
to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-
related liabilities, and judicial interpretations that often expand theories of recovery and broaden the scope of
coverage. The insurance industry continues to receive a substantial number of asbestos-related bodily injury
claims, with an increasing focus being directed toward other parties, including installers of products containing
asbestos rather than against asbestos manufacturers. This shift has resulted in significant insurance coverage
litigation implicating applicable coverage defenses or determinations, if any, including but not limited to,
determinations as to whether or not an asbestos-related bodily injury claim is subject to aggregate limits of
liability found in most comprehensive general liability policies.
In 2009, one of the Company’s insurance companies entered into a settlement agreement to resolve asbestos
related coverage litigation related to approximately 3,900 existing asbestos-related bodily injury claims and
future claims. The settlement was approved by the Court and a final order was issued in September 2014. As of
December 31, 2015, the Company has no outstanding obligations as it relates to this settlement agreement.
As of December 31, 2015, 2014, and 2013, the survival ratio on a gross basis for the Company’s open A&E
claims was 15.0 years, 10.8 years, and 11.3 years, respectively. As of December 31, 2015, 2014, and 2013, the
survival ratio on a net basis for the Company’s open A&E claims was 16.8 years, 8.4 years, and 6.7 years,
respectively. The survival ratio, which is the ratio of gross or net reserves to the 3-year average of annual paid
claims, is a financial measure that indicates how long the current amount of gross or net reserves are expected to
last based on the current rate of paid claims.
139
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11. Debt
The Company’s outstanding debt consisted of the following at December 31, 2015 and 2014:
(Dollars in thousands)
December 31,
2015
2014
Margin Borrowing Facilities . . . . . . . . . . . . . . . . . . . . . . .
7.75% Subordinated Notes due 2045 . . . . . . . . . . . . . . . .
$ 75,646
96,388
$174,673
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$172,034
$174,673
Margin Borrowing Facilities
The Company has available two margin borrowing facilities. The borrowing rate for each facility is tied to
LIBOR and was approximately 1.3% and 1% at December 31, 2015 and 2014, respectively. These facilities are
due on demand. The borrowings are subject to maintenance margin, which is a minimum account balance that
must be maintained. A decline in market conditions could require an additional deposit of collateral. As of
December 31, 2015, approximately $95.6 million in securities were deposited as collateral to support borrowings.
The amount borrowed against the margin accounts may fluctuate as routine investment transactions, such as
dividends received, investment income received, maturities and pay-downs, impact cash balances. The margin
facilities contain customary events of default, including, without limitation, insolvency, failure to make required
payments, failure to comply with any representations or warranties, failure to adequately assure future
performance, and failure of a guarantor to perform under its guarantee. The amount outstanding on the
Company’s margin borrowing facilities was $75.6 million and $174.7 million as of December 31, 2015 and
2014, respectively.
The Company recorded interest expense related to the Margin Borrowing Facilities of approximately $1.9
million, $0.7 million, and $0.3 million for the years ended December 31, 2015, 2014, and 2013, respectively.
7.75% Subordinated Notes due 2045
On August 12, 2015, the Company issued $100.0 million in aggregate principal amount of its 2045 Subordinated
Notes through an underwritten public offering.
at
interest
an annual
The notes bear
to 7.75%, payable quarterly in arrears on
equal
February 15, May 15, August 15, and November 15 of each year, commencing November 15, 2015. The notes
mature on August 15, 2045. The Company has the right to redeem the notes in $25 increments, in whole or in
part, on and after August 15, 2020, or on any interest payment date thereafter, at a redemption price equal to
100% of the principal amount of the notes being redeemed plus accrued and unpaid interest to, but not including,
the date of redemption.
rate
The notes are subordinated unsecured obligations and rank (i) senior to the Company’s existing and future capital
stock, (ii) senior in right of payment to future junior subordinated debt, (iii) equally in right of payment with any
unsecured, subordinated debt that the Company incurs in the future that ranks equally with the notes, and
(iv) subordinate in right of payment to any of the Company’s existing and future senior debt. In addition, the
notes are structurally subordinated to all existing and future indebtedness, liabilities and other obligations of the
Company’s subsidiaries.
The subordinated notes do not require the maintenance of any financial ratios or specified levels of net worth or
liquidity, and do not contain provisions that would afford holders of the subordinated notes protection in the
event of a sudden and dramatic decline in the Company’s credit quality resulting from any highly leveraged
140
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
transaction, reorganization, restructuring, merger or similar transaction involving the Company that may
adversely affect holders. The subordinated notes do not restrict the Company in any way, now or in the future,
from incurring additional indebtedness, including senior indebtedness that would rank senior in right of payment
to the subordinated notes. There is no right of acceleration of maturity of the subordinated notes in the case of
default in the payment of principal, premium, if any, or interest on, the subordinated notes or in the performance
of any other obligation of the Company under the notes or if the Company defaults on any other debt securities.
Holders may accelerate payment of indebtedness on the notes only upon the Company’s bankruptcy, insolvency
or reorganization. AM Best, which provides the Company’s industry rating, is giving the Company a 30% equity
credit on the notes due to their 30 year maturity, as opposed to treating the notes entirely as debt.
The Company incurred $3.7 million in deferred issuance costs associated with the notes, which is being
amortized over the term of the notes. Interest expense, including amortization of deferred issuance costs,
recognized on the notes was $3.0 million for the year ended December 31, 2015.
The following table represents the amounts recorded for the 7.75% subordinated notes as of December 31, 2015:
7.75% Subordinated Notes due 2045 . . . . . .
100,000
(3,612)
96,388
December 31, 2015
Outstanding
Principal
Unamortized Debt
Issuance Costs
Net Carrying
Amount
12. Shareholders’ Equity
Dividends
The ability of Global Indemnity plc to pay dividends is subject to Irish regulations. Under Irish law, dividends
and distributions may only be made from distributable reserves. As of December 31, 2015, the Company’s
distributable reserves were $931.5 million.
Since the Company is a holding company and has no direct operations, its ability to pay dividends depends, in
part, on the ability of its subsidiaries to pay dividends. Global Indemnity Reinsurance and the U.S. insurance
subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends.
See Note 18 for additional information regarding dividend limitations imposed on Global Indemnity Reinsurance
and the U.S. insurance subsidiaries.
Repurchases and Redemptions of the Company’s Ordinary Shares
The Company allows employees to surrender A ordinary shares as payment for the tax liability incurred upon the
vesting of restricted stock that was issued under the Share Incentive Plan. During 2015, 2014, and 2013, the
Company purchased an aggregate of 11,895, 5,444 and 2,370, respectively, of surrendered A ordinary shares
from its employees for $0.3 million, $0.1 million and $0.1 million, respectively. All shares purchased from
employees by the Company are held as treasury stock and recorded at cost.
On October 29, 2015, Global Indemnity entered into a redemption agreement with certain affiliates of Fox
Paine & Company and agreed to redeem 8,260,870 of its ordinary shares for $190.0 million in the aggregate from
affiliates of Fox Paine & Company. Global Indemnity also acquired rights, expiring December 31, 2019, to
redeem an additional 3,397,031 ordinary shares for $78.1 million, which is subject to an annual 3% increase.
After giving effect to the share redemptions and regardless of whether or not the additional redemption rights are
exercised, affiliates of Fox Paine & Company will continue to have the ability to cast a majority of votes on
matters submitted to Global Indemnity shareholders for approval.
141
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table provides information with respect to ordinary shares that were surrendered, repurchased, or
redeemed in 2015:
Total Number
of Shares
Purchased or
Redeemed
Average
Price Paid
Per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plan or Program
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Plans or Programs
Period (1)
A ordinary shares:
January 1 – 31, 2015 . . . . . . . . . .
March 1 – 31, 2015 . . . . . . . . . . .
May 1 – 31, 2015 . . . . . . . . . . . .
November 1 – 30, 2015 . . . . . . . .
9,009(2) $28.37
2,290(2) $26.98
596(2) $27.01
8,260,870(3) $23.00
Total
. . . . . . . . . . . . . . . . . .
8,272,765
$23.01
—
—
—
—
—
—
—
—
—
(1) Based on settlement date.
(2) Surrendered by employees as payment of taxes withheld on the vesting of restricted stock.
(3) Of these shares, 7,928,004 shares were converted from B ordinary shares to A ordinary shares. Of the
7,928,004 converted shares, 4,555,061 were redeemed and 3,372,943 went into a liquidating trust.
Other than the 7,928,004 B ordinary shares that were converted to A ordinary shares as noted above, no
additional B ordinary shares were surrendered, repurchased or redeemed in 2015.
The following table provides information with respect
repurchased in 2014:
to the ordinary shares that were surrendered or
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plan or Program
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
Period (1)
A ordinary shares:
January 1 – 31, 2014 . . . . . . . .
February 1 – 28, 2014 . . . . . . .
March 1 – 31, 2014 . . . . . . . . .
3,644(2)
362(2)
1,438(2)
Total
. . . . . . . . . . . . . . . .
5,444
$25.30
$24.00
$26.23
$25.46
—
—
—
—
—
—
—
(1) Based on settlement date.
(2) Surrendered by employees as payment of taxes withheld on the vesting of restricted stock.
There were no B ordinary shares that were surrendered, repurchased, or redeemed in 2014.
13. Related Party Transactions
Fox Paine & Company
As of December 31, 2015, Fox Paine & Company beneficially owned shares having approximately 84% of the
Company’s total outstanding voting power. Fox Paine & Company has the right to appoint a number of the
Company’s Directors equal in aggregate to the pro rata percentage of the voting shares of the Company
beneficially held by Fox Paine & Company for so long as Fox Paine & Company holds an aggregate of 25% or
142
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
more of the voting power in the Company. Fox Paine & Company controls the election of all of the Company’s
Directors due to its controlling share ownership. The Company’s Chairman is a member of Fox Paine &
Company. The Company relies on Fox Paine & Company to provide management services and other services
related to the operations of the Company.
Global Indemnity Reinsurance was a limited partner in Fox Paine Capital Fund, II, which was managed by Fox
Paine & Company. This investment was originally made by United National Insurance Company in June 2000
and pre-dates the September 5, 2003 acquisition by Fox Paine & Company of Wind River Investment
Corporation, which was the predecessor holding company for United National Insurance Company. The
Company’s investment in Fox Paine Capital Fund, II was valued at $3.4 million at December 31, 2014. In
connection with the Company’s share redemption, Global Indemnity Reinsurance elected to redeem its shares in
Fox Paine Capital Fund II, and as a result, the Company no longer held an interest in Fox Paine Capital Fund II
as of November 10, 2015. All of Global Indemnity Reinsurance’s allocable Global Indemnity plc shares that
were held by Fox Paine Capital Fund, II were transferred into a new liquidating partnership. Global Indemnity
Reinsurance’s allocation of these shares totaled 116,973 shares. Of these shares, 82,888 shares were redeemed
for $1.9 million and 34,085 shares are still being held by the new partnership, which also holds shares on behalf
of other limited partners who elected to participate in the redemption. See note 12 for additional information on
the share redemption.
During the year ended December 31, 2015, the Company received a distribution of $0.8 million from Fox Paine
Capital Fund II. There were no distributions received from Fox Paine Capital Fund II during 2014 and 2013.
The Company relies on Fox Paine & Company to provide management services and other services related to the
operations of the Company. Starting in 2014, this fee is adjusted annually to reflect the percentage change in the
CPI-U. In addition, the payment of the annual management fee will be deferred until a change of control or
September, 2018, whichever occurs first, and is subject to an annual adjustment equal to the rate of return the
Company earns on its investment portfolio. Management fee expense of $1.9 million was incurred during each of
the years ended December 31, 2015, 2014, and 2013. As of December 31, 2015 and 2014, unpaid management
fees, which were included in other liabilities on the consolidated balance sheets, were $2.6 million and $0.6
million, respectively.
In connection with the acquisition of American Reliable, the Company agreed to pay to Fox Paine & Company
an investment banking fee of 3% of the amount paid plus the additional capital required to operate American
Reliable on a standalone basis and a $1.5 million investment advisory fee, which in the aggregate, totaled $6.5
million. This amount is included in corporate and other operating expenses on the Company’s Consolidated
Statements of Operations during the year ended December 31, 2015. As payment for these fees, 267,702 A
ordinary shares of Global Indemnity were issued under the Global Indemnity plc Share Incentive Plan in May,
2015. These shares will be registered but cannot be sold until the earlier of five years or a change of control. See
Note 15 for additional information on the Global Indemnity plc Share Incentive Plan.
During 2015, the Company reimbursed Fox Paine & Company $1.2 million for expenses related to the
redemption of the Company’s ordinary shares. See Note 12 for additional information on the share redemption.
Cozen O’Connor
The Company incurred $0.7 million, $0.2 million, and $0.02 million for legal services rendered by Cozen
O’Connor during the years ended December 31, 2015, 2014, and 2013, respectively. Stephen A. Cozen, the
chairman of Cozen O’Connor, was a member of the Company’s Board of Directors until he resigned on
December 31, 2015.
143
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Crystal & Company
During each of the years ended December 31, 2015, 2014 and 2013, the Company incurred $0.2 million in
brokerage fees to Crystal & Company, an insurance broker. In January of 2016, a subsidiary of the Company
entered into an agency relationship with Crystal & Company in which Crystal & Company will be paid a
commission on net premiums written and collected consistent with those paid to other agencies in the Company’s
ordinary course of business. James W. Crystal, the chairman and chief executive officer of Crystal & Company,
is a member of the Company’s Board of Directors.
Hiscox Insurance Company (Bermuda) Ltd.
Global Indemnity Reinsurance is a participant in two reinsurance agreements with Hiscox Insurance Company
(Bermuda) Ltd. (“Hiscox Bermuda”) while Steve Green, the President of Global Indemnity Reinsurance, was a
member of Hiscox Bermuda’s Board of Directors. Steve Green was a member of the Hiscox Bermuda’s Board of
Directors until May, 2014. The Company estimated that the following earned premium and incurred losses
related to these agreements have been assumed by Global Indemnity Reinsurance from Hiscox Bermuda:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Assumed earned premium . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed losses and loss adjustment expenses . . . . . . . . . . . .
$2,266
509
$6,383
763
$3,053
987
Net balances due to Global Indemnity Reinsurance under this agreement are as follows:
(Dollars in thousands)
As of December 31.
2015
2014
Net receivable (payable) balance . . . . . . . . . . . . . . . . . . . . . . . .
$(110)
$2,897
14. Commitments and Contingencies
Commitments
In 2014, the Company entered into a $50 million commitment to purchase an alternative investment vehicle
which is comprised of European non-performing loans. As of December 31, 2015, the Company has funded
$30.0 million of this commitment leaving $20.0 million as unfunded.
Lease Commitments
Total rental expense under operating leases for the years ended December 31, 2015, 2014, and 2013 was $3.5
million, $2.6 million, and $2.4 million, respectively. Rent expense was net of sublease income of $0.07 million,
$0.04 million, and $0.01 million for the years ended December 31, 2015, 2014, 2013, respectively. At
December 31, 2015, future minimum cash payments under non-cancelable operating leases were as follows:
(Dollars in thousands)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,263
3,180
3,149
2,122
114
Total (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,828
(1) Minimum payments have not been reduced by minimum sublease rentals of $24 due in the future under non-
cancelable subleases.
144
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Legal Proceedings
The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The
Company maintains insurance and reinsurance coverage for such risks in amounts that it considers adequate.
However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is
sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the
resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a
material adverse effect on its business, results of operations, cash flows, or financial condition.
There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’
have operations that are in runoff, and therefore, the Company closely monitors those relationships. The
Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be
subject to litigation and arbitration proceedings in the ordinary course of business.
Other Commitments
The Company is party to a Management Agreement, as amended, with Fox Paine & Company, whereby in
connection with certain management services provided to it by Fox Paine & Company, the Company agreed to
pay an annual management fee to Fox Paine & Company. See Note 13 above for additional information
pertaining to this management agreement.
15. Share-Based Compensation Plans
The fair value method of accounting recognizes share-based compensation to employees and non-employee
directors in the statements of operations using the grant-date fair value of the stock options and other equity-
based compensation expensed over the requisite service and vesting period.
For the purpose of determining the fair value of stock option awards, the Company uses the Black-Scholes
option-pricing model. An estimation of forfeitures is required when recognizing compensation expense which is
then adjusted over the requisite service period should actual forfeitures differ from such estimates. Changes in
estimated forfeitures are recognized through a cumulative adjustment to compensation in the period of change.
The prescribed accounting guidance also requires tax benefits relating to excess stock-based compensation
deductions to be prospectively presented in the statement of cash flows as financing cash inflows. The tax benefit
resulting from stock-based compensation deductions in excess of amounts reported for financial reporting
purposes was $0.05 million and $0.04 million for the years ended December 31, 2015 and 2014, respectively.
There was no tax benefit resulting from stock-based compensation deductions in excess of amounts reported for
financial reporting purposes during 2013.
Share Incentive Plan
On June 11, 2014, the Company’s Shareholders approved the Global Indemnity plc Share Incentive Plan (the
“Plan”). The previous share incentive plan, which became effective in 2003, expired per its terms on
September 5, 2013. The purpose of the Plan is to give the Company a competitive advantage in attracting and
retaining officers, employees, consultants and non-employee directors by offering stock options, restricted shares
and other stock-based awards. Under the Plan, the Company may grant up to 2.0 million A ordinary shares
pursuant to grants under the Plan.
145
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Options
Award activity for stock options granted under the Plan and the weighted average exercise price per share are
summarized as follows:
Time-Based
Options
Performance-
Based Options
Total
Options
Weighted
Average
Exercise Price
Per Share
Options outstanding at January 1, 2013 . . . . . . . . . . . . . . . .
Options issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options purchased by the Company . . . . . . . . . . . . . . .
Options outstanding at December 31, 2013 . . . . . . . . . . . . .
Options issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options purchased by the Company . . . . . . . . . . . . . . .
Options outstanding at December 31, 2014 . . . . . . . . . . . . .
Options issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options purchased by the Company . . . . . . . . . . . . . . .
464,743
—
(5,000)
(14,292)
(32,951)
—
412,500
325,000
(125,000)
—
—
—
612,500
—
—
—
(12,500)
—
Options outstanding at December 31, 2015 . . . . . . . . . . . . .
600,000
—
—
—
—
—
—
—
—
—
—
—
—
—
200,000
—
—
—
—
200,000
464,743
—
(5,000)
(14,292)
(32,951)
—
412,500
325,000
(125,000)
—
—
—
612,500
200,000
—
—
(12,500)
—
800,000
Options exercisable at December 31, 2015 . . . . . . . . . . . . . .
360,000
—
360,000
$19.87
—
$29.24
$20.00
$34.00
—
$18.62
$31.74
$19.60
—
—
—
$25.38
$28.37
—
—
$37.70
—
$25.94
$20.29
During the year ended December 31, 2015, the Company awarded 200,000 options with a strike price of $28.37
per share which vest one third on each of December 31, 2015, 2016, and 2017 based on achievement of Board
approved performance targets. 66,667 of the options were due to vest on December 31, 2015 but did not meet the
performance criteria for vesting. During the year ended December 31, 2014, the Company granted 325,000 Time-
Based Options under the Plan. Of these options, 25,000 were forfeited during 2014. The remaining 300,000 stock
options were issued to the Company’s Chief Executive Officer. See below for vesting schedule related to this
stock award. No stock options were awarded in the year ended December 31, 2013.
The Company recorded $0.4 million, $0.3 million, and $1.2 million of compensation expense for stock options
outstanding under the Plan in each of the years ended December 31, 2015, 2014, and 2013, respectively.
The Company did not receive any proceeds from the exercise of options during 2015 or 2014 under the Plan. In
2013, the Company received $0.3 million from the issuance of 14,292 A ordinary shares at a weighted average
grant date value of $20.00 per share exercised by a former employee of the Company under the previous share
incentive plan.
Amortization expense related to options outstanding is anticipated to be $0.4 million in 2016 and 2017.
146
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Option intrinsic values, which are the differences between the fair value of $29.02 at December 31, 2015 and the
strike price of the option, are as follows:
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of Shares
800,000
360,000
—
Weighted
Average
Strike Price
Intrinsic
Value
$25.94
$3.5 million
$20.29(1) $3.3 million
N/A
N/A
(1)
Includes the weighted average strike price on 60,000 of options which are excluded from the intrinsic value
calculation of $3.3 million due to the strike price of the options exceeding the fair value of $29.02 at
December 31, 2015.
(2) The intrinsic value of the exercised options is the difference between the fair market value at time of
exercise and the strike price of the option.
The options exercisable at December 31, 2015 include the following:
Option Price
Number of options
exercisable
$17.87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32.38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable at December 31, 2015 . . . . . . . . .
300,000
60,000
360,000
The weighted average fair value of options granted under the Plan was $8.69 and $7.92 in 2015 and 2014,
respectively, using a Black-Scholes option-pricing model and the following weighted average assumptions.
There were no options granted under the Plan in 2013.
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.0%
31.59%
1.7%
0.0%
37.7%
1.7%
5.0 years
6.9 years
2015
2014
The following tables summarize the range of exercise prices of options outstanding at December 31, 2015, 2014,
and 2013:
Ranges of
Exercise Prices
Outstanding at
December 31, 2015
Weighted Average Per
Share Exercise Price
Weighted Average
Remaining Life
$17.87 – $19.99 . . . . . . . . . . . .
$20.00 – $29.99 . . . . . . . . . . . .
$30.00 – $37.70 . . . . . . . . . . . .
300,000
200,000
300,000(1)
$17.87
$28.37
$32.38
5.7 years
9.0 years
8.1 years
Total
. . . . . . . . . . . . . . . .
800,000
(1)—the weighted average per share exercise price on these shares outstanding is variable. See note below under
Chief Executive Officer for additional information.
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GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Ranges of
Exercise Prices
Outstanding at
December 31, 2014
Weighted Average Per
Share Exercise Price
Weighted Average
Remaining Life
$17.87 – $19.99 . . . . . . . . . . . .
$20.00 – $29.99 . . . . . . . . . . . .
$30.00 – $37.70 . . . . . . . . . . . .
300,000
—
312,500(1)
$17.87
—
$32.59
6.7 years
N/A
8.8 years
Total
. . . . . . . . . . . . . . . .
612,500
(1)—the weighted average per share exercise price on 300,000 of these shares outstanding is variable. See note
below under Chief Executive Officer for additional information.
Ranges of
Exercise Prices
Outstanding at
December 31, 2013
Weighted Average Per
Share Exercise Price
Weighted Average
Remaining Life
$17.87 – $19.99 . . . . . . . . . . . .
$30.00 – $37.70 . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . .
400,000
12,500
412,500
$18.03
$37.70
7.8 years
1.8 years
Restricted Shares
In addition to stock option grants, the Plan also provides for the granting of restricted shares to employees and
non-employee Directors. The Company recognized compensation expense for restricted stock of $3.5 million,
$2.6 million and $2.1 million for 2015, 2014, and 2013, respectively. The total unrecognized compensation
expense for the non-vested restricted stock is $6.2 million at December 31, 2015, which will be recognized over a
weighted average life of 1.9 years.
The following table summarizes the restricted stock grants since the 2003 inception of the previous share
incentive plan.
Year
Restricted Stock Awards
Employees
Directors
Total
Inception through 2012 . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
629,481
81,587
95,694
138,507
354,859
50,421
36,608
36,321
984,340
132,008
132,302
174,828
945,269
478,209
1,423,478
148
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the non-vested restricted shares activity for the years ended December 31, 2015,
2014, and 2013:
Non-vested Restricted Shares at January 1, 2013 . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested Restricted Shares at December 31, 2013 . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested Restricted Shares at December 31, 2014 . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
34,504
132,008
(67,937)
(454)
98,121
132,302
(57,017)
(1,131)
172,275
174,828
(70,503)
(16,695)
Non-vested Restricted Shares at December 31, 2015 . . . . .
259,905
Weighted
Average
Price
Per Share
$17.87
$22.78
$22.17
$22.13
$21.48
$25.67
$24.29
$22.13
$23.76
$28.24
$25.31
$24.11
$26.33
Based on the terms of the Restricted Share grants, all forfeited shares revert back to the Company.
During 2013, the Company granted an aggregate of 81,587 A ordinary shares to key employees at a weighted
average grant date fair value of $22.13 per share. Of the A ordinary shares granted in 2013, 11,296 were granted
to the Company’s Chief Executive Officer and vest 33 1/3% on each subsequent anniversary date of the grant for
a period of three years subject to an accident year true-up of bonus year underwriting results as of the third
anniversary of the grant. The remaining 70,291 shares were granted to key employees and will vests as follows:
•
•
16.5%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the
grant, respectively.
50.0% of granted stock vests 100% on the third anniversary of the grant subject to accident year true-
up of bonus year underwriting results and are subject to Board approval.
During 2013, the Company granted an aggregate of 50,421 A ordinary shares, at a weighted average grant date
fair value of $23.83 per share, to non-employee directors under the previous share incentive plan.
Included in the 50,421A ordinary shares are 18,838 A ordinary shares earned by the non-employee directors of
the Company during 2013 which have a weighted average grant date fair value of $25.38 per share. As of
December 31, 2013, these shares were not granted but were considered issued and outstanding for purposes of
the financial statement and were subject to shareholder approval of the Plan at the Company’s June 11, 2014
annual shareholder meeting. The shareholders approved the plan at the June 11, 2014 annual shareholder
meeting.
During 2014, the Company granted an aggregate of 95,694 A ordinary shares to key employees at a weighted
average grant date fair value of $25.37 per share under the Plan. Of the shares granted in 2014, 5,671 were
granted to a key employee and vest 33 1/3% on each subsequent anniversary date of the award for a period of
three years and 11,857 were granted to the Company’s Chief Executive Officer and vest 33 1/3% on each
149
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
subsequent anniversary date of the grant for a period of three years subject to an accident year true-up of bonus
year underwriting results as of the third anniversary of the grant. The remaining 78,166 shares were granted to
key employees and will vest as follows:
•
•
16.5%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the
grant, respectively.
50% of granted stock vests 100% on the third anniversary of the grant subject to accident year true-up
of bonus year underwriting results and are subject to Board approval.
During 2014, the Company granted 36,608 A ordinary shares, at a weighted average grant date fair value of
$26.46 per share, to non-employee directors of the Company under the Plan. As noted above, an additional
18,838 A ordinary shares were issued to non-employee directors on June 12, 2014. These shares were earned by
non-employee directors prior to January 1, 2014 and were conditioned on shareholders’ approval of the Plan at
the Company’s June 11, 2014 annual shareholder meeting. The shareholders approved the plan at the June 11,
2014 annual shareholder meeting.
During 2015, the Company granted an aggregate of 138,507 A ordinary shares to key employees at a weighted
average grant date fair value of $28.37 per share under the Plan. Of the shares granted in 2015, 10,574 were
granted to the Company’s Chief Executive Officer and vest 33 1/3% on each subsequent anniversary date of the
grant for a period of three years subject to an accident year true-up of bonus year underwriting results as of the
third anniversary of the grant and an additional 44,058 shares were granted to the Company’s Chief Executive
Officer and other key employees which vest 100% on January 1, 2018. The remaining 83,875 shares were
granted to key employees and will vest as follows:
•
•
16.5%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the
grant, respectively.
50% of granted stock vests 100% on the third anniversary of the grant subject to calendar year true-up
of bonus year underwriting results and are subject to Board approval.
During 2015, the Company granted 36,321 A ordinary shares, at a weighted average grant date fair value of
$27.73 per share, to non-employee directors of the Company under the Plan.
All of the shares granted to non-employee directors in 2015, 2014, and 2013 were fully vested but subject to
certain restrictions.
Chief Executive Officer
Effective September 19, 2011, Cynthia Y. Valko was hired as the Company’s Chief Executive Officer.
Ms. Valko’s terms of employment included two equity components including the granting of 300,000 stock
options with a strike price equal to the closing price of the Company’s shares on the trading day preceding the
start date, or $17.87 per share, and an annual bonus opportunity of which 50% shall be paid in restricted shares
based on the market value of the Company’s shares as of December 31 of the subject bonus year. The stock
options vested 33 1/3% on December 31, 2012, 2013, and 2014 pending Board approval at the time of vesting.
The restricted shares vest 33 1/3% on each anniversary of the subject bonus year. All equity components based
on performance are subject to accident year true-up of bonus year underwriting results and are subject to Board
approval.
In 2014, Ms. Valko was awarded an additional 300,000 stock options. The stock options vest as follows: 20% on
December 31, 2015, 30% on December 31, 2016, and the remaining 50% on December 31, 2017 and are based
on achieving underwriting income, premium volume, and underwriting profitability targets, subject to an
150
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accident year true up on the 3rd anniversary of each such year. Vesting of the stock options is subject to
continued employment. The exercise price applicable to the Stock Options is $25.00 subject to adjustment based
on the Company’s average year-end tangible book value per share, the average interest rate of certain Treasury
bonds and the time period elapsed between January 1, 2014 and the date the stock options are exercised. The
stock options were granted under and are subject to the terms of the Plan, as amended, subject to shareholder
approval of such plan to the extent required to affect such grant under the plan.
16. 401(k) Plan
The Company maintains a 401(k) defined contribution plan that covers all eligible U.S. employees. Under this
plan, the Company matches 100% of the first 6% contributed by an employee. Vesting on contributions made by
the Company is immediate. Total expenses for the plan were $2.0 million, $1.2 million, and $1.2 million for the
years ended December 31, 2015, 2014, and 2013, respectively.
17. Earnings Per Share
Earnings per share have been computed using the weighted average number of ordinary shares and ordinary
share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per share.
(Dollars in thousands, except share and per share data)
Years Ended December 31,
2015
2014
2013
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
41,469
$
62,856
$
61,690
Basic earnings per share:
Weighted average shares outstanding—basic . . . . . . . . . . . . . . . . . . .
24,253,657
25,131,811
25,072,712
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.71
$
2.50
$
2.46
Diluted earnings per share:
Weighted average shares outstanding—diluted . . . . . . . . . . . . . . . . .
24,505,851
25,331,420
25,174,015
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.69
$
2.48
$
2.45
A reconciliation of weighted average shares for basic earnings per share to weighted average shares for diluted
earnings per share is as follows:
Weighted average shares for basic earnings per share . . . . . . . . . . . . . . .
Non-vested restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,253,657
148,669
103,525
25,131,811
100,546
99,063
25,072,712
53,876
47,427
Weighted average shares for diluted earnings per share . . . . . . . . . . . . . .
24,505,851
25,331,420
25,174,015
Years Ended December 31,
2015
2014
2013
The weighted average shares outstanding used to determine dilutive earnings per share for the years ended
December 31, 2015, 2014 and 2013 do not include 500,000, 312,500 and 12,500 options, respectively, which
were deemed to be anti-dilutive.
151
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes options which are deemed to be anti-dilutive at December 31, 2015:
Grant Date
Expiration Date
February 9, 2014 . . . . . . . . . . . . . . . . . . . . . . .
January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
February 10, 2024
January 1, 2025
Outstanding
Options
300,000
200,000
500,000
Strike
Price
$32.38
$28.37
18. Statutory Financial Information
GAAP differs in certain respects from Statutory Accounting Principles (“SAP”) as prescribed or permitted by the
various U.S. state insurance departments. The principal differences between SAP and GAAP are as follows:
• Under SAP, investments in debt securities are primarily carried at amortized cost, while under GAAP
the Company records its debt securities at estimated fair value.
• Under SAP, policy acquisition costs, such as commissions, premium taxes, fees and other costs of
underwriting policies are charged to current operations as incurred, while under GAAP such costs are
deferred and amortized on a pro rata basis over the period covered by the policy.
• Under SAP, certain assets designated as “Non-admitted assets” (such as prepaid expenses) are charged
against surplus.
• Under SAP, net deferred income tax assets are admitted following the application of specified criteria,
with the resulting admitted deferred tax amount being credited directly to surplus.
• Under SAP, certain premium receivables are non-admitted and are charged against surplus based upon
aging criteria.
• Under SAP, the costs and related receivables for guaranty funds and other assessments are recorded
based on management’s estimate of the ultimate liability and related receivable settlement, while under
GAAP such costs are accrued when the liability is probable and reasonably estimable and the related
receivable amount is based on future premium collections or policy surcharges from in-force policies.
• Under SAP, unpaid losses and loss adjustment expenses and unearned premiums are reported net of the
effects of reinsurance transactions, whereas under GAAP, unpaid losses and loss adjustment expenses
and unearned premiums are reported gross of reinsurance.
• Under SAP, a provision for reinsurance is charged to surplus based on the authorized status of
reinsurers, available collateral, and certain aging criteria, whereas under GAAP, an allowance for
uncollectible reinsurance is established based on management’s best estimate of the collectability of
reinsurance receivables.
The National Association of Insurance Commissioners (“NAIC”) issues model laws and regulations, many of
which have been adopted by state insurance regulators, relating to: (a) risk-based capital (“RBC”) standards;
(b) codification of insurance accounting principles; (c) investment restrictions; and (d) restrictions on the ability
of insurance companies to pay dividends.
The Company’s U.S. insurance subsidiaries are required by law to maintain certain minimum surplus on a
statutory basis, and are subject to regulations under which payment of a dividend from statutory surplus is
restricted and may require prior approval of regulatory authorities. Applying the current regulatory restrictions as
of December 31, 2015, the maximum amount of distributions that could be paid in 2016 by the United National
152
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
insurance companies,
the Penn-America insurance companies, and American Reliable as dividends under
applicable laws and regulations without regulatory approval is approximately $17.3 million, $8.3 million and
$7.8 million, respectively. The Penn-America insurance companies limitation includes $2.7 million that would be
distributed to United National Insurance Company or its subsidiary Penn Independent Corporation based on the
December 31, 2015 ownership percentages. For 2015, the Penn-America insurance companies declared and paid
dividends of $8.4 million, the United National insurance companies declared dividends of $35.0 million and
American Reliable did not declare or pay any dividends.
The NAIC’s RBC model provides a tool for insurance regulators to determine the levels of statutory capital and
surplus an insurer must maintain in relation to its insurance and investment risks, as well as its reinsurance
exposures, to assess the potential need for regulatory attention. The model provides four levels of regulatory
attention, varying with the ratio of an insurance company’s total adjusted capital to its authorized control level
RBC (“ACLRBC”). If a company’s total adjusted capital is:
(a)
(b)
(c)
less than or equal to 200%, but greater than 150% of its ACLRBC (the “Company Action Level”), the
company must submit a comprehensive plan to the regulatory authority proposing corrective actions
aimed at improving its capital position;
less than or equal to 150%, but greater than 100% of its ACLRBC (the “Regulatory Action Level”), the
regulatory authority will perform a special examination of the company and issue an order specifying
the corrective actions that must be followed;
less than or equal to 100%, but greater than 70% of its ACLRBC (the “Authorized Control Level”), the
regulatory authority may take any action it deems necessary, including placing the company under
regulatory control; and
(d)
less than or equal to 70% of its ACLRBC (the “Mandatory Control Level”), the regulatory authority
must place the company under its control.
Based on the standards currently adopted, the Company reported in its 2015 statutory filings that the capital and
surplus of the U.S. insurance companies are above the prescribed Company Action Level RBC requirements.
The following is selected information for the Company’s U.S. insurance companies, net of intercompany
eliminations, where applicable, as determined in accordance with SAP:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Statutory capital and surplus, as of end of period (1)
Statutory net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . $318,101 $253,362 $251,464
31,781
36,003
48,633
(1)
Includes extraordinary dividend declared in 2013 for an aggregate of $200 million.
Global Indemnity Reinsurance must also prepare annual statutory financial statements. The Bermuda Insurance
Act 1978 (the “Insurance Act”) prescribes rules for the preparation and substance of these statutory financial
statements which include, in statutory form, a balance sheet, an income statement, a statement of capital and
surplus and notes thereto. The statutory financial statements are not prepared in accordance with GAAP or SAP
and are distinct from the financial statements prepared for presentation to Global Indemnity Reinsurance’s
shareholders and under the Bermuda Companies Act 1981 (the “Companies Act”), which financial statements
will be prepared in accordance with GAAP.
153
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The principal differences between statutory financial statements prepared under the Insurance Act and GAAP are
as follows:
• Under the Insurance Act, policy acquisition costs, such as commissions, premium taxes, fees and other
costs of underwriting policies are charged to current operations as incurred, while under GAAP such
costs are deferred and amortized on a pro rata basis over the period covered by the policy.
• Under the Insurance Act, prepaid expenses and intangible assets are charged to current operations as
incurred, while under GAAP such costs are deferred and amortized on a pro rata basis.
• Under the Insurance Act, unpaid losses and loss adjustment expenses and unearned premiums are
reported net of the effects of reinsurance transactions, whereas under GAAP, unpaid losses and loss
adjustment expenses and unearned premiums are reported gross of reinsurance.
Under the Companies Act, Global Indemnity Reinsurance may only declare or pay a dividend if it has no
reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they
become due, or if the realizable value of its assets would not be less than the aggregate of its liabilities and its
issued share capital and share premium accounts. Global Indemnity Reinsurance is also prohibited, without the
approval of the BMA, from reducing by 15% or more its total statutory capital as set out in its previous year’s
statutory financial statements, and any application for such approval must include such information as the BMA
may require. Based upon the total statutory capital plus the statutory surplus as set out in its 2015 statutory
financial statements that will be filed in 2016, Global Indemnity Reinsurance could pay a dividend of up to
$234.8 million without requesting BMA approval. Global Indemnity Reinsurance is dependent on receiving
distributions from its subsidiaries in order to pay the full dividend in cash.
The following is selected information for Global Indemnity Reinsurance, net of intercompany eliminations,
where applicable, as determined in accordance with the Bermuda Insurance Act 1978:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Statutory capital and surplus, as of end of period . . . .
Statutory net income (loss) . . . . . . . . . . . . . . . . . . . . . .
$713,842
864
$923,862
44,593
$913,401
31,697
19. Segment Information
The acquisition of American Reliable has impacted the way the Company manages and analyzes its operating
results. The business acquired from American Reliable is considered to be a separate segment, Personal Lines.
The Company now manages its business through three reportable business segments: Commercial Lines,
managed in Bala Cynwyd, PA, offers specialty property and casualty products designed for product lines such as
Small Business Binding Authority, Property Brokerage, and Programs; Personal Lines, managed in Scottsdale,
AZ, offers specialty personal lines and agricultural coverage; and Reinsurance Operations, managed in Bermuda,
provides reinsurance solutions through brokers and primary writers including insurance and reinsurance
companies.
three segments follow the same accounting policies used for the Company’s consolidated financial
All
statements. For further disclosure regarding the Company’s accounting policies, please see Note 2.
Prior to 2015, the Commercial Lines segment was known as Insurance Operations segment. With the acquisition
of American Reliable, the Insurance Operations segment was renamed to Commercial Lines segment. The newly
acquired American Reliable became the Company’s Personal Lines segment. For segment reporting, the values
for 2013 and 2014 did not change for Commercial Lines and Reinsurance Operations.
154
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following are tabulations of business segment information for the years ended December 31, 2015, 2014, and
2013. Corporate information is included to reconcile segment data to the consolidated financial statements.
2015:
(Dollars in thousands)
Commercial
Lines (1)
Personal
Lines (1)
Reinsurance
Operations (2)
Total
Revenues:
Gross premiums written . . . . . . . . . . . . . . . . .
$214,218
$326,282
$ 49,733
$ 590,233
Net premiums written . . . . . . . . . . . . . . . . . .
$197,526
$254,035
$ 49,683
$ 501,244
Net premiums earned . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . .
$199,304
621
$253,048
2,872
$ 51,791
(93)
$ 504,143
3,400
Total revenues . . . . . . . . . . . . . . . . . . . .
199,925
255,920
51,698
507,543
Losses and Expenses:
Net losses and loss adjustment expenses . . . .
Acquisition costs and other underwriting
97,530
163,986
13,852
275,368
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
83,170(3)
99,140(4)
18,993
201,303
Income (loss) from segments . . . . . . . . .
$ 19,225
$ (7,206)
$ 18,853
$
30,872
Unallocated Items:
Net investment income . . . . . . . . . . . . . . . . .
Net realized investment losses . . . . . . . . . . . .
Corporate and other operating expenses . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
34,609
(3,374)
(24,448)
(4,913)
32,746
8,723
41,469
Total assets . . . . . . . . . . . . . . . . . . . . . .
$729,097
$510,503
$717,694(5) $1,957,294
(1)
Includes business ceded to the Company’s Reinsurance Operations.
(2) External business only, excluding business assumed from affiliates.
(3)
Includes federal excise tax of $1,051 relating to cessions from Commercial Lines to Reinsurance
Operations.
Includes federal excise tax of $1,265 relating to cessions from Personal Lines to Reinsurance Operations.
(4)
(5) Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries
155
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2014:
(Dollars in thousands)
Commercial
Lines (1)
Reinsurance
Operations (2)
Total
Revenues:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 229,978
$ 61,275
$ 291,253
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 212,965
$ 60,216
$ 273,181
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 211,165
620
$ 57,354
(65)
$ 268,519
555
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
211,785
57,289
269,074
Losses and Expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . .
117,586
88,983(3)
19,975
20,636
137,561
109,619
Income from segments . . . . . . . . . . . . . . . . . . . . . . .
$
5,216
$ 16,678
$
21,894
Unallocated items:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains . . . . . . . . . . . . . . . . . . . . . .
Corporate and other operating expenses . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,821
35,860
(14,559)
(822)
71,194
(8,338)
$
62,856
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,288,763
$641,270(4) $1,930,033
(1)
Includes business ceded to the Company’s Reinsurance Operations.
(2) External business only, excluding business assumed from affiliates.
(3)
(4) Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries.
Includes excise tax of $1,114 related to cessions from Commercial Lines to Reinsurance Operations.
156
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2013:
(Dollars in thousands)
Commercial
Lines (1)
Reinsurance
Operations (2)
Total
Revenues:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 232,373
$ 58,350
$ 290,723
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 213,705
$ 58,279
$ 271,984
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 196,302
5,795
$ 52,420
(4)
$ 248,722
5,791
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202,097
52,416
254,513
Losses and Expenses:
Net losses and loss adjustment expenses . . . . . . . . . . . . . .
Acquisition costs and other underwriting expenses . . . . .
116,837
87,360(3)
16,154
18,291
132,991
105,651
Income (loss) from segments . . . . . . . . . . . . . . . . . .
$
(2,100)
$ 17,971
$
15,871
Unallocated items:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains . . . . . . . . . . . . . . . . . . . . . .
Corporate and other operating expenses . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,209
27,412
(11,614)
(6,169)
62,709
(1,019)
$
61,690
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,264,306
$647,473(4) $1,911,779
(1)
Includes business ceded to the Company’s Reinsurance Operations.
(2) External business only, excluding business assumed from affiliates.
(3)
(4) Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries.
Includes excise tax of $1,026 related to cessions from Commercial Lines to Reinsurance Operations.
20. Supplemental Cash Flow Information
Taxes and Interest Paid
The Company paid the following net federal income taxes and interest for 2015, 2014, and 2013:
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Federal income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal income taxes recovered . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 104
2
3,926
$13,997
136
804
$ 162
7,613
7,678
157
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Non-Cash Activities
On January 1, 2015, Global Indemnity Group, Inc. acquired 100% of the voting equity interest of American
Reliable. In conjunction with the acquisition, fair value of assets acquired and liabilities assumed by the
Company were as follows:
(Dollars in thousands)
. . . . . . . .
Fair value of assets acquired (including goodwill)
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$383,668
283,871
21. New Accounting Pronouncements
In September, 2015, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance
surrounding business combinations. The new guidance requires an acquirer to recognize adjustments to
provisional amounts that are identified during the measurement period in the reporting period in which the
adjustment is determined. It also requires that the acquirer record, in the same period’s financial statements, the
effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the
change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.
This guidance is effective for public entities for fiscal years beginning after December 15, 2015, including
interim periods within those fiscal years. This guidance should be applied prospectively to adjustments to
provisional amounts that occur after the effective date of this guidance with earlier application permitted for
financial statements that have not been issued. This guidance will be applicable to the Company if there is any
material adjustments to amounts previously recorded during the measurement period related to the American
Reliable acquisition. This guidance may also be applicable to future acquisitions. The Company plans to adopt
this guidance in the first quarter of 2016.
In May, 2015, the FASB issued new accounting guidance surrounding investments in certain entities that
calculate net asset value per share. The new guidance removes the requirement to categorize within the fair value
hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.
It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at
fair value using the net asset value per share practical expedient. This guidance is effective for public business
entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early
adoption is permitted. The Company adopted this guidance in the fourth quarter of 2015 which resulted in the
Company’s other invested assets, that are measured utilizing net asset value, being removed from the fair value
hierarchy. The adoption of this guidance only impacted the Company’s fair value disclosures and had no impact
on the Company’s financial condition, results of operations, or cash flows.
In May, 2015, the FASB issued new accounting guidance regarding short-duration contracts. The new guidance
requires additional disclosure regarding the liability for unpaid claims and claim adjustment expenses. This
guidance is effective for public business entities for annual periods beginning after December 15, 2015 and
interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The
Company plans to include these disclosures in its year ended December 31, 2016 financial statements.
In April 2015, the FASB issued new accounting guidance which requires that debt issuance costs be presented in
the balance sheet as a direct reduction from the carrying amount of the recognized debt liability, consistent with
the treatment of debt discounts or premiums. Amortization of debt issuance costs is to be reported as interest
expense. The recognition and measurement guidance for debt issuance costs are not affected by this new
guidance. For public entities, the guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted. The Company
adopted this guidance in the third quarter, 2015.
158
GLOBAL INDEMNITY PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In May, 2014, the FASB issued new accounting guidance regarding the recognition of revenue from customers
arising from the transfer of goods and services. New and enhanced disclosures will also be required. Long and
short duration insurance contracts, which comprise the majority of the Company’s revenues, are excluded from
this accounting guidance. This guidance is effective for public entities for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period. Early application is not
permitted. Although the Company is still evaluating the impact of this new guidance, the Company does not
anticipate it will have a material impact on its financial condition, results of operations, and cash flows.
In February, 2013, the FASB issued new accounting guidance regarding other comprehensive income. The new
guidance requires additional disclosure regarding amounts reclassified out of accumulated other comprehensive
by component. This guidance was effective for reporting periods beginning after December 15, 2012. The
Company adopted this guidance effective January 1, 2013.
The Company does not expect any of these new accounting pronouncements to have a material impact on the
Company’s consolidated statements of financial position or results of operations.
22. Summary of Quarterly Financial Information (Unaudited)
An unaudited summary of the Company’s 2015 and 2014 quarterly performance is as follows:
(Dollars in thousands, except per share data)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains (losses) . . . . . . . . . .
Net losses and loss adjustment expenses . . . . . . . .
Acquisition costs and other underwriting
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share data—Diluted:
Year Ended December 31, 2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$127,337
8,241
(2,970)
69,619
$128,877
9,141
6,532
79,560
$124,707
8,852
(10,778)
77,691
$123,222
8,375
3,842
48,498
48,258
3,238
6,794
50,926
9,772
11,117
50,934
(9,727)
(3,746)
51,185
29,463
27,304
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.26
$
0.43
$
(0.15)
$
1.30
(Dollars in thousands, except per share data)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains (losses) . . . . . . . . . .
Net losses and loss adjustment expenses . . . . . . . .
Acquisition costs and other underwriting
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share data—Diluted:
Year Ended December 31, 2014
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 67,544
8,284
(813)
38,572
$ 66,017
7,677
39,881
38,270
$ 68,028
6,527
1,158
36,654
$ 66,930
6,333
(4,366)
24,065
26,485
6,974
8,823
27,171
44,798
33,208
27,458
8,128
9,761
28,505
11,294
11,064
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.35
$
1.31
$
0.39
$
0.44
159
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9.
None
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure
that information required to be disclosed in the Company’s reports under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures. Any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s
management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of disclosure controls and procedures as of December 31, 2015. Based
upon that evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31, 2015, the design and operation of the Company’s disclosure controls and
procedures were effective to accomplish their objectives at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable
assurances regarding the reliability of financial reporting and the preparation of the consolidated financial
statements of the Company in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting principles, and that receipts
and expenditures are being made only in accordance with authorizations of
the Company’s
management and Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of assets that could have a material effect on the financial statements.
internal control over financial reporting may not prevent or detect
Because of its inherent
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
limitations,
Management has assessed the Company’s internal control over financial reporting as of December 31, 2015. The
standard measures adopted by management in making its evaluation are the measures in the Internal Control
Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission in
2013.
Based upon its assessment, management has concluded that the Company’s internal control over financial
reporting was effective at December 31, 2015, and that there were no material weaknesses in the Company’s
internal control over financial reporting as of that date.
160
Ernst & Young, LLP, an independent registered public accounting firm, which has audited and reported on the
consolidated financial statements contained in this Form 10-K, has issued its report on the effectiveness of the
Company’s internal control over financial reporting. See “Report of Independent Registered Public Accounting
Firm” on page 162.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that occurred during the
quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
161
Report of Independent Registered Public Accounting Firm
The Board of Directors and
Shareholders of Global Indemnity plc
We have audited Global Indemnity plc’s (the “Company”) internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).
The Company’s management is responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Corporation’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
limitations,
In our opinion, Global Indemnity plc maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of Global Indemnity plc as of December 31, 2015, and the related
consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the year
then ended, and our report dated March 14, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 14, 2016
162
Item 9B. OTHER INFORMATION
None.
163
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s
definitive proxy statement relating to the 2016 Annual Meeting of Shareholders to be filed with the SEC within
120 days of the fiscal year ended December 31, 2015 (“2016 Proxy Statement”).
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s
2016 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s
2016 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s
2016 Proxy Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to, and will be contained in, the Company’s
2016 Proxy Statement.
164
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
The agreements and other documents filed as exhibits to this report are not intended to provide factual information
or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you
should not rely on them for that purpose. In particular, any representations and warranties made by the Company in
these agreements or other documents were made solely within the specific context of the relevant agreement or
document and may not describe the actual state of affairs as of the date they were made or at any other time.
The following documents are filed as part of this report:
(1) The Financial Statements listed in the accompanying index on page 96 are filed as part of this report.
(2) The Financial Statement Schedules listed in the accompanying index on page 96 are filed as part of this
report.
Exhibit No.
Description
2.1
3.1
3.2
4.1
4.2
4.3
10.1*
10.2*
10.3*
American Reliable SPA dated as of October 16, 2014 (incorporated by reference to Exhibit 2.1 of
the Company’s Current Report on Form 8-K dated October 21, 2014 (File No. 001-34809)).
Memorandum and Articles of Association of Global Indemnity plc (incorporated by reference to
Exhibit 3.1 of the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 2013
(File No. 001-34809)).
Incorporation of Global
Certificate of
Indemnity plc, an Irish public limited company
(incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K12B dated
July 2, 2010 (File No. 001-34809)).
Indenture, dated as of August 12, 2015, by and between the Company and Wells Fargo Bank,
National Association, as trustee (incorporated herein by reference to Exhibit 4.1 of the Company’s
Current Report on Form 8-K dated August 12, 2015)(File No. 001-34809)).
Officers’ Certificate, dated August 12, 2015 (incorporated herein by reference to Exhibit 4.2 of the
Company’s Current Report on Form 8-K dated August 12, 2015 (File No. 001-34809)).
Form of 7.75% Subordinated Notes due 2045 (included in Exhibit 4.2) (incorporated herein by
reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K dated August 12, 2015
(File No. 001-34809)).
Management Agreement, dated as of September 5, 2003, by and among United National Group,
Ltd., Fox Paine & Company, LLC and The AMC Group, L.P. with related Indemnity Letter
(incorporated herein by reference to Exhibit 10.3 of Amendment No. 1 to the Company’s
Registration Statement on Form S-1 (Registration No. 333-108857) filed on October 28,
2003)(File No. 000-50511)).
Amendment No. 1 to the Management Agreement, dated as of May 25, 2006, by and among
United America Indemnity, Ltd., Fox Paine & Company, LLC and Wind River Holdings, L.P.,
formerly The AMC Group, L.P. (incorporated herein by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K filed on June 1, 2006) (File No. 000-50511)).
Letter Agreement, dated March 16, 2011, assigning the 2003 Management Agreement (as
amended) and related indemnity agreement, by and among United America Indemnity, Ltd.,
Global Indemnity (Cayman) Ltd. and Fox Paine & Company, LLC (incorporated herein by
reference to Exhibit 10.26 of the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2010 (File No. 000-34809)).
165
Exhibit No.
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
Description
Guaranties, dated March 15, 2011, provided by each of United America Indemnity, Ltd., Global
Indemnity Reinsurance Company, Ltd., and Global Indemnity Group, Inc., in each case in favor of Fox
Paine & Company, LLC, relating to the obligations of Global Indemnity (Cayman) Ltd. under the Letter
Agreement, dated March 15, 2011 (incorporated herein by reference to Exhibit 10.27 of the Company’s
annual report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 000-34809)).
Amendment No. 3 to the Management Agreement, dated as of April 10, 2011, by and among
Global Indemnity (Cayman) Ltd. and Fox Paine & Company, LLC (incorporated herein by
reference to Exhibit 10.5 of the Company’s annual report on Form 10-K for the fiscal year ended
December 31, 2012 (File No. 001-34809)).
Amended and Restated Management Agreement, dated as of October 31, 2013, by and among
Global Indemnity (Cayman) Ltd. and Fox Paine & Company, LLC (incorporated herein by
reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarter ended
September 30, 2013 (File No. 001-34809)).
Reaffirmation Agreements, dated as of October 31, 2013, provided by each of United America
Indemnity, Ltd., Global Indemnity Reinsurance Company, Ltd., and Global Indemnity Group, Inc.
reaffirming the March 15, 2011 Guaranty Agreements (incorporated herein by reference to Exhibit
10.2 of the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2013
(File No. 001-34809)).
Amendment No. 1 and the Global Indemnity plc Share Incentive Plan (incorporated herein by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated May 28, 2015 (File
No. 001-34809)).
Global Indemnity plc Annual Incentive Award Program, amended and restated effective July 2,
2010 (incorporated herein by reference to Exhibit 10.4 of the Company’s Current Report on Form
8-K12B dated July 2, 2010 (File No. 001-34809)).
Deed Poll of Assumption for United America Indemnity, Ltd. Annual Incentive Award Program
by Global Indemnity plc, dated July 2, 2010 (incorporated herein by reference to Exhibit 10.5 of
the Company’s Current Report on Form 8-K12B dated July 2, 2010 (File No. 001-34809)).
Amended and Restated Shareholders Agreement, dated July 2, 2010, by and among Global
Indemnity plc (as successor to United America Indemnity, Ltd.) and the signatories thereto
(incorporated herein by reference to Exhibit 10.6 of the Company’s Current Report on Form
8-K12B dated July 2, 2010 (File No. 001-34809)).
Assignment and Assumption Agreement relating to the Amended and Restated Shareholders
Agreement, dated July 2, 2010 (incorporated herein by reference to Exhibit 10.7 of the Company’s
Current Report on Form 8-K12B dated July 2, 2010 (File No. 001-34809))
Amendment to the Amended and Restated Shareholders Agreement, dated as of October 31, 2013,
by and among Global Indemnity plc and the signatories thereto (incorporated herein by reference
to Exhibit 10.3 of the Company’s quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 2013 (File No. 001-34809)).
Indemnification Agreement between United America Indemnity, Ltd. and Fox Paine Capital Fund
II International L.P., dated July 2, 2010 (incorporated herein by reference to Exhibit 10.8 of the
Company’s Current Report on Form 8-K12b dated July 2, 2010 (File No. 001-34809)).
Form of Indemnification Agreement between United America Indemnity, Ltd. and certain
directors and officers of Global Indemnity plc, dated July 2, 2010 (incorporated herein by
reference to Exhibit 10.9 of the Company’s Current Report on form 8-K12B dated July 2, 2010
(File No. 001-34809)).
166
Exhibit No.
10.16*
10.17*
10.18*
10.19*
10.20*
10.21
10.22
10.23
21.1+
23.1+
23.2+
31.1+
31.2+
32.1+
32.2+
101.1+
Description
Employment Agreement, as amended, for William J. Devlin, Jr., dated October 24, 2005
(incorporated herein by reference to exhibit 10.14 of the Company’s amended Annual Report on
Form 10-K/A for the fiscal year ended December 31, 2011 dated September 5, 2012 (File No. 001-
34809)).
Executive Employment Agreement, dated as of June 8, 2009, between Penn-America Insurance
Company and Matthew B. Scott (incorporated herein by reference to Exhibit 10.25 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File No.
000-50511)).
Executive Employment Agreement, dated as of December 8, 2009, between United America
Indemnity, Ltd. and Thomas M. McGeehan (incorporated herein by reference to Exhibit 10.27 to
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (File
No. 000-50511)).
Description of Employment Arrangement with Cynthia Y. Valko, dated December 10, 2014
(incorporated herein by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K
dated December 12, 2014 (File No. 001-34809)).
Executive Employment Term Sheet with Stephen Green, dated February 18, 2015 (incorporated
herein by reference to exhibit 10.20 of the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2014 (File No. 001-34809)).
Amended and Restated Institutional Account Agreement dated as of June 7, 2013 (incorporated
herein by reference to exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2013 (File No. 001-34809)).
Amended and Restated Institutional Account Agreement dated as of May 28, 2014 (incorporated
herein by reference to exhibit 10.22 of the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2014 (File No. 001-34809)).
Redemption Agreement, dated October 29, 2015, by and between Global Indemnity plc and the
parties listed on Annex A thereto (incorporated by reference to Exhibit 1.1 of the Company’s
Current Report on Form 8-K dated October 29, 2015)(File No. 001-34809)).
List of Subsidiaries.
Consent of Ernst and Young LLP.
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial information from Global Indemnity’s Annual Report on Form 10-K for
the year ended December 31, 2015 formatted in XBRL: (i) Consolidated Balance Sheets for the
years ended December 31, 2015 and 2014; (ii) Consolidated Statements of Operations for the
years ended December 31, 2015, 2014 and 2013; (iii) Consolidated Statements of Comprehensive
Income for the years ended December 31, 2015, 2014 and 2013; (iv) Consolidated Statements of
Changes in Shareholders’ Equity for the years ended December 31, 2015, 2014 and 2013; (v)
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013;
(vi) Notes to Consolidated Financial Statements; and (vii) Financial Statement Schedules.
167
+ Filed or furnished herewith.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form
10-K.
168
Pursuant to the requirements of the Section 13 or 15 (d) of the Securities Exchange Act of 1934, Global
Indemnity has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
GLOBAL INDEMNITY PLC
By:
Name:
Title:
Date:
/s/
Cynthia Y. Valko
Cynthia Y. Valko
Chief Executive Officer
March 14, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the capacities indicated below on March 14, 2016.
SIGNATURE
/s/ Saul A. Fox
Saul A. Fox
/s/ Cynthia Y. Valko
Cynthia Y. Valko
TITLE
Chairman and Director
Chief Executive Officer and Director
/s/ Thomas M. McGeehan
Chief Financial Officer (Principal Financial and
Thomas M. McGeehan
Accounting Officer)
/s/
James W. Crystal
James W. Crystal
/s/ Seth J. Gersch
Seth J. Gersch
/s/
John H. Howes
John H. Howes
/s/ Larry N. Port
Larry N. Port
/s/ Bruce Lederman
Bruce Lederman
/s/ Raphael de Balmann
Raphael de Balmann
/s/
Joseph W. Brown
Joseph W. Brown
Director
Director
Director
Director
Director
Director
Director
169
[THIS PAGE INTENTIONALLY LEFT BLANK]
GLOBAL INDEMNITY PLC
SCHEDULE I—SUMMARY OF INVESTMENTS—OTHER THAN INVESTMENTS
IN RELATED PARTIES
(In thousands)
As of December 31, 2015
Cost *
Value
Amount
Included in
the Balance
Sheet
Type of Investment:
Fixed maturities:
United States government and government agencies and
authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
States, municipalities, and political subdivisions . . . . . . . . . . . . . . .
Mortgage-backed and asset-backed securities . . . . . . . . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 106,303
203,121
561,503
23,990
413,416
$ 107,122
205,240
559,535
23,796
410,456
$ 107,122
205,240
559,535
23,796
410,456
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,308,333
1,306,149
1,306,149
Equity securities:
Common stocks:
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial and miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,147
94,010
Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,157
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,592
6,373
103,942
110,315
32,592
6,373
103,942
110,315
32,592
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,441,082
$1,449,056
$1,449,056
* Original cost of equity securities; original cost of fixed maturities adjusted for amortization of premiums and
accretion of discounts; original cost for other long-term investments adjusted for income or loss earned on
investments in accordance with equity method of accounting. All amounts are shown net of impairment losses.
S-1
GLOBAL INDEMNITY PLC
SCHEDULE II—Condensed Financial Information of Registrant
(Parent Only)
Balance Sheets
(Dollars in thousands, except share data)
Years Ended December 31,
2015
2014
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in unconsolidated subsidiaries (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due from affiliates (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,185
951,760
3,645
—
$
46
1,017,710
—
705
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 957,590
$1,018,461
Liabilities:
LIABILITIES AND SHAREHOLDERS’ EQUITY
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany notes payable (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to affiliates (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 96,388
108,000
—
3,221
$
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
207,609
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity:
—
—
108,000
938
1,178
110,116
—
Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A
ordinary shares issued: 16,424,546 and 16,331,577, respectively; A ordinary
shares outstanding:13,313,751 and 13,266,762 respectively; B ordinary shares
issued and outstanding: 4,133,366 and 12,061,370, respectively . . . . . . . . . . . . .
Deferred shares, €1 par value, 40,000 ordinary shares authorized, issued and
outstanding (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred shares, $0.0001 par value, 100,000,000 shares authorized, none issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income, net of tax . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A ordinary shares in treasury, at cost: 3,110,795 and 3,064,815 shares,
3
55
3
55
—
529,872
4,078
318,416
—
519,590
23,384
466,717
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(102,443)
(101,404)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
749,981
908,345
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 957,590
$1,018,461
(1) This item has been eliminated in the Company’s Consolidated Financial Statements.
See Notes to Consolidated Financial Statements included in Item 8.
S-2
GLOBAL INDEMNITY PLC
SCHEDULE II—Condensed Financial Information of Registrant (continued)
(Parent Only)
Statement of Operations and Comprehensive Income
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Revenues:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses:
Intercompany interest expense (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ —
1,296
8,203
1,296
4,484
1,296
3,848
Loss before equity in earnings of unconsolidated subsidiaries . . . . . . . . . . .
Equity in earnings of unconsolidated subsidiaries (1) . . . . . . . . . . . . . . . . . . . . . .
(9,499)
50,968
(5,780)
68,636
(5,144)
66,834
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,469
62,856
61,690
Other comprehensive income, net of tax:
Equity in other comprehensive income (loss) of unconsolidated
subsidiaries (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19,306)
(30,644)
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . .
(19,306)
(30,644)
678
678
Comprehensive income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,163
$ 32,212
$62,368
(1) This item has been eliminated in the Company’s Consolidated Financial Statements.
See Notes to Consolidated Financial Statements included in Item 8.
S-3
GLOBAL INDEMNITY PLC
SCHEDULE II—Condensed Financial Information of Registrant—(continued)
(Parent Only)
Statement of Cash Flows
(Dollars in thousands)
Years Ended December 31,
2015
2014
2013
Net cash provided by (used for) operating activities . . . . . . . . . . . . . . . . . . . . . . . .
$ 95,891
$(1,598) $
57
Cash flows from financing activities:
Proceeds from issuance of subordinated notes . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of A ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit on share-based compensation expense . . . . . . . . . . . . . . . . . . . . .
Redemption of ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,000
(3,659)
(333)
10
(189,770)
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
(93,752)
—
—
(139)
37
—
(102)
—
—
(55)
—
—
(55)
Net change in cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . .
2,139
46
(1,700)
1,746
2
1,744
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,185
$
46
$1,746
Supplemental Non-Cash Disclosure:
During the years ended December 31, 2014 and 2013, the Company received a non-cash dividend of $2.7 million
and $19.1 million, respectively, from one of its subsidiaries which was used to repay intercompany balances due.
The Company did not receive any non-cash dividends during the years ended December 31, 2015.
See Notes to Consolidated Financial Statements included in Item 8.
S-4
GLOBAL INDEMNITY PLC
SCHEDULE III—SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
Segment
At December 31, 2015:
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . .
Personal Lines . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . .
At December 31, 2014:
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . .
At December 31, 2013:
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . .
Segment
Deferred Policy
Acquisition Costs
Future
Policy Benefits,
Losses, Claims And
Loss Expenses
Unearned
Premiums
Other Policy and
Benefits Payable
$20,784
31,900
3,833
$21,249
3,989
$19,036
3,141
$524,607
94,359
61,081
$579,621
95,851
$678,381
101,085
$100,027
169,669
16,589
$102,118
18,697
$100,791
15,838
$—
—
—
$—
—
$—
—
Benefits, Claims,
Losses And
Settlement
Expenses
Premium
Revenue
Amortization of
Deferred Policy
Acquisition Costs
Net
Written
Premium
For the year ended December 31, 2015:
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . . .
$199,304
253,048
51,791
$ 97,530
163,986
13,852
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$504,143
$275,368
For the year ended December 31, 2014:
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . . .
$211,165
57,354
$117,586
19,975
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$268,519
$137,561
For the year ended December 31, 2013:
Commercial Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance Operations . . . . . . . . . . . . . . . . . . . . . . . . .
$196,302
52,420
$116,837
16,154
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$248,722
$132,991
Unallocated Corporate Items
For the year ended December 31, 2015 . . . . . . . . . . . . . . .
For the year ended December 31, 2014 . . . . . . . . . . . . . . .
For the year ended December 31, 2013 . . . . . . . . . . . . . . .
Net
Investment
Income
$34,609
$28,821
$37,209
$197,526
254,035
49,683
$501,244
$212,965
60,216
$273,181
$213,705
58,279
$271,984
$43,821
31,291
11,058
$86,170
$45,015
12,036
$57,051
$44,115
9,672
$53,787
Corporate
and Other
Operating
Expenses
$24,448
$14,559
$11,614
S-5
GLOBAL INDEMNITY PLC
SCHEDULE IV—REINSURANCE
EARNED PREMIUMS
(Dollars in thousands)
Direct
Amount
Ceded to Other
Companies
Assumed from
Other Companies Net Amount
Percentage
of Amount
Assumed to Net
For the year ended December 31, 2015:
Property & Liability Insurance . . . . . . . . . . . . $452,441
For the year ended December 31, 2014:
Property & Liability Insurance . . . . . . . . . . . . $228,652
For the year ended December 31, 2013:
Property & Liability Insurance . . . . . . . . . . . . $215,713
$92,852
$144,554
$504,143
28.7%
$18,547
$ 58,414
$268,519
21.8%
$19,485
$ 52,494
$248,722
21.1%
S-6
GLOBAL INDEMNITY PLC
SCHEDULE V—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in thousands)
Balance at
Beginning of
Period
Charged
(Credited) to Costs
and Expenses
Charged (Credited)
to Other Accounts
Other
Deductions
Balance at End
of Period
$—
—
$—
—
—
$—
—
$—
—
—
$—
—
$—
—
—
$—
—
$—
—
—
$—
—
$—
—
—
$—
—
$—
—
—
$ —
—
$1,646
—
9,675
$ —
—
$1,518
—
9,350
$ —
—
$1,782
—
9,010
Description
For the year ended December 31,
2015:
Investment asset valuation reserves:
Mortgage loans . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts:
Premiums, accounts and notes
$ —
—
$ —
—
receivable . . . . . . . . . . . . . . .
$1,518
$ 128
Deferred tax asset valuation
allowance . . . . . . . . . . . . . . .
Reinsurance receivables . . . . . .
—
9,350
—
325
For the year ended December 31,
2014:
Investment asset valuation reserves:
Mortgage loans . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts:
Premiums, accounts and notes
$ —
—
$ —
—
receivable . . . . . . . . . . . . . . .
$1,782
$(264)
Deferred tax asset valuation
allowance . . . . . . . . . . . . . . .
Reinsurance receivables . . . . . .
—
9,010
—
340
For the year ended December 31,
2013:
Investment asset valuation reserves:
Mortgage loans . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts:
Premiums, accounts and notes
$ —
—
$ —
—
receivable . . . . . . . . . . . . . . .
$1,338
$ 444
Deferred tax asset valuation
allowance . . . . . . . . . . . . . . .
Reinsurance receivables . . . . . .
—
9,010
—
—
S-7
GLOBAL INDEMNITY PLC
SCHEDULE VI — SUPPLEMENTARY INFORMATION FOR PROPERTY CASUALTY
UNDERWRITERS
(Dollars in thousands)
Deferred
Policy
Acquisition
Costs
Reserves for
Unpaid Claims
and Claim
Adjustment
Expenses
Discount If
Any Deducted
Unearned
Premiums
Consolidated Property & Casualty Entities:
As of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$56,517
25,238
22,177
$680,047
675,472
779,466
$3,000
4,000
6,000
$286,285
120,815
116,629
Earned
Premiums
Net
Investment
Income
Claims and Claim Adjustment
Expense Incurred Related To
Current Year
Prior Year
Amortization Of
Deferred Policy
Acquisition Costs
Paid Claims
and Claim
Adjustment
Expenses
Premiums
Written
Consolidated Property &
Casualty Entities:
For the year ended
December 31, 2015 . . . $504,143 $34,609
$310,066
$(34,698)
$86,170
$332,417 $501,244
For the year ended
December 31, 2014 . . .
268,519
28,821
153,994
(16,433)
57,051
172,265
273,181
For the year ended
December 31, 2013 . . .
248,722
37,209
140,873
(7,882)
53,787
184,564
271,984
Note: All of the Company’s insurance subsidiaries are 100% owned and consolidated.
S-8
GLOBAL IN SCOPE.
UNITED IN VISION.
Global Indemnity plc (NASDAQ: GBLI) is a specialty property and
casualty insurance and reinsurance company with U.S. operations
in Philadelphia, PA. Global Indemnity provides underwriting,
claims and actuarial support to its multi-distribution field
enterprises. Our products and services are marketed through
several direct and indirect wholly owned subsidiary insurance and
reinsurance companies. Global Indemnity’s member companies
have earned a group rating of “A” (Excellent) by A.M. Best.
Independent Auditors
Ernst & Young
One Commerce Square
Suite 700
2005 Market Street
Philadelphia, PA 19103
Registrar & Transfer Agent
Computershare
250 Royall Street
Canton, MA 02021
781-575-3120
800-962-4284
Stock Trading
A Ordinary Shares of
Global Indemnity plc on NASDAQ
under the ticker symbol “GBLI”
Annual General Meeting
The 2016 Annual Meeting is
scheduled for 1:00 p.m., Irish Time,
on Wednesday, June 15, 2016, at
25/28 North Wall Quay,
Dublin 1, Ireland.
GLOBAL INDEMNITY
2015 ANNUAL REPORT
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Registered Office
25/28 North Wall Quay
Dublin 1
Ireland
www.GlobalIndemnity.ie
info@GlobalIndemnity.ie