Global Indemnity Group
Annual Report 2017

Plain-text annual report

FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 1 GLOBAL INDEMNITY 2017 ANNUAL REPORT FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 2 Advancing. Together. With world headquarters in the Philadelphia, PA area, Global Indemnity Ltd. (NASDAQ: GBLI) is a specialty property and casualty insurance and reinsurance company providing underwriting, claims, and actuarial support to its individual field operating units. Focusing on underserved niche markets, these direct and indirect wholly-owned subsidiary companies issue coverage for specialty risks and programs that are generally not provided by standard insurance and reinsurance firms. All of Global Indemnity's member insurance companies have earned a group rating of “A” (Excellent) by A.M. Best. FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 3 2017 ANNUAL REPORT Dear Fellow Shareholders: Global Indemnity reported a net loss for the year ended December 31, 2017 of $9.6 million. However, when the losses related to the Texas and Florida hurricanes and the California wildfires, as well as a one-time tax charge related to the “Tax Cuts and Jobs Act of 2017” are excluded, net income would have been $53.5 million and the combined ratio 90.5%. Our adjusted operating income, which excludes after-tax realized gains and the one-time tax charge, was $7.2 million. Of particular note, during the 2017 fourth quarter, the company exercised its right to redeem 3,397,031 of A ordinary shares (having an aggregate book value of $159.4 million or $46.91 per share as of September 30, 2017) for aggregate consideration of $83 million or $24.44 per share. Primarily as a result of the redemption, book value per share increased by 11.3% from $45.42 per share at 2016 year end to $50.57 per share at December 31, 2017. Growth in our Commercial Lines operations saw gross written premiums increase by 12.7% and net written premiums by 10.1%. This was offset by targeted reduction of catastrophe-exposed business in our Personal Lines operations which had a decrease in gross written premium of 5.2%. The Reinsurance operation gross written premiums decreased by 9.9% due to premiums written related to a mortgage insurance treaty. Although catastrophe losses impacted our overall underwriting results for 2017, our book value per share continued to improve. We look forward to continuing the trust that our shareholders—employees, general agents and broker partners, customers, and shareholders—have placed in us. Saul A. Fox Chairman Global Indemnity Ltd. Cynthia Y. Valko Chief Executive Officer Global Indemnity Ltd. 1 FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 4 2017 ANNUAL REPORT Advancing. Together. In 2017, Global Indemnity continued to address niches and underserved markets and maintain a strong balance sheet. We are proud that all of our member companies continue to earn a group rating of “A” (Excellent) by A.M. Best. This is not just the product of skill and hard work, but of discipline and determination. While our member companies serve an increasingly wide range of markets and customers through our partner/producer network, they all are committed to a single, ongoing goal: Profitable Growth. New times. New thinking. Strong people. Strong values. Information technology is transforming how Our most critical differentiator is not found on our business is conducted at an ever-accelerating rate— balance sheet or within our information systems. and insurance is no exception. Always forward It is seen in the men and women who devote thinking, and with a long-term strategy of their talents, experience, and passion to advancing technological investment, we are well positioned to us as a company. That’s why we have recruited profit from these changes. In addition to new additional management and underwriting personnel investments in vital areas, we continue to further throughout the enterprise. Within the company and enhance analytics and modeling. By adding talent throughout our agent and producer networks, we and using the newest tools to deepen our are all mutually pledged to a set of four core values: understanding of underwriting, we have been able To act with integrity. To treat others with respect. to broaden our appetite for risk. To deliver excellence in service and support. And to commit ourselves to Profitable Growth. This is how we work. This is how we are successful. This is how we are “Advancing. Together.” New channels. New opportunities. We expanded the potential of many of our current product lines by increasing our offerings in Auto Services, Watercraft, and Agribusiness and adding Cyber Liability and Equine Mortality coverages. To enhance efficiency, we streamlined the management of our two U.S. operating divisions, Commercial Lines and Personal Lines. Recognizing emerging industry trends, we continue to explore new opportunities to add to our portfolio of targeted products. 2 FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 5 ANNUAL REPORT 2017 2017 Financial Highlights Stock Price as of December 31, 2017 Exchange/Symbol: GBLI Closing Price: $42.02 52-Week Range: $34.00 - $49.91 Market Capitalization: $597M Price/Book Ratio: 0.83 (Dollars in thousands, except per share and ratio data) 2014 2015 2016 2017 Gross Written Premium $291,253 $590,233 $565, 845 $516,334 Income Statement Net Earned Premiums 268,519 504,143 468, 465 438,034 Net Investment Income 28,821 34,609 33,983 39,323 Net Realized Gains/(Loss) 35,860 (3,374) 21,721 1,576 Other Income 555 3,400 10,345 6,582 Total Revenues 333,755 538,778 534,514 485,515 Total Expenses 270,899 497,309 484,646 495,066 Net Income/(Loss) 62,856 41,469 49,868 (9,551) (2) Earnings/(Loss) Per Share (Diluted) $2.48 $1.69 $2.84 ($0.55) Net Operating Income 43,194 44,026 35,781 7,173 Operating Income Per Share (Diluted) $1.71 $1.80 $2.04 $0.41 Balance Sheet Total Assets 1,930,033 1,957,294 1,972,946 2,001,669 Shareholders’ Equity 908,290 749,926 (1) 797,951 718,394 (3) Book Value Per Share $35.86 $42.98 $45.42 $50.57 GAAP Ratios Combined Ratio 92.0 94.5 98.4 103.4 (4) Market Capitalization (As of year-end) 718,559 506,315 (1) 671,346 596,967 (3) (1) On November 12, 2015, the Company redeemed $190 million of its Common Stock. (2) Excluding losses related to the Texas and Florida hurricanes, the California wildfires, and a one-time tax charge related to the “Tax Cuts and Jobs Act of 2017,” net income would have been $53.5 million. (3) On December 29, 2017, the Company redeemed $83 million of its Common Stock. (4) Excluding hurricanes Harvey, Irma, and Maria, and the California wildfires, the combined ratio would have been 90.5%. 3 150.0 120.0 90.0 60.0 30.0 0.0 $60 $50 $40 $30 $20 $10 $0 0 . 2 9 5 . 4 9 4 . 8 9 4 . 3 0 1 2014 2015 2016 2017 Combined Ratio 7 5 . 0 5 $ 2 4 . 5 4 $ 8 9 . 2 4 $ 6 8 . 5 3 $ 2014 2015 2016 2017 Book Value Per Share FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 6 2017 ANNUAL REPORT Aiming higher. Reaching farther. Global Indemnity continues a successful “three-pronged” strategy that includes Commercial Lines, Personal Lines, and International Reinsurance. Through its wholly-owned operating units, the company offers both admitted and non-admitted specialty property and casualty insurance in the United States, in addition to reinsurance services worldwide. Distributing through a wide agent network that assures both the company and its partner agents flexibility and opportunity, Global Indemnity provides a varied line of targeted products. Global Indemnity is firmly committed to continued Profitable Growth, “ Coming together is a beginning; keeping together is progress; which is achieved with a unique multi-channeled working together is success. approach and by maintaining a strong capital position. - HENRY FORD “ Each of Global Indemnity’s U.S. operating units hold admitted business and surplus lines qualifications in all 50 states and the District of Columbia. The “A” (Excellent) A.M. Best group rating Global Indemnity companies have achieved reinforces long-standing relationships with current customers and helps attract new clients as well as prospective partners. And that rating is a source of pride to the organization’s more than 400 employees. 4 FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 7 COMMERCIAL LINES ANNUAL REPORT 2017 Penn-America Group® Diamond State Group® United National Group® VacantExpress.com® Penn-America Group has a distribution network of experienced managing general agents with specific binding authority who offer property and casualty products for small businesses. Diamond State Group distributes commercial property, general liability, and professional lines products in 50 states and the District of Columbia through specially selected wholesale brokers. The property and general liability products of United National Group are distributed nationwide by a network of program administrators. With a concentration on the program market, United National Group’s principal target is on specific classes. VacantExpress.com specializes in nationwide coverage for vacant properties, those undergoing renovations, and builders risk. This leading property and casualty product, established in 1978, also offers landlord insurance in most states. Its innovative online system can be accessed 24/7. Agents can quote, bind, and issue policies in most states all online. Penn-America.com DiamondStateGroup.com UnitedNat.com VacantExpress.com PERSONAL LINES INTERNATIONAL REINSURANCE American Reliable Insurance Company® Collectibles Insurance Services, LLC™ American Reliable Agribusiness & Mortality Global Indemnity Reinsurance Company Ltd. A specialty personal lines property and casualty insurance provider, American Reliable Insurance Company distributes its products through a nationwide team of general and independent agents. Collectibles Insurance Services, LLC was founded by collectors for collectors. It is a specialty retail agency offering coverage for a wide variety of popular collectibles that include comic books, toys, firearms, sports cards and memorabilia, stamps, and more. Focused on protecting the agriculture and equine industries, American Reliable Insurance Company provides specialized property and casualty coverage for farms and ranches, as well as equine mortality, and more. A network of general and independent agents distributes its products throughout the U.S. Global Indemnity Reinsurance Company Ltd. is a treaty and facultative reinsurer of excess and surplus lines insurance and specialty property and casualty insurance, including professional lines excess liability. The firm serves the international marketplace from its headquarters in Bermuda. AmericanReliable.com CollectInsure.com AmericanReliableAg.com GlobalIndemnityRe.bm 5 FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 8 2017 ANNUAL REPORT Board Members & Officers The Global Indemnity Board consists of experienced business executives dedicated to advancing the goals of the company, and the highly motivated cadre of Senior Officers and Staff continues to enable Global Indemnity to achieve its objectives, including that of Profitable Growth. Board Members Officers Cynthia Y. Valko Chief Executive Officer Thomas M. McGeehan Executive Vice President Finance & Operations Chief Financial Officer Matthew B. Scott Executive Vice President Commercial Lines William J. Devlin Executive Vice President Personal Lines Michael Loftus Vice President & General Auditor Steve Green President Global Indemnity Reinsurance Company Ltd. Saul A. Fox, Chairman (3) (4) (5) (6) Jay W. Brown (3) (5) (6) Retired Chief Executive Officer MBIA, Inc. David J.W. Bruce (2) (3) (6) Retired Insurance Executive Raphael L. de Balmann (2) (3) (5) Portfolio Manager Bretton Capital Management Seth J. Gersch (1) (4) (5) Advisory Panel Fox Paine & Company, LLC John H. Howes (1) (2) (6) Director Satec srl Jason B. Hurwitz (1) (3) (5) Managing Member Hurwitz Capital LLC Bruce R. Lederman (2) (5) (6) Retired Partner Latham & Watkins Arik Rashkes (2) (3) (6) Managing Director Houlihan Lokey Cynthia Y. Valko (4) Chief Executive Officer Global Indemnity Ltd. (1) Audit Committee (2) Compensation & Benefits Committee (3) (4) (5) Enterprise Risk Management Committee Executive Committee Investment Committee (6) Nominating & Governance Committee Saul A. Fox Chairman Global Indemnity Ltd. Cynthia Y. Valko Chief Executive Officer Global Indemnity Ltd. Jay W. Brown David J.W. Bruce Raphael L. de Balmann Seth J. Gersch John H. Howes Jason B. Hurwitz Bruce R. Lederman Arik Rashkes 6 Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2017OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period from to 001-34809Commission File Number GLOBAL INDEMNITY LIMITED(Exact name of registrant as specified in its charter) Cayman Islands 98-1304287(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)27 HOSPITAL ROADGEORGE TOWN, GRAND CAYMANKY1-9008CAYMAN ISLANDS(Address of principal executive office including zip code)Registrant’s telephone number, including area code: (345) 949-0100SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Each Class Name of Exchange on Which RegisteredA Ordinary shares, $0.0001 Par Value7.75% Subordinated Notes due 20457.875% Subordinated Notes due 2047 The Nasdaq Global Select MarketThe Nasdaq Global Select MarketThe Nasdaq Global Select MarketSECURITIES 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 ☒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 ☒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 preceding12 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 ☒ 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 andposted 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 suchfiles). YES ☒ 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’sknowledge, 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. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company.See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.: Large accelerated filer ☐; Accelerated filer ☒;Non-accelerated filer ☐; Smaller reporting company ☐; Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒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 lastbusiness 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$334,185,769. There are no B ordinary shares held by non-affiliates of the registrant.As of February 27, 2018, the registrant had outstanding 10,046,737 A ordinary shares and 4,133,366 B ordinary shares.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s Proxy Statement relating to the 2017 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year endedDecember 31, 2017 are incorporated by reference into Part III of this report. Table of ContentsTABLE OF CONTENTS Page PART I Item 1. BUSINESS 2 Item 1A. RISK FACTORS 32 Item 1B. UNRESOLVED STAFF COMMENTS 49 Item 2. PROPERTIES 49 Item 3. LEGAL PROCEEDINGS 49 Item 4. MINE SAFETY DISCLOSURES 49 PART II Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES 50 Item 6. SELECTED FINANCIAL DATA 53 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 54 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 87 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 90 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 165 Item 9A. CONTROLS AND PROCEDURES 165 Item 9B. OTHER INFORMATION 168 PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 169 Item 11. EXECUTIVE COMPENSATION 169 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDERMATTERS 169 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 169 Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 169 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 170 Item 16. FORM 10-K SUMMARY 174 1Table of ContentsPART I Item 1.BUSINESSSome of the information contained in this Item 1 or set forth elsewhere in this report, including information with respect to the Company’s plans andstrategy, constitutes forward-looking statements that involve risks and uncertainties. Please see “Cautionary Note Regarding Forward-LookingStatements” 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 todiffer materially from the results described in or implied by the forward-looking statements contained herein.References to the Company refer to Global Indemnity Limited and its subsidiaries or, prior to November 7, 2016, to Global Indemnity plc and itssubsidiaries.References to the acquisition of American Reliable refer to the January 1, 2015 acquisition of American Reliable Insurance Company (“AmericanReliable”).HistoryGlobal Indemnity Limited (“Global Indemnity”) is a holding company formed on February 9, 2016 under the laws of the Cayman Islands. OnNovember 7, 2016, Global Indemnity Limited replaced Global Indemnity plc, an Irish company, as the ultimate parent company pursuant to a schemeof arrangement whereby all of Global Indemnity plc’s A ordinary shares were cancelled and replaced with one A ordinary share of Global IndemnityLimited on a one for one basis and each B ordinary share of Global Indemnity plc was cancelled and replaced with one B ordinary share of GlobalIndemnity Limited on a one for one basis. Global Indemnity’s A ordinary shares are publicly traded on the NASDAQ Global Select Market under thetrading symbol “GBLI.” Please see Note 13 of the notes to consolidated financial statements in Item 8 of Part II of this report for additional informationon the cancellation of Global Indemnity plc ordinary shares and the replacement of these shares with ordinary shares of Global Indemnity Limited.Subsequent to the completion of the redomestication, several of the Company’s subsidiaries, including Global Indemnity plc, were placed intoliquidation, liquidated, or merged out of existence. In addition, substantially all of the assets of these companies, including intellectual property, weretransferred to Global Indemnity Limited.On September 30, 2016, one of the Company’s indirect wholly owned subsidiaries, Diamond State Insurance Company, sold all the outstanding sharesof capital stock of one of its wholly owned subsidiaries, United National Specialty Insurance Company, to an unrelated party. Diamond State InsuranceCompany received a one-time payment of $18.7 million and recognized a pretax gain of $6.9 million which is reflected in other income in 2016. Thistransaction did not have an impact on the Company’s ongoing business operations. Subsequent to the sale, any business previously written by UnitedNational Specialty Insurance Company is being written by other companies within the Company’s U.S. Insurance Operations.On January 1, 2015, Global Indemnity Group, Inc., a subsidiary of the Company, acquired 100% of the voting equity interest of American ReliableInsurance Company 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 (“AmericanReliable 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 AmericanReliable SPA, on the third calendar year following the calendar year of the closing, if loss and loss adjustment expenses for accident years 2014 andprior are lower than recorded unpaid loss and loss adjustment expenses as of December 31, 2014, Global Indemnity Group, Inc. will pay the variance toAmerican Bankers Group, Inc. Conversely, if loss and loss adjustment expenses for accident years 2014 and prior exceed recorded unpaid loss 2Table of Contentsand loss adjustment expenses as of December 31, 2014, American Bankers Group, Inc. will pay the variance to Global Indemnity Group, Inc. Inaccordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., any variance paid related tothe loss indemnification will be subject to interest of 5% compounded semi-annually. The Company’s current estimate of the purchase price, based onavailable financial information, is approximately $99.8 million. Final settlement of the purchase price occurred in March, 2018. Please see Note 24 ofthe notes to consolidated financial statements in Item 8 of Part II of this report for additional information on the final settlement of the purchase price.Please see Note 4 of the notes to consolidated financial statements in Item 8 of Part II of this report for additional information on the acquisition ofAmerican Reliable.GeneralGlobal Indemnity provides its insurance products across a distribution network that includes binding authority, program, brokerage, and reinsurance.The Company manages the distribution of these products through three business segments: Commercial Lines offers specialty property and casualtyproducts designed for product lines such as Small Business Binding Authority, Property Brokerage, Vacant Express, and Programs; Personal Linesoffers specialty personal lines and agricultural coverage; and Reinsurance Operations provides reinsurance solutions through brokers and primarywriters including insurance and reinsurance companies. The Commercial Lines and Personal Lines segments comprise the Company’s U.S. InsuranceOperations (“Insurance Operations”).Business SegmentsSee Note 20 of the notes to consolidated financial statements in Item 8 of Part II of this report for gross and net premiums written, income and totalassets of each operating segment for the years ended December 31, 2017, 2016 and 2015. For a discussion of the variances between years, see “Resultsof Operations” in Item 7 of Part II of this report.During the 1st quarter of 2017, the Company re-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions ofbusiness will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportablesegments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included aspart of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs writtenby American Reliable Insurance Company, which was previously included within the Personal Lines segment, is now aggregated within theCommercial Lines segment. Accordingly, the segment results for 2016 and 2015 have been revised to reflect these changes.Personal LinesThe Company’s Personal Lines distribute property and casualty insurance products and operate primarily in the admitted markets. In the standardproperty and casualty insurance market, insurance rates and forms are highly regulated; products and coverage are largely uniform and have relativelypredictable exposures. In the standard market, policies must be written by insurance companies that are admitted to transact business in the state inwhich the policy is issued. As a result, in the standard property and casualty insurance market, insurance companies tend to compete for customersprimarily 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, collectibles, andwatersports via American Reliable. These products are distributed through retail agents, wholesale general agents, and brokers. The insurance productsare 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. 3Table of ContentsIn 2017 and 2016, gross premiums written for the Personal Lines were $249.8 million and $302.9 million, respectively, and includes business writtenby American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement in the amount of($1.3) million and $35.3 million, respectively.Commercial LinesThe Company’s Commercial Lines distribute property and casualty insurance products and operate predominantly in the excess and surplus linesmarketplace. 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 operatingin the standard markets due to their relatively greater unpredictable loss patterns and unique niches of exposure requiring rate and policy formflexibility. 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. Whileexcess and surplus lines market exposures may have higher perceived insurance risk than their standard market counterparts, excess and surplus linesmarket 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’sfocus is on writing insurance for insureds that engage in similar but often highly specialized types of activities. The specialty admitted market issubject to greater state regulation than the surplus lines market, particularly with regard to rate and form filing requirements and the ability to enter andexit lines of business. Insureds purchasing coverage from specialty admitted insurance companies do so because the insurance product is not otherwiseavailable from standard market insurers. Yet, for regulatory or marketing reasons, these insureds require products that are written by an admittedinsurance company.The Commercial Lines’ insurance products target specific, defined groups of insureds with customized coverage to meet their needs. To manageoperations, the Commercial Lines segment differentiates its products by product classification. These product classifications are as follows: • Penn-America Group distributes property and general liability products for small commercial businesses through a select network ofwholesale general agents with specific binding authority; • United National Group distributes property, general liability, and professional lines products through program administrators with specificbinding authority; and • Diamond State Group distributes property, casualty, and professional lines products through wholesale brokers that are underwritten by theCompany’s personnel and selected brokers with specific binding authority. • Vacant Express primarily distributes products for dwellings which are currently vacant, undergoing renovations, or are under constructionthrough aggregators, brokers, and retail agents.These product classifications comprise the Commercial Lines business segment and are not considered individual business segments because eachproduct has similar economic characteristics, distribution, and coverage.The Company’s Commercial Lines provide property, casualty, and professional liability products utilizing customized guidelines, rates, and formstailored to the Company’s risk and underwriting philosophy. See “Underwriting” below for a discussion on how the Company’s insurance products areunderwritten. 4Table of ContentsIn 2017, gross premiums written for the Commercial Lines were $212.7 million compared to $203.1 million for 2016. For 2017, surplus lines businessaccounts for approximately 83.7% of the business written while specialty admitted business accounts for the remaining 16.3%.Reinsurance OperationsGlobal Indemnity Reinsurance Company, Ltd. (“Global Indemnity Reinsurance”), a direct subsidiary of the Company, is a Bermuda based treatyreinsurer of specialty property and casualty insurance and reinsurance companies. The Company’s Reinsurance Operations segment providesreinsurance solutions through brokers and primary writers including insurance and reinsurance companies, and consists solely of the operations ofGlobal Indemnity Reinsurance.The reinsurance markets face many of the same issues confronted in the primary insurance markets including excess capital capacity, low investmentreturns and increased pressure on generating acceptable return on investment.The increased availability of capacity in the market has continued to put pressure on pricing levels and new opportunities. Global IndemnityReinsurance is focused on using its capital capacity to write catastrophe-oriented placements and other niche or specialty-focused excess of losscontracts meeting the Company’s risk tolerance and return thresholds.In 2017, gross premiums written from third parties were $53.9 million compared to $59.8 million for 2016.Products and Product DevelopmentThe Company’s U.S. Insurance Operations distribute property and casualty insurance products. Its Personal Lines operate primarily in the admittedmarketplace; whereas, its Commercial Lines operate predominantly in the excess and surplus lines marketplace. To manage its operations, theCompany seeks to differentiate its products by product classification. See “Personal Lines” and “Commercial Lines” above for a description of theseproduct classifications. The U.S. Insurance Operations are licensed to write on a surplus lines (non-admitted) basis and/or an admitted basis in all 50U.S. States, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, which provides the Company with flexibility in designing products andprograms, 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 and reinsurance companies aswell as professional liability products to companies. The Company’s Reinsurance Operations also provide reinsurance to its Insurance Operations inthe form of quota share arrangements. As a result of the enactment of the Tax Cuts and Jobs Act (“TCJA”), effective January 1, 2018, premiums beingceded under the quota share arrangement may potentially be subject to a 10% base erosion minimum tax (“BEAT”). As a result, Global IndemnityReinsurance and the Company’s U.S. insurance companies have agreed to terminate the quota share arrangement effective January 1, 2018. Regulatoryapproval is still pending. 5Table of ContentsGeographic ConcentrationThe following table sets forth the geographic distribution of gross premiums written for the periods indicated: For the Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Amount Percent Amount Percent Amount Percent California $58,669 11.4% $62,010 11.0% $56,142 9.5% Texas 44,420 8.6 48,183 8.5 52,913 9.0 Florida 36,922 7.1 36,683 6.5 37,725 6.5 Louisiana 25,121 4.9 28,437 5.0 28,274 4.8 New York 24,317 4.7 26,040 4.6 28,329 4.8 Arizona 20,593 4.0 19,883 3.5 21,199 3.6 North Carolina 18,476 3.6 21,613 3.8 26,245 4.4 Massachusetts 14,909 2.9 14,352 2.5 15,352 2.6 Georgia 12,669 2.5 13,605 2.4 14,364 2.4 New Jersey 12,541 2.4 14,797 2.6 16,602 2.8 Subtotal 268,637 52.1 285,603 50.4 297,145 50.4 All other states 193,810 37.5 220,405 39.0 243,355 41.2 Reinsurance Operations 53,887 10.4 59,837 10.6 49,733 8.4 Total $516,334 100.0% $565,845 100.0% $590,233 100.0% Marketing and DistributionThe Company provides its insurance products across a full distribution network — binding authority, program, brokerage, direct, and reinsurance. Forits binding authority and program product classifications, the Company distributes its insurance products primarily through a group of wholesalegeneral agents and program administrators that have specific quoting and binding authority. For its brokerage business, the Company distributes itsinsurance products through wholesale insurance brokers who in turn sell the Company’s insurance products to insureds through retail insurancebrokers. For its reinsurance business, the Company distributes its products through 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 andprogram administrators. Of the Commercial Lines’ non-affiliated professional wholesale general agents and program administrators, the top fiveaccounted for 32.1% of the Commercial Lines’ gross premiums written for the year ended December 31, 2017. One agency represented 10.8% of theCommercial Lines’ gross premiums written.The Company’s Personal Lines distributes specialty personal and agricultural insurance products through a group of approximately 275 agents,primarily comprised of wholesale general agents. It also distributes its specialty personal insurance products on a retail basis in New Mexico andArizona. Of the Personal Lines’ non-affiliated professional wholesale general agents and retail agents, the top five accounted for 21.9% of the PersonalLines’ gross premiums written for the year ended December 31, 2017. No one agency represented more than 10% of the Personal Lines’ gross premiumswritten.There is no agency which accounts for more than 10% of the Company’s consolidated revenues for the year ended December 31, 2017.Global Indemnity Reinsurance assumed premiums on four treaties from two cedants which accounted for 90% of the Reinsurance Operations’ 2017gross premiums written. There is no treaty that accounted for 10% or more of the Company’s consolidated revenues for the year ended December 31,2017. 6Table of ContentsThe Company’s primary distribution strategy is to seek to maintain strong relationships with a limited number of high-quality wholesale professionalgeneral agents and wholesale insurance brokers. The Company carefully selects distribution sources based on their expertise, experience andreputation. The Company believes that its distribution strategy enables it to effectively access numerous markets through the marketing, underwriting,and administrative support of the Company’s professional general agencies and wholesale insurance brokers. The Company believes these wholesalegeneral agents and wholesale insurance brokers have local market knowledge and expertise that enables them to access business in these markets moreeffectively.UnderwritingFor Commercial Lines, the Company’s insurance products are primarily underwritten via specific binding authority in which the Company grantsunderwriting authority to its wholesale general agents and program administrators and via brokerage in which the Company’s internal personnelunderwrites business submitted by wholesale insurance brokers.For Personal Lines, the Company’s insurance products are distributed through retail agents, wholesale general agents, and brokers. The insuranceproducts are either underwritten via specific binding authority or by internal personnel. Some of the Company’s specialized property business issubmitted by retail agents or directly from insureds and is also underwritten by internal personnel.Specific Binding Authority — Several of the Company’s wholesale general agents, retail agents, and program administrators for both CommercialLines and Personal Lines have specific quoting and binding authority with respect to the lines they write and some have limited quoting and bindingauthority with respect to multiple products.The Company’s wholesale general agents, retail agents, and program administrators will either utilize company administered policy systems with theCompany’s underwriting guidelines embedded within the system or the agents will use their own proprietary systems. When the agents use their ownproprietary systems, the Company provides its wholesale general agents, retail agents, and program administrators with a comprehensive, regularlyupdated underwriting manual that specifically outlines risk eligibility which is developed based on the type of insured, nature of exposure and overallexpected profitability. This manual also outlines (a) premium pricing, (b) underwriting guidelines, including but not limited to policy forms, terms andconditions, and (c) policy issuance instructions.The Company’s wholesale general agents, retail agents, and program administrators are appointed to underwrite submissions received in accordancewith the Company’s underwriting manual. Risks that are not within the specific binding authority must be submitted to the Company’s underwritingpersonnel directly for underwriting review and approval or denial of the application of the insured. The Company’s wholesale general agents provideall policy issuance services in accordance with the Company’s underwriting manuals.Agricultural partners are not provided with underwriting manuals. Rather, they are provided with letters of authority; whereby, policies andendorsement issuance rights are extended.The Company regularly monitors the underwriting quality of its wholesale general agents, retail agents, and program administrators through adisciplined 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, underwritingcompliance, policy issuance and pricing; • periodic on-site comprehensive audits to evaluate processes, controls, profitability and adherence to all aspects of the Company’sunderwriting manual including: risk selection, underwriting compliance, policy issuance and pricing; 7Table of Contents • internal quarterly actuarial analysis of loss ratios produced by business underwritten by the Company’s wholesale general agents, retailagents, and program administrators; and • internal quarterly analysis of financial results, including premium growth and overall profitability of business produced by the Company’swholesale 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 throughcontingent profit commission structures that are tied directly to the achievement of profitability targets.Brokerage — The wholesale insurance brokers are within the Company’s Commercial Lines and are subject to the same guidelines and monitoring asdiscussed above. The majority of the Company’s wholesale insurance brokers do not have specific binding authority; therefore, these risks aresubmitted to the Company’s underwriting personnel for review and processing. There is only one wholesale insurance broker with specific bindingauthority.The Company provides its underwriters with a comprehensive, regularly updated underwriting manual that outlines risk eligibility which is developedbased on the type of insured, nature of exposure and overall expected profitability. This manual also outlines (a) premium pricing, (b) underwritingguidelines, 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 regularlymonitors 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’sunderwriters.Reinsurance — The Company’s Global Indemnity Reinsurance subsidiary primarily offers retrocessional coverage to Bermuda based reinsurancecompanies. The business assumed is primarily quota share treaties on property catastrophe, marine business and mortgage insurance. The Companyalso writes a small amount of professional lines excess liability business. Prior to entering into any agreement, the Company evaluates a number offactors for each cedent including, but not limited to, reputation and financial condition, underwriting and claims practices and historical claimsexperience. The Company also models proposed treaties for both the catastrophe exposure and the marginal impact on the Company’s existingcatastrophe portfolio.Contingent CommissionsCertain professional general agencies of the U.S. Insurance Operations are paid special incentives, referred to as contingent commissions, when resultsof business produced by these agencies are more favorable than predetermined thresholds. Similarly, in some circumstances, companies that cedebusiness to the Reinsurance Operations are paid a profit commission based on the profitability of the ceded portfolio. These commissions are chargedto other underwriting expenses when incurred. 8Table of ContentsPricingActuaries establish pricing tailored to each specific product the Company underwrites, taking into account historical loss experience, historical ratelevel changes, property catastrophe modeling output, and individual risk and coverage characteristics. The Company generally uses the actuarial losscosts promulgated by the Insurance Services Office as a benchmark in the development of pricing for most products. Specific products will utilizeproprietary rating when deemed appropriate. The Company will seek to only write business if it believes it can achieve an adequate risk adjusted rateof return.Reinsurance of Underwriting RiskThe Company’s philosophy is to purchase reinsurance from third parties to limit its liability on individual risks and to protect against propertycatastrophe and casualty clash losses. Reinsurance assists the Company in controlling exposure to severe losses and protecting capital resources. Thetype, cost and limits of reinsurance it purchases can vary from year to year based upon the Company’s desired retention levels and the availability ofquality reinsurance at an acceptable price. Although reinsurance does not legally discharge an insurer from its primary liability for the full amount oflimits 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’sreinsurance contracts renew throughout the year and all of its reinsurance is purchased following guidelines established by management. The Companyprimarily utilizes treaty reinsurance products made up of proportional and excess of loss reinsurance. Additionally, the Company may purchasefacultative 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 productsunderwritten. The Company will typically seek to place proportional reinsurance for umbrella and excess products, certain specialty products, or newproducts in the development stage. The Company believes that this approach allows it to control net exposure in these product areas most costeffectively.The Company purchases reinsurance on an excess of loss basis to cover individual risk severity. These structures are utilized to protect the Company’sprimary positions on property and casualty products. The excess of loss structures allow the Company to maximize underwriting profits over time byretaining 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, whichrequires that the reinsurer must assume significant insurance risk under the reinsured portions of the underlying insurance contracts and that there mustbe 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 theultimate reinsurance structures are aligned with the Company’s corporate risk tolerance levels associated with such products. Any decision to decreasethe Company’s reliance upon proportional reinsurance or to increase the Company’s excess of loss retentions could increase the Company’s earningsvolatility. 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 theCompany’s risk tolerance level. The Company endeavors to purchase reinsurance from financially strong reinsurers with which it has long-standingrelationships. In addition, in certain circumstances, the Company holds collateral, including letters of credit, under reinsurance agreements.The Company’s Insurance Operations’ material reinsurance treaties are as follows:Property Catastrophe Excess of Loss — The Company’s current property writings create exposure to catastrophic events. To protect against theseexposures, the Company purchases a property catastrophe 9Table of Contentstreaty. Effective June 1, 2017, the Company renewed the top two layers of its property catastrophe excess of loss treaty, which provided occurrencecoverage for losses of $260 million in excess of $40 million. The treaty provides for one full reinstatement of coverage at 100% additional premium asto time and pro rata as to the amount of limit reinstated. This replaced the treaty which expired on May 31, 2017 and provided occurrence coverage forlosses of $280 million in excess of $20 million. The expiring treaty was made up of three layers: $20 million in excess of $20 million, which theCompany participated in 25% of the placement, $60 million in excess of $40 million, and $200 million in excess of $100 million. The expiring treatyprovided for one full reinstatement of coverage at 100% additional premium as to time and pro rata as to amount of limit reinstated.Location-Specific Quota Share — Effective May 1, 2016, the Company entered into an agreement, which is still in effect, to cede 50% of the netunderwriting results for certain Personal Lines products in certain states, subject to an occurrence limit of $50 million for property coverages and$1.5 million for casualty coverages.Catastrophe Quota Share — Effective April 15, 2017, the Company entered into an agreement to cede 50% of its catastrophe losses which are above$3 million, subject to an occurrence limit of $40 million and an aggregate limit of $120 million.Property Per Risk Excess of Loss — Effective January 1, 2018, the Company renewed its property per risk excess of loss treaty. This treaty providescoverage in two sections: $4 million per risk in excess of $1 million per risk for all business except the Property Brokerage unit, and $8 million per riskin excess of $2 million per risk for Property Brokerage business, of which the Company participated on 25% of the placement. This treaty also providescoverage of $20 million per risk in excess of $10 million per risk and $20 million per risk in excess of $30 million per risk for Property Brokeragebusiness. This replaced the treaty which expired on December 31, 2017 and provided coverage in three sections: 80% of $4 million per risk in excessof $1 million per risk for all business except the Property Brokerage unit and business written by American Reliable, 100% of $4 million per risk inexcess 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 Brokeragebusiness. The expiring treaty also provided coverage of 100% of $20 million per risk in excess of $10 million per risk and 100% of $20 million per riskin excess of $30 million per risk for Property Brokerage business.Casualty and Professional Liability Excess of Loss — Effective October 1, 2016, the Company renewed its casualty and professional liability excessof loss treaty. The casualty section provides coverage for 50% of $2 million per occurrence in excess of $1 million per occurrence for general liabilityand auto liability. The professional liability section provides coverage for 50% of $4 million per policy/occurrence in excess of $1 million perpolicy/occurrence. For both sections, allocated loss adjustment expenses are included within limits. This treaty was terminated effective December 31,2017 and replaced with the Casualty Excess of Loss.Casualty Clash Excess of Loss — Effective October 1, 2016, 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. This treaty was terminatedeffective December 31, 2017 and replaced with the Casualty Excess of Loss.Casualty Excess of Loss — Effective January 1, 2018, the Company entered into a casualty excess of loss treaty which provides coverage of$10 million per occurrence in excess of $2 million per occurrence for all casualty lines of business. The treaty is subject to an aggregate limit of$20 million.100% Ceded Quota Share to American Bankers — Effective December 1, 2014, American Reliable entered into four treaties to cede 100% of itsliabilities related to certain businesses to American Bankers Insurance Company that were not included in the acquisition of American Reliable. Thesetreaties are still in effect at December 31, 2017. American Reliable recorded ceded written premiums of ($1.3) million and $35.3 million, and cededearned premiums of $13.5 million and $43.2 million to American Bankers Insurance Company for the years ended December 31, 2017 and 2016,respectively. 10Table of Contents100% Assumed Quota Share from American Bankers — Effective December 1, 2014, American Reliable entered into two treaties to assume 100% ofits liabilities from various insurers owned by Assurant, Inc. for business included in the acquisition but not written directly by American Reliable.These treaties are still in effect at December 31, 2017. American Reliable recorded assumed written premiums of $28.5 million and $38.1 million, andassumed earned premiums of $33.9 million and $55.8 million from insurance companies owned by Assurant, Inc. for the years ended December 31,2017 and 2016, respectively.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 decreaseits reinsurance protection for these exposures commensurately. There were no other significant changes to any of the Company’s Insurance Operations’reinsurance treaties during 2017.The following table sets forth the ten reinsurers for which the Company has the largest reinsurance receivables as of December 31, 2017. Also shownare the amounts of premiums ceded by the Company to these reinsurers during the year ended December 31, 2017. (Dollars in millions) A.M.BestRating GrossReinsuranceReceivables Percent ofTotal CededPremiumsWritten Percent ofTotal Munich Re America Corp. A+ $48.2 42.2% $25.8 39.0% General Reinsurance Corp. A++ 11.4 10.0 7.5 11.3 Transatlantic Reinsurance A+ 8.2 7.2 1.1 1.7 Westport Insurance Corporation A+ 6.4 5.6 — — Fl Hurricane Cat Fund NR 3.8 3.3 0.6 0.9 Scor Switzerland AG A- 2.7 2.4 — — American Bankers Insurance Company A 2.6 2.3 (1.3) (2.0) Swiss Reinsurance America Corp. A+ 2.5 2.2 1.0 1.5 Everest Reinsurance Company A+ 2.5 2.2 1.3 2.0 Hartford Fire Insurance Company A+ 2.2 1.8 — — Subtotal 90.5 79.2 36.0 54.4 All other reinsurers 23.8 20.8 30.2 45.6 Total reinsurance receivables before purchase accountingadjustments and allowance for uncollectible reinsurance 114.3 100.0% $66.2 100.0% Purchase accounting adjustments and allowance for uncollectiblereinsurance (9.2) Total receivables, net of purchase accounting adjustments andallowance for uncollectible reinsurance 105.1 Collateral held in trust from reinsurers 6.6 Net receivables $111.7 At December 31, 2017, the Company carried reinsurance receivables, net of collateral held in trust, of $111.7 million. This amount is net of a purchaseaccounting adjustment and an allowance for uncollectible reinsurance receivables. The purchase accounting adjustment resulted from the Company’sacquisition of Wind River Investment Corporation on September 5, 2003 and is related to discounting the acquired loss reserves to their present valueand applying a risk margin to the discounted reserves. This adjustment was $1.2 million at December 31, 2017. The allowance for uncollectiblereinsurance receivables was $8.0 million at December 31, 2017.Historically, there have been insolvencies following a period of competitive pricing in the industry. While the Company has recorded allowances forreinsurance receivables based on currently available information, 11Table of Contentsconditions may change or additional information might be obtained that may require the Company to record additional allowances. On a quarterlybasis, the Company reviews its financial exposure to the reinsurance market and assesses the adequacy of its collateral and allowance for uncollectiblereinsurance. The Company continues to take actions to mitigate its exposure to possible loss.Claims Management and AdministrationThe Company’s approach to claims management is designed to investigate reported incidents at the earliest juncture, to select, manage, and superviseall legal and adjustment aspects of claims, including settlement, for the mutual benefit of the Company, its professional general agents, wholesalebrokers, reinsurers and insureds. The Company’s professional general agents and wholesale brokers have no authority to settle claims or otherwiseexercise 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 claimsgreater than $200,000 for Personal Lines and $250,000 for Commercial Lines, gross of reinsurance, are reviewed by senior claims management andcertain 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 ofclaims management professionals are assigned to one of five dedicated claim units: casualty and automobile claims, latent exposure claims, propertyclaims, TPA oversight, and a wholly owned subsidiary that administers construction defect claims. The dedicated claims units meet regularly tocommunicate current developments within their assigned areas of specialty.As of December 31, 2017, the Company had $155.6 million of direct outstanding loss and loss adjustment expense case reserves at its InsuranceOperations. Claims relating to approximately 91% of those reserves are handled by in-house claims management professionals, while claims relating toapproximately 0.3% 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 TPAsat least twice a year. Approximately 9% of its reserves are handled by the Company’s assuming reinsurers. The Company reviews and supervises theclaims handled by its reinsurers seeking to protect its reputation and minimize exposure.Reserves for Unpaid Losses and Loss Adjustment ExpensesApplicable insurance laws require the Company to maintain reserves to cover its estimated ultimate losses under insurance policies and reinsurancetreaties 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; • the severity of injury or damage; • jurisdiction of the occurrence; • the potential for ultimate exposure; • litigation related developments; • the type of loss; and 12Table of Contents • 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 establishesreserves for incurred but not reported losses (“IBNR”). IBNR reserves are based in part on statistical information and in part on industry experience withrespect to the expected number and nature of claims arising from occurrences that have not been reported. The Company also establishes its reservesbased on estimates of future trends in claims severity and other subjective factors. Insurance companies are not permitted to reserve for a catastropheuntil it has occurred. Reserves are recorded on an undiscounted basis other than fair value adjustments recorded under purchase accounting. TheCompany’s Insurance Operations’ reserves are reviewed quarterly by the in-house actuarial staff. Loss reserve estimates for the Company’s ReinsuranceOperations 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 generallyperformed both gross and net of reinsurance and ceded reviews are also completed for most reserve categories.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 tocorroborate the analysis performed by the in-house actuarial staff. The Company’s independent external actuaries also perform a full, detailed review ofthe Reinsurance Operations’ reserves annually. The results of the detailed reserve reviews by internal and external actuaries are summarized anddiscussed 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 manyyears, and during this period it often becomes necessary to adjust the claim estimates either upward or downward. Certain classes of umbrella andexcess liability that the Company underwrites have historically had longer intervals between the occurrence of an insured event, reporting of the claimand final resolution. In such cases, the Company must estimate reserves over long periods of time with the possibility of several adjustments toreserves. Other classes of insurance that the Company underwrites, such as most property insurance, historically have shorter intervals between theoccurrence of an insured event, reporting of the claim and final resolution. Reserves with respect to these classes are therefore inherently less likely tobe adjusted.The loss and loss adjustment expense reserving process is intended to reflect the impact of inflation and other factors affecting loss payments by takinginto account changes in historical payment patterns and perceived trends. However, there is no precise method for the subsequent evaluation of theadequacy of the consideration given to inflation, or to any other specific factor, or to the way one factor may affect another.See 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 lossadjustment expenses, net of reinsurance ceded, as well as further discussion surrounding changes to reserves for prior accident years.Asbestos and Environmental (“A&E”) ExposureThe Company’s environmental exposure arises from the sale of general liability and commercial multi-peril insurance. Currently, the Company’spolicies continue to exclude classic environmental contamination claims. However, in some states, the Company is required, depending on thecircumstances, to provide coverage for certain bodily injury claims, such as an individual’s exposure to a release of chemicals. The Company has alsoissued policies that were intended to provide limited pollution and environmental coverage. These policies were specific to certain types of productsunderwritten by the Company. The Company has also received a number of asbestos-related claims, the majority of which are declined based on well-established exclusions. In establishing 13Table of Contentsthe liability for unpaid losses and loss adjustment expenses related to A&E exposures, management considers facts currently known and the currentstate 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 asbestosexposure and disease manifestation and the resulting potential for involvement of multiple policy periods for individual claims, the increase in thevolume of claims made by plaintiffs who claim exposure but who have no symptoms of asbestos-related disease, and an increase in claims subject tocoverage 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 amountsneeded to pay losses and related loss adjustment expenses as of each of the balance sheet dates reflected in the financial statements herein inaccordance with GAAP. As of December 31, 2017, the Company had $15.8 million of net loss reserves for asbestos-related claims and $14.3 million forenvironmental claims. The Company attempts to estimate the full impact of the A&E exposures by establishing specific case reserves on all knownlosses. See Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for tables showing the Company’s gross andnet 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 othertypes of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos related liabilities, andjudicial interpretations that often expand theories of recovery and broaden the scope of coverage.See Note 11 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 theCompany’s A&E claims.InvestmentsThe Company’s investment policy is determined by the Investment Committee of the Board of Directors. The Company engages third-party investmentadvisors to oversee its investments and to make recommendations to the Investment Committee. The Company’s investment policy allows it to investin taxable and tax-exempt fixed income investments including corporate bonds as well as publicly traded and private equity investments. With respectto fixed income investments, the maximum exposure per issuer varies as a function of the credit quality of the security. The allocation between taxableand tax-exempt bonds is determined based on market conditions and tax considerations. The maximum allowable investment in equity securities underthe Company’s investment policy is 30% of the Company’s GAAP equity, or $215.5 million at December 31, 2017. As of December 31, 2017, theCompany had $1,535.4 million of investments and cash and cash equivalent assets, including $140.2 million of equity investments and $77.8 millionof limited partnership investments plus a $1.5 million receivable for securities sold.Insurance company investments must comply with applicable statutory regulations that prescribe the type, quality and concentration ofinvestments. These regulations permit investments, within specified limits and subject to certain qualifications, in federal, state, and municipalobligations, corporate bonds and loans, and preferred and common equity securities. 14Table of ContentsThe following table summarizes by type the estimated fair value of Global Indemnity’s investments and cash and cash equivalents as of December 31,2017, 2016, and 2015: December 31, 2017 December 31, 2016 December 31, 2015 (Dollars in thousands) EstimatedFair Value Percent ofTotal EstimatedFair Value Percent ofTotal EstimatedFair Value Percent ofTotal Cash and cash equivalents $74,414 4.8% $75,110 5.0% $67,037 4.4% U.S. treasury and agency obligations 104,680 6.8 72,047 4.8 107,122 7.1 Obligations of states and political subdivisions 95,114 6.2 156,446 10.4 205,240 13.5 Mortgage-backed securities (1) 149,350 9.7 88,468 5.9 159,123 10.5 Asset-backed securities 203,701 13.3 233,991 15.6 260,022 17.2 Commercial mortgage-backed securities 139,795 9.1 183,192 12.2 140,390 9.3 Corporate bonds and loans 425,410 27.8 380,027 25.3 332,111 21.9 Foreign corporate bonds 123,387 8.0 125,860 8.4 102,141 6.7 Total fixed maturities 1,241,437 80.9 1,240,031 82.6 1,306,149 86.2 Common stock 140,229 9.2 120,557 8.0 110,315 7.3 Other invested assets 77,820 5.1 66,121 4.4 32,592 2.1 Total investments and cash and cash equivalents (2) $1,533,900 100.0% $1,501,819 100.0% $1,516,093 100.0% (1)Includes collateralized mortgage obligations of $68,183, $28,608, and $57,330 for 2017, 2016, and 2015, respectively.(2)Does not include net receivable (payable) for securities sold (purchased) of $1,543, ($3,717), and $172 for 2017, 2016, and 2015, respectively.Although the Company generally intends to hold fixed maturities to recovery and/or maturity, the Company regularly re-evaluates its position basedupon market conditions. As of December 31, 2017, the Company’s fixed maturities, excluding the mortgage-backed, commercial mortgage-backed andcollateralized mortgage obligations, had a weighted average maturity of 4.7 years and a weighted average duration, excluding mortgage-backed,commercial mortgage-backed and collateralized mortgage obligations and including cash and short-term investments, of 2.7 years. The Company’sfinancial statements reflect a net unrealized loss on fixed maturities available for sale as of December 31, 2017 of $1.7 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 unrealizedgains for the periods indicated: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Average fixed maturities at book value $1,242,242 $1,274,836 $1,290,641 Gross income on fixed maturities (1) 33,020 30,337 32,091 Book yield 2.66% 2.38% 2.49% Fixed maturities at book value $1,243,144 $1,241,339 $1,308,333 Unrealized gain (loss) (1,707) (1,308) (2,184) (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-backedsecurities. Of the $149.4 million of mortgage-backed securities, $81.2 million 15Table of Contentsis invested in U.S. agency paper and $68.2 million is invested in collateralized mortgage obligations, of which $67.8 million, or 99.4%, are rated AA+or better. In addition, the Company holds $203.7 million in asset-backed securities, of which 84.0% are rated AA or better and $139.8 million incommercial mortgaged-backed securities, of which 97.6% 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 tolack of interest by outside parties in the marketplace. The Company attempts to diversify its investment holdings to minimize this risk. The Company’sinvestment managers run periodic analysis of liquidity costs to the fixed income portfolio. The Company also faces credit risk. 96.5% of theCompany’s fixed income securities are investment grade securities. 17.2% of the Company’s fixed maturities are rated AAA. See “Quantitative andQualitative 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’sinvestment strategy.The following table summarizes, by Standard & Poor’s rating classifications, the estimated fair value of Global Indemnity’s investments in fixedmaturities, as of December 31, 2017 and 2016: December 31, 2017 December 31, 2016 (Dollars in thousands) EstimatedFair Value Percent ofTotal EstimatedFair Value Percent ofTotal AAA $213,943 17.2% $232,176 18.7% AA 403,723 32.5 432,595 35.0 A 229,381 18.5 346,606 28.0 BBB 350,849 28.3 197,449 15.9 BB 24,363 2.0 15,967 1.3 B 10,730 0.9 7,866 0.6 CCC 383 — 447 — CC 138 — 241 — C — — — — Not rated 7,927 0.6 6,684 0.5 Total fixed maturities $1,241,437 100.0% $1,240,031 100.0% The following table sets forth the expected maturity distribution of Global Indemnity’s fixed maturities portfolio at their estimated market value as ofDecember 31, 2017 and 2016: December 31, 2017 December 31, 2016 (Dollars in thousands) EstimatedMarket Value Percent ofTotal EstimatedMarket Value Percent ofTotal Due in one year or less $70,165 5.6% $80,982 6.5% Due in one year through five years 434,078 35.0 622,926 50.2 Due in five years through ten years 236,552 19.0 20,770 1.7 Due in ten years through fifteen years 2,205 0.2 3,252 0.3 Due after fifteen years 5,591 0.5 6,450 0.5 Securities with fixed maturities 748,591 60.3% 734,380 59.2% Mortgaged-backed securities 149,350 12.0 88,468 7.1 Commercial mortgage-backed securities 139,795 11.3 183,192 14.8 Asset-backed securities 203,701 16.4 233,991 18.9 Total fixed maturities $1,241,437 100.0% $1,240,031 100.0% The expected weighted average duration of the Company’s asset-backed, mortgage-backed and commercial mortgage-backed securities is 3.1 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 bondshave call or prepayment options. This could subject the Company to 16Table of Contentsreinvestment risk should interest rates fall and issuers call their securities and the Company is forced to invest the proceeds at lower interest rates. TheCompany 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, 2017, the Company had aggregate equity securities of $140.2 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 indistressed securities and assets, which was valued at $26.3 million at December 31, 2017, a limited liability partnership investment that invests in realestate, which was valued at zero at December 31, 2017, a limited liability partnership that provides financing for middle market companies, which wasvalued at $33.8 million at December 31, 2017, and a limited liability partnership investment that invests in stressed and distressed debt instruments,which was valued at $17.8 million at December 31, 2017. There is no readily available independent market price for these limited liability partnershipinvestments. The Company does not have access to daily valuations; therefore, the estimated fair value of these limited partnerships is based on the netasset value as a practical expedient for each limited partnership. The Company receives annual audited financial statements from each of thepartnership investments it owns.Net realized investment gains (losses), including other than temporary impairments, for the year ended December 31, 2017 were $1.6 million comparedwith gains of $21.7 million and losses of $3.4 million for the years ended December 31, 2016 and 2015, respectively.CompetitionThe Company competes with numerous domestic and international insurance and reinsurance companies, mutual companies, specialty insurancecompanies, underwriting agencies, diversified financial services companies, Lloyd’s syndicates, risk retention groups, insurance buying groups, risksecuritization products and alternative self-insurance mechanisms. In particular, the Company competes against insurance subsidiaries of the groups inthe 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.; 17Table of Contents • Validus Group; and • W.R. Berkley Corporation.In addition to the companies mentioned above, the Company is facing competition from standard line companies who are continuing to write risks thattraditionally had been written by excess and surplus lines carriers, Bermuda companies who are establishing relationships with wholesale brokers andpurchasing 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 strengthor 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 specialtywholesale products, offerings and underwriting products that are not readily available is the Company’s principal means of differentiating itself fromits competition. Each of the Company’s products has its own distinct competitive environment. The Company seeks to compete through innovativeproducts, appropriate pricing, niche underwriting expertise, and quality service to policyholders, general agencies and brokers.EmployeesAt December 31, 2017, the Company had approximately 420 employees. None of the Company’s employees are covered by collective bargainingagreements as of December 31, 2017.RatingsA.M. Best ratings for the industry range from “A++” (Superior) to “F” (In Liquidation) with some companies not being rated. The Company’s InsuranceOperations, which consist of its United States based insurance companies and Global Indemnity Reinsurance, are currently rated “A” (Excellent) byA.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 abilityto 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, theadequacy of its policy and loss reserves, the adequacy of its surplus, its capital structure and the experience and objectives of its management. Theseratings are based on factors relevant to policyholders, general agencies, insurance brokers and intermediaries and are not directed to the protection ofinvestors.RegulationGeneralThe business of insurance is regulated in most countries, although the degree and type of regulation varies significantly from one jurisdiction toanother. As a holding company, Global Indemnity is not subject to any insurance regulation in the Cayman Islands which the Companyredomesticated to in 2016. However, Global Indemnity is subject to various Cayman Island laws and regulations, including, but not limited to, lawsand regulations governing interested directors, mergers and acquisitions, shareholder lawsuits and indemnification of directors.U.S. RegulationAt December 31, 2017, the Company had six operating insurance subsidiaries domiciled in the United States; United National Insurance Company,Penn-America Insurance Company, and Penn-Star Insurance Company, 18Table of Contentswhich are domiciled in Pennsylvania; Diamond State Insurance Company which is domiciled in Indiana; Penn-Patriot Insurance Company, which isdomiciled in Virginia; and American Reliable Insurance Company, which is domiciled in Arizona.As the indirect parent of these U.S. insurance companies, Global Indemnity is subject to the insurance holding company laws of Pennsylvania, Indiana,Virginia, and Arizona. These laws generally require each of the U.S. insurance companies to register with its respective domestic state insurancedepartment and to annually furnish financial and other information about the operations of the companies within the insurance holding companysystem. Generally, all material transactions among affiliated companies in the holding company system to which any of the U.S. insurance companiesis a party must be fair, and, if material or of a specified category, require prior notice and approval or absence of disapproval by the insurancedepartment where the subsidiary is domiciled. Material transactions include sales, loans, reinsurance agreements, certain types of dividends, andservice agreements with the non-insurance companies within Global Indemnity’s family of companies, the Insurance Operations, or the ReinsuranceOperations.State Insurance RegulationState insurance authorities have broad regulatory powers with respect to various aspects of the business of U.S. insurance companies, including, but notlimited to, 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 approvingpremium rates in certain instances. State insurance laws and regulations may require the Company’s U.S. insurance companies to file financialstatements with insurance departments everywhere they will be licensed or eligible or accredited to conduct insurance business, and their operationsare subject to review by those departments at any time. The Company’s U.S. insurance companies prepare statutory financial statements in accordancewith statutory accounting principles (“SAP”) and procedures prescribed or permitted by these departments. State insurance departments also conductperiodic examinations of the books and records, financial reporting, policy filings and market conduct of insurance companies domiciled in theirstates, generally once every three to five years, although market conduct examinations may take place at any time. These examinations are generallycarried out in cooperation with the insurance departments of other states under guidelines promulgated by the NAIC. In addition, admitted insurers aresubject 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 Indiana and Virginia completed their most recent financial examinations of the Company’s U.S. insurancesubsidiaries, excluding American Reliable, for the period ended December 31, 2012. Their final reports were issued in 2014, and there were nomaterially adverse findings. The insurance department for the state of Arizona completed its most recent financial examination of American Reliablefor the period ending December 31, 2013. Their final report was issued in 2015, and there were no materially adverse findings. The Company has beennotified by the Pennsylvania Insurance Department that the financial examination for the period ended December 31, 2017 will begin in 2018. TheCompany expect the examination to continue into 2019.Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the statewhere the insurer is domiciled. Prior to granting approval of an application to acquire control of a domestic insurer, the state insurance commissionerwill consider factors such as the financial strength of the applicant, the integrity and management of the applicant’s Board of Directors and executiveofficers, the acquirer’s plans for the management, Board of Directors, executive officers, and employees of the company being acquired, the acquirer’splans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition ofcontrol. 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 acquiring10% or more of the Company’s ordinary shares would 19Table of Contentsindirectly control the same percentage of the stock of the U.S. insurance companies, the insurance change of control laws of Pennsylvania, Indiana,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 controlthe applicable insurance company.These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Global Indemnity, including throughtransactions, and in particular unsolicited transactions, that some or all of the shareholders of Global Indemnity might consider desirable.Insurance Regulatory Information System RatiosThe NAIC Insurance Regulatory Information System (“IRIS”) was developed by a committee of the state insurance regulators and is intended primarilyto assist state insurance departments in executing their statutory mandates to oversee the financial condition of insurance companies operating in theirrespective states. IRIS identifies twelve industry ratios and specifies “usual values” for each ratio. Departure from the usual values of the ratios can leadto inquiries from individual state insurance commissioners as to certain aspects of an insurer’s business. Insurers that report four or more ratios that falloutside the range of usual values are generally targeted for increased regulatory review.The U.S. insurance subsidiaries have strong risk capital scores. The Company’s U.S. insurance subsidiaries have acceptable results for the IRIS ratioswith the exception of the following: • Two-year operating ratio for Penn-America Insurance Company, Penn-Star Insurance Company, Penn-Patriot Insurance Company andAmerican Reliable Insurance Company were outside of IRIS range due to catastrophe losses in 2016 and 2017. • Investment yields were lower than the IRIS range for Diamond State Insurance Company, Penn-America Insurance Company, Penn-StarInsurance Company and Penn-Patriot Insurance Company. The investment portfolios of these companies are invested in high quality shortduration bonds. • Investment yields were higher than the IRIS range for United National Insurance Company due to dividends from affiliates • Change in Surplus and Adjusted Surplus ratios for United National Insurance Company, Diamond State Insurance Company, Penn-AmericaInsurance Company, Penn-Star Insurance Company and Penn-Patriot Insurance Company were outside of the IRIS range due to dividendsto affiliates and catastrophe losses in 2017. • Asset to liability liquidity ratio for Penn-America Insurance Company was outside of the IRIS range mainly due to intercompany payablesto parents and affiliates that will be settled in the 1st quarter of 2018. • Estimated current reserve deficiency was outside of the range for Penn-Patriot Insurance Company due to changes in the intercompanypooling agreement in 2016.Risk-Based Capital RegulationsThe state insurance departments of Pennsylvania, Indiana, Virginia and Arizona require that each domestic insurer report its risk-based capital based ona formula calculated by applying factors to various asset, premium and reserve items. The formula takes into account the risk characteristics of theinsurer, including asset risk, insurance risk, interest rate risk and business risk. The respective state insurance regulators use the formula as an earlywarning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and generally not as a meansto rank insurers. State insurance laws impose broad confidentiality requirements on those engaged in the insurance business (including insurers,general agencies, 20Table of Contentsbrokers and others) and on state insurance departments as to the use and publication of risk-based capital data. The respective state insurance regulatorshave explicit regulatory authority to require various actions by, or to take various actions against, insurers whose total adjusted capital does not exceedcertain company action level risk-based capital levels.Based on the standards currently adopted, the U.S. insurance companies reported in their 2017 statutory filings that their capital and surplus are abovethe prescribed risk-based capital requirements. The cancellation of the Quota Share arrangement between Global Indemnity Reinsurance and the U.S.Insurance Companies will increase the capital requirements of its U.S. Insurance Companies and additional capital may need to be allocated to thesecompanies in the future. The Company will continue to manage capital levels in its U.S. Insurance Companies to ensure its capital and surplus willremain above the prescribed risk-based capital requirements. See Note 19 of the notes to the consolidated financial statements in Item 8 of Part II of thisreport for additional information on the NAIC’s risk-based capital model for determining the levels of statutory capital and surplus an insurer mustmaintain.Statutory Accounting Principles (“SAP”)SAP is a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. SAP isprimarily concerned with measuring an insurer’s surplus. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers atfinancial reporting dates in accordance with appropriate insurance laws, regulatory provisions, and practices prescribed or permitted by each insurer’sdomiciliary 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 directresult, different line item groupings of assets and liabilities and different amounts of assets and liabilities are reflected in financial statements preparedin 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, 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 amountof funds these subsidiaries have available to pay dividends.State Dividend LimitationsThe U.S. insurance companies are restricted by statute as to the amount of dividends that they may pay without the prior approval of the applicablestate regulatory authorities. Dividends may be paid without advanced regulatory approval only out of unassigned surplus. The dividend limitationsimposed by the applicable state laws are based on the statutory financial results of each company within the Insurance Operations that are determinedusing statutory accounting practices that differ in various respects from accounting principles used in financial statements prepared in conformity withGAAP. See “Regulation — Statutory Accounting Principles.” Key differences relate to, among other items, deferred acquisition costs, limitations ondeferred 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 19 of the notes to consolidated financial statements in Item 8 of Part II of this report for the dividends declared and paid by GlobalIndemnity’s U.S. insurance companies in 2017 and the maximum amount of distributions that U.S. insurance companies could pay as dividends in2018.Guaranty Associations and Similar ArrangementsMost of the jurisdictions in which the U.S. insurance companies are admitted to transact business require property and casualty insurers doing businesswithin that jurisdiction to participate in guaranty associations. 21Table of ContentsThese associations are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. Theseassociations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of thepremiums written by member insurers in the lines of business in which the impaired, insolvent, or failed insurer is engaged. Some states permit memberinsurers to recover assessments paid through full or partial premium tax offsets or in limited circumstances by surcharging policyholders.Federal Insurance RegulationThe Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) includes a number of provisions having a direct impact onthe insurance industry, most notably, the creation of a Federal Insurance Office to monitor the insurance industry, streamlining of surplus linesinsurance, credit for reinsurance, and systemic risk regulation. The Federal Insurance Office is empowered to gather data and information regarding theinsurance industry and insurers, including conducting a study for submission to the U.S. Congress on how to modernize and improve insuranceregulation in the United States. With respect to surplus lines insurance, the Dodd-Frank Act gives exclusive authority to regulate surplus linestransactions to the home state of the insured, and the requirement that a surplus lines broker must first attempt to place coverage in the admitted marketis substantially softened with respect to large commercial policyholders. Significantly, the Dodd-Frank Act provides that a state may not prevent asurplus lines broker from placing surplus lines insurance with a non-U.S. insurer that appears on the quarterly listing of non-admitted insurersmaintained by the International Insurers Department of the National Association of Insurance Commissioners (“NAIC”). Regarding credit forreinsurance, the Dodd-Frank Act generally provides that the state of domicile of the ceding company (and no other state) may regulate financialstatement credit for the ceded risk. The Dodd-Frank Act also provides the U.S. Federal Reserve with supervisory authority over insurance companiesthat are deemed to be “systemically important.” The Company continues to monitor the impact the Dodd-Frank Act or any changes thereto may haveon operations.Operations of Global Indemnity ReinsuranceThe insurance laws of the United States regulate or prohibit the sale of insurance and reinsurance within their jurisdictions by non-domestic insurersand reinsurers that are not admitted to do business within such jurisdictions. Global Indemnity Reinsurance is not admitted to do business in theUnited States. The Company does not intend for Global Indemnity Reinsurance to maintain offices or solicit, advertise, settle claims or conduct otherinsurance and reinsurance underwriting activities in any jurisdiction in the United States where the conduct of such activities would require thatGlobal 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 collateralsecurity with respect to the reinsurance liabilities it assumes from the Company’s Insurance Operations as well as other U.S. ceding companies. Theposting of collateral security is generally required in order for U.S. ceding companies to obtain credit on their U.S. statutory financial statements withrespect to reinsurance liabilities ceded to unlicensed or unaccredited reinsurers. Under applicable United States “credit for reinsurance” statutoryprovisions, 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 morestringent in Pennsylvania, Indiana, Virginia and Arizona or other applicable states or any of the U.S. insurance companies re-domesticate to one of thefew states that do not allow credit for reinsurance ceded to non-licensed reinsurers, the Company may be unable to realize some of the benefitsexpected 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 applicableto authorized insurers generally do not apply to Global Indemnity Reinsurance’s transactions. 22Table of ContentsBermuda Insurance RegulationThe Bermuda Insurance Act 1978 and related regulations, as amended (the “Insurance Act”), regulates the insurance business of Global IndemnityReinsurance and provides that no person may carry on any such business in or from within Bermuda unless registered as an insurer by the BermudaMonetary Authority (the “BMA”) under the Insurance Act. Global Indemnity Reinsurance, which is incorporated to carry on general insurance andreinsurance 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 oninsurance business in circumstances where 50% or more of the net premiums written or 50% or more of the loss and loss expense provisions representunrelated business, or its total net premiums written from unrelated business are $50.0 million or more. The continued registration of an applicant as aninsurer 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’sregistration may be canceled by the BMA on certain grounds specified in the Insurance Act, including failure of the insurer to comply with itsobligations 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 continuesto 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, anassessment of the inherent risks within each particular class of insurer is used to determine the limitations and specific requirements which may beimposed. Thereafter the BMA keeps its analysis of relative risk within individual institutions under review on an ongoing basis, including through thescrutiny of regular audited statutory financial statements, and, as appropriate, meeting with senior management during onsite visits.On March 25, 2016, Bermuda’s prudential framework for (re)insurance and group supervision was confirmed as being fully equivalent to the regulatorystandards applied to European reinsurance companies and insurance groups in accordance with the requirements of the Solvency II Directive. Bermudawas granted this full “Solvency II equivalence” for an unlimited period by the European Commission based on an assessment conducted by theEuropean Insurance and Occupational Pensions Authority, and the equivalence decision was applied retroactively to January 1, 2016.Certain significant aspects of the Bermuda insurance regulatory framework are set forth as follows:Cancellation of Insurer’s RegistrationAn insurer’s registration may be canceled by the BMA on certain grounds specified in the Bermuda Insurance Act, including failure of the insurer tocomply with its obligations under the Bermuda Insurance Act or if, in the opinion of the BMA, the insurer has not been carrying on business inaccordance with sound insurance principles.Principal Representative and Principal OfficeEvery registered insurer or reinsurer is required to maintain a principal office in Bermuda and to appoint and maintain a principal representative inBermuda, subject to certain prescribed requirements under the Bermuda Insurance Act. Further, any registered insurer that is a Class 3A insurer or aboveis required to maintain a head office in Bermuda and direct and manage its insurance business from Bermuda. The recent amendments to the BermudaInsurance 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 areresponsible for, and involved in, 23Table of Contentsthe decision making are located in Bermuda; and (c) where meetings of the board of directors occur. The BMA will also consider (a) the location wheremanagement meets to effect policy decisions; (b) the residence of the officers, insurance managers or employees; and (c) the residence of one or moredirectors in Bermuda.Global Indemnity Reinsurance maintains its principal office in Hamilton, Bermuda and its external management firm has been appointed as itsprincipal 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 actsbecoming insolvent or that a reportable “event” has, to the principal representative’s knowledge, occurred or is believed to have occurred, toimmediately 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 thecase that are available to the principal representative.Where there has been a significant loss which is reasonably likely to cause the insurer to fail to comply with its enhanced capital requirement (inrespect 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 preparedusing 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 oramalgamation), the principal representative has 30 days from the date of such notification to furnish the BMA with unaudited interim statutoryfinancial statements in relation to such period if so requested by the BMA, together with a general business solvency certificate in respect to thosestatements.Independent Approved AuditorEvery registered insurer, such as Global Indemnity Reinsurance, must appoint independent auditors who will audit and report annually on the statutoryfinancial statements, the statutory financial return of the insurer and U.S. GAAP statements, which are required to be filed annually with the BMA.Loss Reserve SpecialistAs a registered Class 3B insurer, Global Indemnity Reinsurance is required to submit an opinion of its approved loss reserve specialist in respect of itstechnical provisions contained within its Economic Balance Sheet (see below).Annual Financial Statements and Annual Statutory Financial ReturnAs prescribed by the Insurance Act, Global Indemnity Reinsurance, a Class 3B insurer, must prepare annual statutory financial statements. Thestatutory financial return shall consist of an insurer information sheet, a report of the approved independent auditor on the GAAP financial statements,a statutory balance sheet, a statutory statement of income, a statutory statement of capital and surplus, notes to the statutory financial statements and astatutory declaration of compliance.In addition to preparing statutory financial statements, Global Indemnity Reinsurance must file financial statements prepared in accordance with GAAPin respect of each financial year. Such statements must be filed with the BMA within a period of four months from the end of the financial year or suchlonger period, not exceeding seven months, as the BMA may determine. The audited financial statements will be published by the BMA. 24Table of ContentsFor financial years after January 1, 2016, commercial insurers will also be required to prepare a Financial Condition Report providing details of, amongother things, measures governing the business operations, corporate governance framework, solvency and financial performance of the insurer.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. For 2017, Global Indemnity Reinsurance used the BMA’s modelto calculate its capital and solvency requirements.The risk-based regulatory capital adequacy and solvency requirements implemented with effect from December 31, 2008 (termed the BermudaSolvency Capital Requirement or “BSCR”) provide a risk-based capital model as a tool to assist the BMA both in measuring risk and in determiningappropriate levels of capitalization. BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to thecapital that is dedicated to their business. The framework that has been developed applies a standard measurement format to the risk associated with aninsurer’s assets, liabilities and premiums, including a formula to take account of catastrophe risk exposure.Where an insurer believes that its own internal model for measuring risk and determining appropriate levels of capital better reflects the inherent risk ofits 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 aninsurer’s internal model, provided certain conditions have been established, and may revoke approval of an internal model in the event that theconditions are no longer met or where it feels that the revocation is appropriate. The BMA will review the internal model regularly to confirm that themodel 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 athreshold capital level (termed the Target Capital Level or “TCL”), which exceeds the BSCR or approved internal model minimum amounts. The Rulesprovide prudential standards in relation to the ECR and Capital and Solvency Return (“CSR”). The ECR is determined using the BSCR or an approvedinternal 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’srisk management practices and other information used by the insurer to calculate its approved internal model ECR. The capital requirements requireClass 3B insurers to hold available statutory capital and surplus equal to, or exceeding ECR and set TCL at 120% of ECR. In circumstances where aninsurer has failed to comply with an ECR given by the BMA, such insurer is prohibited from declaring or paying any dividends until the failure isrectified.The risk-based solvency capital framework referred to above represents a modification of the minimum solvency margin test set out in the InsuranceReturns and Solvency Amendment Regulations 1980 (as amended). While it must calculate its ECR annually by reference to either the BSCR or anapproved 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 inrespect 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 hasavailable to meet its capital requirements. The tiered capital system classifies 25Table of Contentsall capital instruments into one of three tiers based on their “loss absorbency” characteristics, with the highest quality capital classified as Tier 1Capital 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 usedto 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 aCommercial Insurer’s Solvency Self Assessment (“CISSA”). The CISSA will allow the BMA to obtain an insurer’s view of the capital resources requiredto achieve its business objectives and to assess the company’s governance, risk management and controls surrounding this process. The Rules alsointroduced a Catastrophe Risk Return, which must be filed with the BMA, which assesses an insurer’s reliance on vendor models in assessingcatastrophe exposure.Economic Balance Sheet FrameworkThe Economic Balance Sheet (“EBS”) framework is an accounting balance sheet approach using market consistent values for all current assets andcurrent obligations relating to in-force business which applies to Class 3B and 4 insurers and has been in effect since the 2016 financial year end. TheEBS framework is embedded as part of the Capital and Solvency Return and forms the basis for the insurer’s ECR.Minimum Liquidity RatioThe Insurance Act provides a minimum liquidity ratio for general business insurers, such as Global Indemnity Reinsurance. An insurer engaged ingeneral 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 aredefined in the Insurance Act.Restrictions on Dividends and DistributionsGlobal Indemnity Reinsurance is prohibited from declaring or paying any dividends during any financial year if it is in breach of its minimumsolvency 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. Inaddition, if it has failed to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial year, Global IndemnityReinsurance 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 or 25% or moreof its total statutory capital and surplus as set out in its previous year’s financial statements, and any application for such approval must include suchinformation as the BMA may require. In addition, if at any time it fails to meet its minimum margin of solvency, Global Indemnity Reinsurance isrequired 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 writtenreport containing certain information.Additionally, under the Companies Act, Global Indemnity Reinsurance may not declare or pay a dividend, or make a distribution from contributedsurplus, 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 therealizable 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 InterventionThe BMA has wide powers of investigation and document production in relation to Bermuda insurers under the Insurance Act. For example, the BMAmay appoint an inspector with extensive powers to investigate the affairs of Global Indemnity Reinsurance if the BMA believes that such aninvestigation is in the best interests of its 26Table of Contentspolicyholders or persons who may become policyholders. Further, the BMA has the power to appoint a professional person to prepare a report on anyaspect 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 IndemnityReinsurance becoming insolvent, or that Global Indemnity Reinsurance is in breach of the Insurance Act or any conditions imposed upon itsregistration, the BMA may, among other things, direct Global Indemnity Reinsurance not to take on any new business, not to vary any current treatiesif the effect would be to increase its liabilities, not to make certain investments, to realize or not realize certain investments, to maintain in, or transferto, 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 the ECR, CSR, insurance reserves and eligible capital whichGlobal Indemnity Reinsurance must comply with.Bermuda Code of ConductThe BMA has implemented the Insurance Code of Conduct (the “Bermuda Code of Conduct”) which came into effect on July 1, 2010. The BMAestablished 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) MarketDiscipline and Disclosure. These categories contain the duties, requirements and compliance standards to which all insurers must adhere. It stipulatesthat in order to achieve compliance with the Bermuda Code of Conduct, insurers are to develop and apply policies and procedures capable ofassessment by the BMA. Global Indemnity Reinsurance is in compliance with the Bermuda Code of Conduct.Group SupervisionEmerging international norms in the regulation of global insurance groups are trending increasingly towards the imposition of group-wide supervisoryregimes by one principal “home” regulator over all the legal entities in the group, no matter where incorporated. Amendments to the Insurance Act in2010 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 forthe 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 groupsupervision.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 Rulesset out the rules in respect of the assessment of the financial situation and solvency of an insurance group, the system of governance and riskmanagement of the insurance group, and supervisory reporting and disclosures of the insurance group. The Group Solvency Rules set out the rules inrespect of the capital and solvency return and enhanced capital requirements for an insurance group. The BMA also intends to publish an insurancecode 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, ithad determined that it would not be Global Indemnity Reinsurance’s group supervisor.Notifications to the BMAIn 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 mustnotify the BMA within 45 days of becoming a 10%, 20%, 33% or 50% 27Table of Contentsshareholder 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 thatinsurer. A Controller for this purpose means a managing director, chief executive or other person in accordance with whose directions or instructionsthe Directors of Global Indemnity Reinsurance are accustomed to act, including any person who holds, or is entitled to exercise, 10% or more of thevoting 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, anofficer 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.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 thatare 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 theCompanies 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 thematerial change; and • without prejudice to the first point, that, having regard to the material change, the requirements of the Insurance Act would continue to becomplied with, or, if any of those requirements are not complied with, that the insurer concerned is likely to undertake adequate remedialaction.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 InformationThe BMA may assist other regulatory authorities, including foreign insurance regulatory authorities, with their investigations involving insurance andreinsurance companies in Bermuda, but subject to restrictions. For example, the BMA must be satisfied that the assistance being requested is inconnection with the discharge of regulatory responsibilities of the foreign regulatory authority. Further, the BMA must consider whether cooperation isin the public interest. The grounds for disclosure are limited and the Insurance Act provides sanctions for breach of the statutory duty ofconfidentiality.Under the Companies Act, the Minister of Finance may assist a foreign regulatory authority that has requested assistance in connection with inquiriesbeing carried out by it in the performance of its regulatory functions. The Minster of Finance’s powers include requiring a person to furnish informationto the Minister of Finance, to produce documents to the Minister of Finance, to attend and answer questions and to give assistance to the Minister ofFinance in relation to inquiries. The Minister of Finance must be satisfied that the assistance requested by the foreign regulatory authority is for thepurpose 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. 28Table of ContentsCertain Other Bermuda Law ConsiderationsAlthough Global Indemnity Reinsurance is incorporated in Bermuda, it is classified as a non-resident of Bermuda for exchange control purposes by theBMA. Pursuant to the non-resident status, Global Indemnity Reinsurance may engage in transactions in currencies other than Bermuda dollars, andthere 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 toUnited 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 ofbusiness in Bermuda. As an “exempted” company, Global Indemnity Reinsurance may not, without the express authorization of the Bermudalegislature or under a license or consent granted by the Minister of Finance, participate in certain business transactions, including transactionsinvolving Bermuda landholding rights and the carrying on of business of any kind for which it is not licensed in Bermuda.Taxation of Global Indemnity and SubsidiariesCayman IslandsThe Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.Global Indemnity is an exempted company incorporated with limited liability under the laws of the Cayman Islands. Global Indemnity has received anundertaking from the Governor in Cabinet of the Cayman Islands to the effect that, for a period of twenty years from the date of the undertaking, whichis February 9, 2016, no law that thereafter is enacted in the Cayman Islands imposing any tax or duty to be levied on profits, income or on gains orappreciation, or any tax in the nature of estate duty or inheritance tax, will apply to any property comprised in or any income arising in respect ofGlobal Indemnity, or to the shareholders thereof, in respect of any such property or income.IrelandGlobal Indemnity Services Ltd., a direct wholly-owned subsidiary, is a company limited by shares incorporated under the laws of Ireland. The companyis a resident taxpayer fully subject to Irish corporate income tax laws. Global Indemnity Services Ltd. has only trading income and is subject tocorporate income tax of 12.5%.U.A.I. (Ireland) Limited, U.A.I. (Ireland) II Unlimited Company, GBLI (Ireland) Limited, and Global Indemnity Group Limited, all indirect wholly-owned subsidiaries, are companies incorporated under the laws of Ireland. Each company is a resident taxpayer fully subject to Irish corporate incometax laws.BermudaUnder 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 taxpayable by Global Indemnity Reinsurance or its shareholders, or GBLI (Bermuda) Limited, or its shareholders, other than shareholders ordinarilyresident in Bermuda, if any. Currently, there is no Bermuda withholding or other tax on principal, interest, or dividends paid to holders of the ordinaryshares of Global Indemnity Reinsurance or GBLI (Bermuda) Limited, other than holders ordinarily resident in Bermuda, if any. There can be noassurance that Global Indemnity Reinsurance or its shareholders or GBLI (Bermuda) Limited or its shareholders will not be subject to any such tax inthe future.The Company has received a written assurance from the Bermuda Minister of Finance under the Exempted Undertakings Tax Protection Act of 1966 ofBermuda, that if any legislation is enacted in Bermuda that would 29Table of Contentsimpose 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 inheritancetax, then the imposition of that tax would not be applicable to Global Indemnity Reinsurance or GBLI (Bermuda) Limited 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 toprevent the application of such tax to people ordinarily resident in Bermuda, or to prevent the application of any taxes payable by Global IndemnityReinsurance or GBLI (Bermuda) Limited in respect of real property or leasehold interests in Bermuda held by them. Given the limited duration of theassurance, the Company cannot be certain that the Company will not be subject to any Bermuda tax after March 31, 2035.LuxembourgU.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., and Wind River (Luxembourg) S.à.r.l. (the “Luxembourg Companies”) are indirect wholly-owned subsidiaries and private limitedliability companies incorporated under the laws of Luxembourg. These are taxable companies, which may carry out any activities that fall within thescope of their corporate object clause. In accordance with Luxembourg regulations, the companies are resident taxpayers fully subject to Luxembourgcorporate income tax at a rate of 27.08% and net worth tax at a rate of 0.5%. The companies are entitled to benefits of the tax treaties concludedbetween 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 residentparent company are exempt from Luxembourg dividend withholding tax, provided that at the time of the dividend distribution, the resident parentcompany 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 alower 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 do not lead to taxation in Luxembourg except for thetaxation as provided in the ATCs. Based on these confirmations received, the current financing activities of the Luxembourg Companies should notlead to taxation in Luxembourg other than for such tax as provided for in the financial statements. The Luxembourg Companies have in their filestransfer pricing documentation substantiating the arm’s length nature of the financing activities. It is however not guaranteed that the LuxembourgCompanies cannot be subject to higher Luxembourg taxes.BarbadosGBLI (Barbados) Limited, an indirect wholly owned subsidiary, is incorporated under the Companies Act, Cap. 308 of the Laws of Barbados. It is aduly licensed international business company under the International Business Companies Act, Cap. 77 of the Laws of Barbados and subject to acorporate income tax rate as follows: • 2.5% on all profits and gains up to $5,000,000; • 2% on all profits and gains exceeding $5,000,000 but not exceeding $10,000,000; • 1.5% on all profits and gains exceeding $10,000,000 but not exceeding $15,000,000; and • 0.25% on all profits and gains exceeding $15,000,000.United StatesThe following discussion is a summary of the material U.S. federal income tax considerations relating to the Company’s operations. The Companymanages its business in a manner that seeks to mitigate the risk that either 30Table of ContentsGlobal 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 RevenueCode (the “Code”), regulations and court decisions fail to identify definitively activities that constitute being engaged in a trade or business in theUnited States, the Company cannot be certain that the Internal Revenue Service (“IRS”) will not contend successfully that Global Indemnity or GlobalIndemnity 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 besubject 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 theconduct of that trade or business unless the corporation is entitled to relief under the permanent establishment provision of an applicable tax treaty, asdiscussed below. Such income tax, if imposed, would be based on effectively connected income computed in a manner generally analogous to thatapplied 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 aU.S. federal income tax return. Global Indemnity and Global Indemnity Reinsurance are filing protective U.S. federal income tax returns on a timelybasis 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. Thehighest marginal federal income tax rates to take effect in 2018 are 21% for a corporation’s effectively connected income and 30% for the branchprofits tax.If Global Indemnity Reinsurance is entitled to the benefits under the tax treaty between Bermuda and the United States (the “Bermuda Treaty”), GlobalIndemnity Reinsurance would not be subject to U.S. income tax on any business profits of its insurance enterprise found to be effectively connectedwith a U.S. trade or business, unless that trade or business is conducted through a permanent establishment in the United States. No regulationsinterpreting the Bermuda Treaty have been issued. Global Indemnity Reinsurance currently conducts its activities to reduce the risk that it will have apermanent 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 areowned beneficially, directly or indirectly, by individual residents of the United States or Bermuda or U.S. citizens and (2) its income is not used insubstantial part, directly or indirectly, to make disproportionate distributions to, or to meet certain liabilities to, persons who are neither residents ofeither the United States or Bermuda nor U.S. citizens. The Company cannot be certain that Global Indemnity Reinsurance will be eligible for BermudaTreaty 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 netinvestment 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 thebenefits of the Bermuda Treaty in general (because it fails to qualify under the limitations on treaty benefits discussed above), the Code could subject asignificant portion of Global Indemnity Reinsurance’s investment income to U.S. income tax. In addition, while the Bermuda Treaty clearly applies topremium income, it is uncertain whether the Bermuda Treaty applies to other income such as investment income. If Global Indemnity Reinsurance isconsidered engaged in the conduct of an insurance business in the United States and is entitled to the benefits of the Bermuda Treaty in general, butthe Bermuda Treaty is interpreted to not apply to investment income, a significant portion of Global Indemnity Reinsurance’s investment incomecould 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 locatedin the United States. The rates of tax applicable to premiums paid to Global Indemnity Reinsurance on such business are 4% for direct insurancepremiums 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 31Table of Contentsgains, profits and income” derived from sources within the United States (such as dividends and certain interest on investments), subject to exemptionunder 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 paymentsto 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 theCompany’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. On December 22, 2017, the United Statesenacted the TCJA, which contains provisions that can materially affect the tax treatment of the Company’s U.S. subsidiaries. Although the TCJAreduced the U.S. corporate income tax rate to 21 percent, it also imposed a 10 percent base erosion minimum tax, or BEAT, on a U.S. corporation’smodified taxable income, which generally is the corporation’s taxable income calculated without regard to certain otherwise deductible paymentsmade to certain foreign affiliates (including interest payments as well as gross premium or other consideration paid or accrued to a related foreignreinsurance company for reinsurance). In addition to BEAT, the TCJA limits the deductibility of interest expense and executive compensation by theCompany’s U.S. subsidiaries. The Company is continuing to study the full extent of the impact of these and other provisions of the TCJA.Available InformationThe Company maintains a website at www.globalindemnity.ky. 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 reportson 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 SecuritiesExchange Act of 1934, as amended, as soon as reasonably practicable after the Company files such material with, or furnishes it to, the United StatesSecurities 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 PublicReference 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 Internetsite (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with theSEC. Item 1A.RISK FACTORSThe risks and uncertainties described below are those the Company believes to be material. If any of the following actually occur, the Company’sbusiness, prospects, financial condition, results of operations and cash flows could be materially and adversely affected.Risks Related to the Company’s BusinessIf actual claims payments exceed the Company’s reserves for losses and loss adjustment expenses, the Company’s financial condition and results ofoperations 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. TheCompany establishes reserves on an undiscounted basis to cover its estimated liability for the payment of all losses and loss adjustment expensesincurred with respect to premiums 32Table of Contentsearned on the insurance policies that it writes. Reserves do not represent an exact calculation of liability. Rather, reserves are estimates of what theCompany expects to be the ultimate cost of resolution and administration of claims under the insurance policies that it writes. These estimates arebased upon actuarial and statistical projections, the Company’s assessment of currently available data, as well as estimates and assumptions as to futuretrends in claims severity and frequency, judicial theories of liability and other factors. The Company continually refines its reserve estimates in anongoing process as experience develops and claims are reported and settled. The Company’s insurance subsidiaries obtain an annual statement ofopinion 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’sfuture 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 andcoverage may emerge. Examples include claims relating to mold, asbestos and construction defects, as well as larger settlements and jury awardsagainst professionals and corporate directors and officers. In addition, there is a growing trend of plaintiffs targeting property and casualty insurers inpurported class action litigations relating to claims handling, insurance sales practices and other practices. These exposures may either extendcoverage beyond the Company’s underwriting intent or increase the frequency or severity of claims. As a result, such developments could cause theCompany’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 itestablishes, and to the extent that actual losses and loss adjustment expenses exceed the Company’s expectations and the reserves reflected on itsfinancial statements, the Company will be required to immediately reflect those changes by increasing its reserves. In addition, regulators could requirethat the Company increase its reserves if they determine that the reserves were understated in the past. When the Company increases reserves, pre-taxincome for the period in which it does so will decrease by a corresponding amount. In addition to having an effect on reserves and pre-tax income,increasing or “strengthening” reserves causes a reduction in the Company’s insurance companies’ surplus and could cause the rating of its insurancecompany subsidiaries to be downgraded or placed on credit watch. Such a downgrade could, in turn, adversely affect the Company’s ability to sellinsurance 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 expectsto experience in the future, catastrophe losses. It is possible that a catastrophic event or a series of multiple catastrophic events could have a materialadverse effect on the Company’s operating results and financial condition. The Company’s operating results could be negatively impacted if itexperiences losses from catastrophes that are in excess of the catastrophe reinsurance coverage of its Insurance Operations. The Company’sReinsurance Operations also have exposure to losses from catastrophes as a result of the reinsurance treaties that it writes. Operating results could benegatively 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 ofSeptember 11, 2001. The Company cannot predict how severe a particular catastrophe may be until after it occurs. The extent of losses fromcatastrophes is a function of the total amount and type of losses incurred, the number of insureds affected, the frequency of the events and the severityof the 33Table of Contentsparticular catastrophe. Most catastrophes occur in small geographic areas. However, some catastrophes may produce significant damage in large,heavily populated areas.The benefits of acquiring American Reliable may not be realized which could have a material adverse effect on the Company’s business operationsand 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 ofthe acquisition. Achieving the anticipated benefits of the acquisition will depend in part upon whether the common aspects of the business cancontinue to be integrated in an efficient and effective manner with Global Indemnity’s existing businesses. Furthermore, the risk that the Company’s orAmerican Reliable’s prospective insurance premiums, investment yield, or net earnings are less than anticipated (including as a result of unexpectedevents, competition, costs, charges or outlays whether as a consequence of the transaction or otherwise) could negatively impact the Company’sprofitability and results of operations.A failure in the Company’s operational systems or infrastructure or those of third parties, including security breaches or cyber-attacks, could disruptthe Company’s business, its reputation, and / or cause losses which would have a material effect on the Company’s business operations and financialresults.The Company’s business is dependent upon the secure processing, storage, and transmission of information over computer networks usingapplications, systems and other technologies. The business depends on effective information security and systems to perform accounting, policyadministration, claims, underwriting, actuarial and all aspects of day to day operations necessary to service the Company’s customers and agents, tovalue 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 bythe 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 throughinternal and independent evaluations. The Company has implemented administrative and technical controls and takes protective actions in an attemptto 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 ofdata and loss of assets and that could have security consequences. Complexity of the Company’s technology increases regularly and has increased therisk 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, resultsof operations, or financial condition. Security incidents have the potential to interrupt business, cause delays in processes and procedures directlyaffecting the Company, and jeopardize the Company’s, insureds, claimants, agents and others confidential data resulting in data loss and loss of assetsand 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 maynot be covered by insurance or not fully recoverable under any insurance. The Company may be subject to litigation and damages or regulatory actionunder data protection and privacy laws and regulations enacted by federal, state and foreign governments, or other regulatory bodies. As a result, theCompany’s ability to conduct its business and its results of operations might be materially and adversely affected. 34Table of ContentsThe 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 andother processing of personal data, including laws mandating the privacy and security of personal health and financial data. These data protection andprivacy-related laws and regulations are evolving and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcementand sanctions. The Company’s failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement actionagainst 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 havea 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 limitor inhibit the Company’s ability to operate or expand its business, including limiting technology alliance partners that may involve the sharing ofdata. Additionally, there is a risk that failures in systems designed to protect private, personal or proprietary data held by the Company will allow suchdata to be disclosed to or acquired or seen by others, resulting in potential regulatory investigations, enforcement actions, or penalties, remediationobligations and/or private litigation by parties whose data were improperly disclosed. There is also a risk that the Company could be found to havefailed to comply with U.S. or foreign laws or regulations regarding the collection, consent, handling, transfer, or disposal of such privacy, personal orproprietary 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 itsability 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. Adowngrade could result in a significant reduction in the number of insurance contracts the Company writes and in a substantial loss of business; assuch 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 currentlyrange from “A++” (Superior) to “F” (In Liquidation), with a total of 16 separate ratings categories. A.M. Best currently assigns the companies in theInsurance Operations and Reinsurance Operations a financial strength rating of “A” (Excellent), the third highest of their 16 rating categories. Theobjective 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 ongoingobligations, including paying claims. In evaluating a company’s financial and operating performance, A.M. Best reviews its profitability, leverage andliquidity, its spread of risk, the quality and appropriateness of its reinsurance, the quality and diversification of its assets, the adequacy of its policy andloss reserves, the adequacy of its surplus, its capital structure, and the experience and objectives of its management. These ratings are based on factorsrelevant to policyholders, general agencies, insurance brokers, reinsurers, and intermediaries and are not directed to the protection of investors. Theseratings 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 orhold the Company’s A ordinary shares. Publications of A.M. Best indicate that companies are assigned “A” (Excellent) ratings if, in A.M. Best’sopinion, they have an excellent ability to meet their ongoing obligations to policyholders. These ratings are subject to periodic review by, and may berevised downward or revoked at the sole discretion of A.M. Best. 35Table of ContentsThe 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 reinsurerliable 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 Companyor 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 resultswould be adversely affected. Lack of reinsurer liquidity, perceived improper underwriting, or claim handling by the Company, and other factors couldcause a reinsurer not to pay. See “Business — Reinsurance of Underwriting Risk” in Item 1 of Part I of this report.See Note 9 of the notes to consolidated financial statements in Item 8 of Part II of this report for further information surrounding the Company’sreinsurance receivable balances as of December 31, 2017 and 2016.The Company’s investment performance may suffer as a result of adverse capital market developments or other factors, which would in turnadversely 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 theperformance of its investment portfolio. The Company’s operating results are subject to a variety of investment risks, including risks relating to generaleconomic conditions, market volatility, interest rate fluctuations, liquidity risk and credit and default risk. The fair value of fixed income investmentscan fluctuate depending on changes in interest rates and the credit quality of underlying issuers. Generally, the fair market value of these investmentshas an inverse relationship with changes in interest rates, while net investment income earned by the Company from future investments in fixedmaturities will generally increase or decrease with changes in interest rates. Additionally, with respect to certain of its investments, the Company issubject 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 ofinvestments. Credit tightening may cause opportunities that are marginally attractive to not be financed, which could cause a decrease in the number ofbond issuances. If marginally attractive opportunities are financed, they may be at higher interest rates, which would cause credit risk of suchopportunities to increase. If new debt supply is curtailed, it could cause interest rates on securities that are deemed to be credit-worthy to decline. Fundsgenerated by operations, sales, and maturities will need to be invested. If the Company invests during a tight credit market, investment returns could belower 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 futureliabilities. However, if the Company’s liquidity needs or general and specific liability profile unexpectedly changes, it may not be successful incontinuing to structure its investment portfolio in that manner. To the extent that the Company is unsuccessful in correlating its investment portfoliowith its expected liabilities, the Company may be forced to liquidate its investments at times and prices that are not optimal, which could have amaterial adverse effect on the performance of its investment portfolio. The Company refers to this risk as liquidity risk, which is when the fair value ofan 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 havedefault 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 contractualinterest or principal on their debt obligations.Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and politicalconditions and other factors beyond the Company’s control. Although the 36Table of ContentsCompany attempts to take measures to manage the risks of investing in a changing interest rate environment, the Company may not be able to mitigateinterest rate sensitivity effectively. A significant increase in interest rates could have a material adverse effect on the market value of the Company’sfixed 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 manyof the same factors that affect the performance of its fixed income investments, although those factors sometimes have the opposite effect on theperformance of the equity portfolio. Individual equity securities have unsystemic risk. The Company could experience market declines on theseinvestments. The Company also has systemic risk, which is the risk inherent in the general market due to broad macroeconomic factors that affect allcompanies 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 limitedpartnership interests but receives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell ortransfer its limited partnership interests without consent from the general partner. The Company’s returns could be negatively affected if the marketvalue of the partnerships declines. If the Company needs liquidity, it might be forced to liquidate other investments at a time when prices are notoptimal.See Note 5 of the notes to consolidated financial statements in Item 8 of Part II of this report for further information surrounding the Company’sinvestments as of December 31, 2017 and 2016.Deterioration in the debt and equity markets could result in a margin call which could have a material adverse effect on the Company’s financialcondition and/or results of operations.The collateral backing the Company’s margin borrowing facility currently consist of equity securities but could also include fixed income securities inthe future. Declines in financial markets could negatively impact the value of the Company’s collateral. Adverse changes in market value could resultin a margin call which would require the posting of additional collateral thereby reducing liquidity. Additionally, if such a margin call is not met, theCompany could be required to liquidate securities and incur realized losses or it could potentially decrease the Company’s borrowing capacity.Borrowings under the Company’s margin borrowing facility are based upon a variable rate of interest, which could result in higher expense in theevent of increases in interest rates.As of December 31, 2017, $72.2 million of the Company’s outstanding indebtedness bore interest at a rate that varies depending upon the Fed FundsEffective rate. If Fed Funds Effective rate rises, the interest rates on outstanding debt will increase resulting in increased interest payment obligationsunder the Company’s margin borrowing facility. 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 theSubordinated Notes could adversely affect the Company.In 2015, the Company sold $100 million aggregate principal amount of its 7.75% Subordinated Notes due in 2045. In 2017, the Company sold$130 million aggregate principal amount of its 7.875% Subordinated Notes due in 2047. The level of debt outstanding could adversely affect theCompany’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 availablefor working capital, capital expenditures, acquisitions and other purposes. 37Table of ContentsFurthermore, failure by the Company to make periodic payments related to its outstanding indebtedness could impact rating agencies and regulatorsassessment 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.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 keypersonnel 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 keyemployees to implement the Company’s business strategy. The Company believes there are a limited number of available, qualified executives in thebusiness lines in which it competes. The success of the Company’s initiatives and future performance depend, in significant part, upon the continuedservice 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 toattract and retain other talented personnel could impede the further implementation of the Company’s business strategy, which could have a materialadverse effect on its business. In addition, the Company does not currently maintain key man life insurance policies with respect to any of itsemployees.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, orfailure to comply with regulatory requirements. It is not always possible to deter or prevent employee misconduct and the precautions the Companytakes to prevent and detect this activity may not be effective in all cases. Resultant losses could adversely affect the Company’s business, results ofoperations, financial condition and reputation.Since the Company depends on professional general agencies, brokers, other insurance companies and other reinsurance companies for asignificant 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 395 professional general agencies that have specificquoting and binding authority and that in turn sell the Company’s insurance products to insureds through retail insurance brokers. The Company alsomarkets and distributes its reinsurance products through third-party brokers, insurance companies and reinsurance companies. A loss of all orsubstantially all of the business produced by any one of these general agencies, brokers, insurance companies or reinsurance companies could have anadverse 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 ofits 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 itsinsurance subsidiaries. Market conditions beyond the Company’s control determine the availability and cost of the reinsurance it purchases, whichmay affect the level of its business and profitability. The Company’s third party reinsurance facilities are generally subject to annual renewal. TheCompany 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 theCompany is unwilling to bear an increase in net risk exposures, it would have to reduce the amount of risk it underwrites. 38Table of ContentsThe 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; • volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes or terrorist attacks; • changes in loss reserves resulting from the general claims and legal environments as different types of claims arise and judicialinterpretations 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 investedassets 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 increasesand falling as that activity decreases. The property and casualty insurance industry historically is cyclical in nature. These fluctuations in demand andcompetition could produce underwriting results that would have a negative impact on the Company’s consolidated results of operations and financialcondition.The Company faces significant competitive pressures in its business that could cause demand for its products to fall and adversely affect theCompany’s profitability.The Company competes with a large number of other companies in its selected lines of business. The Company competes, and will continue tocompete, with major U.S. and non-U.S. insurers and other regional companies, as well as mutual companies, specialty insurance companies, reinsurancecompanies, underwriting agencies and diversified financial services companies. The Company’s competitors include, among others: AmericanInternational 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, NationwideInsurance, 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’sprofitability 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. Thisaccumulation 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 generalagencies. The Company’s professional general agencies are typically required to forward funds, net of commissions, to the Company following the endof each month. Consequently, the Company assumes a degree of credit risk on the aggregate amount of these balances that have been paid by theinsured 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 quarterlybasis. 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, thereinsurance treaties allow for funds to be withheld for longer periods as 39Table of Contentsspecified in the treaties. Consequently, the Company assumes a degree of credit risk on the aggregate amount of these balances that have beencollected 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-establishedguidelines, 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 authorityand that in turn sell the Company’s insurance products to insureds through retail insurance brokers. These professional general agencies can bindcertain risks without the Company’s initial approval. If any of these wholesale professional general agencies fail to comply with the Company’sunderwriting guidelines and the terms of their appointment, the Company could be bound on a particular risk or number of risks that were notanticipated when it developed the insurance products or estimated loss and loss adjustment expenses. Such actions could adversely affect theCompany’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 cashrequirements.Global Indemnity is a holding company and, as such, has no substantial operations of its own. The Company’s assets primarily consist of cash andownership of the shares of its direct and indirect subsidiaries. Dividends and other permitted distributions from insurance subsidiaries, which includepayment for equity awards granted by Global Indemnity to employees of such subsidiaries, are expected to be Global Indemnity’s sole source of fundsto 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 IndemnityReinsurance. The inability of Global Indemnity Reinsurance to pay dividends in an amount sufficient to enable Global Indemnity to meet its cashrequirements 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 believingthat 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 assetswould 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 isin 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 meetsuch 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 significantregulatory restrictions limiting their ability to declare and pay dividends, which must first pass through Global Indemnity Reinsurance before beingpaid to Global Indemnity. See “Regulation — U.S. Regulation” in Item 1 of Part I of this report. Also, see Note 19 of the notes to consolidated financialstatements 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 in2017.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 inthose states in which the Company’s insurance subsidiaries are licensed, as opposed to those states where its insurance subsidiaries write business on asurplus lines basis. The supervision and regulation relate to numerous aspects of the Company’s business and financial condition. The primary purposeof the supervision and regulation is the protection of the Company’s insurance policyholders and not its investors. The extent of regulation varies, butgenerally is governed by state statutes. These statutes 40Table of Contentsdelegate 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; • 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 byimpaired, 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 Companyfrom obtaining rate increases or taking other actions it might wish to take to increase profitability. Further, the Company may be unable to maintain allrequired licenses and approvals and its business may not fully comply with the wide variety of applicable laws and regulations or the relevantauthority’s interpretation of the laws and regulations. Also, regulatory authorities have discretion to grant, renew or revoke licenses and approvalssubject to the applicable state statutes and appeal process. If the Company does not have the requisite licenses and approvals (including in some statesthe requisite secretary of state registration) or do not comply with applicable regulatory requirements, the insurance regulatory authorities could stop ortemporarily suspend the Company from carrying on some or all of its activities or monetarily penalize the Company.The U.S. insurance regulatory framework has come under increased federal scrutiny and some state legislators have considered or enacted laws that mayalter or increase state regulation of insurance and reinsurance companies and holding companies. Moreover, the NAIC, which is an association of theinsurance commissioners of all 50 U.S. States and the District of Columbia, and state insurance regulators regularly re-examine existing laws andregulations. Changes in these laws and regulations or the interpretation of these laws and regulations could have a material adverse effect on theCompany’s business.Although the U.S. federal government has not historically regulated the insurance business, there have been proposals from time to time to imposefederal regulation on the insurance industry. In 2010, the President signed into law the Dodd-Frank Act. Among other things, the Dodd-Frank Actestablishes a Federal Insurance Office within the U.S. Department of the Treasury. The Federal Insurance Office initially has limited regulatoryauthority and is empowered to gather data and information regarding the insurance industry and insurers, including conducting a study for submissionto the U.S. Congress on how to modernize and improve insurance regulation in the U.S. Further, the Dodd-Frank Act gives the Federal Reservesupervisory authority over a number of financial services companies, including insurance companies, if they are designated by a two-thirds vote of aFinancial Stability Oversight Council as “systemically important.” While the Company does not believe that it is “systemically important,” as definedin 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 couldimpact requirements regarding the Company’s capital, liquidity, 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 impactingthe ways in which it conducts business, increasing compliance costs and duplicating state regulation, and could result in a competitive disadvantage,particularly relative to smaller insurers who may not be subject to the same level of regulation. 41Table of ContentsThe 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 83% of the Company’s total voting power. Thepercentage of the Company’s total voting power that Fox Paine & Company may exercise is greater than the percentage of the Company’s total sharesthat Fox Paine & Company beneficially owns because Fox Paine & Company beneficially owns all of the Company’s B ordinary shares, which haveten 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 votetogether 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 powerto, 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 66%); • ratify the appointment of the Company’s auditors; • increase the Company’s share capital; and • resolve to pay dividends or distributions;Subject to certain exceptions, Fox Paine & Company may also be able to prevent or cause a change of control. Fox Paine & Company’s control overthe Company, and Fox Paine & Company’s ability in certain circumstances to prevent or cause a change of control, may delay or prevent a change ofcontrol, 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 Aordinary 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 inthe consumer price index published by the US Department of Labor Bureau of Labor Statistics “CPI-U”, in exchange for management services. TheCompany has also agreed to pay a termination fee of cash in an amount to be agreed upon, plus reimbursement of expenses, upon the termination ofFox Paine & Company’s management services in connection with the consummation of a change of control transaction that does not involve FoxPaine & Company and its affiliates. The Company has also agreed to pay Fox Paine & Company a transaction advisory fee of cash in an amount to beagreed upon, plus reimbursement of expenses upon the consummation of a change of control transaction that does not involve Fox Paine & Companyand its affiliates in exchange for advisory services to be provided by Fox Paine & Company in connection therewith. Fox Paine & Company may in thefuture make significant investments in other insurance or reinsurance companies. Some of these companies may compete with the Company or itssubsidiaries. Fox Paine & Company is not obligated to advise the Company of any investment or business opportunities of which they are aware, andthey 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 alsootherwise 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 ofthe 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 Directorsdue to its controlling share ownership. The Company’s Board of Directors currently consists of nine directors, all of whom were identified andproposed for consideration for the Board of Directors by Fox Paine & Company. 42Table of ContentsThe Company’s Board of Directors, in turn, and subject to its fiduciary duties under Cayman Island law, appoints the members of the Company’s seniormanagement, who also have fiduciary duties to the Company. As a result, Fox Paine & Company effectively has the ability to control the appointmentof the members of the Company’s senior management and to prevent any changes in senior management that other shareholders or other members ofthe Board of Directors may deem advisable.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 toprovide similar services in the future, and the Company is unable to perform those services itself or is unable to secure replacement services, theCompany’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 itsstock price.In past years, global market and economic conditions were severely disrupted. New disruptions may potentially affect (among other aspects of theCompany’s business) the demand for and claims made under the Company’s products, the ability of customers, counterparties and others to establish ormaintain their relationships with the Company, its ability to access and efficiently use internal and external capital resources, the availability ofreinsurance protection, the risks the Company assumes under reinsurance programs, and the Company’s investment performance. Continued volatilityin the U.S. and other securities markets may adversely affect the Company’s stock price.If the Company is unable to maintain effective internal control over financial reporting, the Company’s business may be adversely affected, investorsmay lose confidence in the accuracy and completeness of the Company’s financial reports and the market price of the Company’s common stockcould be adversely affected.Global Indemnity is required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. TheSarbanes-Oxley Act requires that the Company evaluate and determine the effectiveness of its internal control over financial reporting,provide amanagement report on internal control over financial reporting and requires that the Company’s internal control over financial reporting be attested toby its independent registered public accounting firm. In 2014, the Company identified a material weakness in internal control over financial reporting,which was remediated in 2015.Global Indemnity may discover other material weaknesses in the future which may lead to its financial statements being materially misstated. As aresult, , the market price of the Company’s common stock could be adversely affected, and the Company could become subject to investigations by thestock exchange on which its securities are listed, the SEC, or other regulatory authorities, which could require additional financial and managementresources. The cost of remediating a potential material weakness could 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 andseveral of the Company’s U.S. and non-U.S. subsidiaries maintains investments and cash accounts in foreign currencies. At period-end, the Companyre-measures non-U.S. currency financial assets to their current U.S. dollar equivalent. The resulting gain or loss for foreign denominated investments isreflected in accumulated other comprehensive income in shareholders’ equity; whereas, the gain or loss on foreign denominated cash accounts isreflected in income during the period. Financial liabilities, if any, 43Table of Contentsare generally adjusted within the reserving process. However, for known losses on claims to be paid in foreign currencies, the Company re-measures theliabilities to their current U.S. dollar equivalent each period end with the resulting gain or loss reflected in income during the period. Foreign exchangerisk is reviewed as part of the Company’s risk management process. The Company may experience losses resulting from fluctuations in the values ofnon-U.S. currencies relative to the strength of the U.S. dollar, which could adversely impact the Company’s results of operations and financialcondition.The Company is incorporated in the Cayman Islands and some of its assets are located outside the United States. As a result, it might not be possiblefor 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 the Cayman Islands and some of its assets are located outside the United States. A judgment for thepayment of money rendered by a court in the United States based on civil liability would not be automatically enforceable in the Cayman Islands.There is no treaty between the Cayman Islands, or the United Kingdom (of which the Cayman Islands is an Overseas Territory) and the United Statesproviding for the reciprocal enforcement of foreign judgments. Similarly, judgments might not be enforceable in countries other than the United Stateswhere the Company has assets.Cayman Islands 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 ajurisdiction of the United States. It may be difficult for a shareholder to effect service of process within the U.S. or to enforce judgments obtainedagainst the Company in U.S. courts. The Company has irrevocably agreed that it may be served with process with respect to actions based on offers andsales of securities made in the U.S. by having Global Indemnity Group, Inc. be the Company’s U.S. agent appointed for that purpose. A Cayman courtmay impose civil liability on the Company or its directors or officers in a suit brought in the Cayman courts against the Company or such persons withrespect to a violation of U.S. federal securities laws, provided that the facts surrounding such violation would constitute or give rise to a cause of actionunder Cayman law.Risks Related to TaxationLegislative 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 enforcementthereof. Legislative action may be taken by the U.S. Congress which, if ultimately enacted, could, among other things, override tax treaties upon whichthe Company relies or could broaden the circumstances under which the Company would be considered a U.S. resident, any of which could materiallyand adversely affect the Company’s effective tax rate and cash tax position.Recent changes in U.S. tax law may increase taxes of the Company’s U.S. Subsidiaries.On December 22, 2017, the United States enacted a budget reconciliation act amending the Internal Revenue Code of 1986. The TCJA containsprovisions that can materially affect the tax treatment of the Company’s U.S. subsidiaries. Among other things, the TCJA reduces the U.S. corporateincome tax rate to 21 percent, imposes a 10 percent base erosion minimum tax (“BEAT”) on income of a U.S. corporation determined without regard tocertain otherwise deductible payments made to certain foreign affiliates (including interest payments as well as gross premium or other considerationpaid or accrued to a related foreign reinsurance company for reinsurance), and limits the deductibility of interest expense and executive compensation.While the Company is continuing to study the impact of the TCJA, it is possible that the TCJA may reduce the benefits of lower effective tax ratesenjoyed as a non-U.S. company, add expense and have an adverse effect on 44Table of Contentsthe Company’s results of operations. Further, in absence of guidance on various uncertainties and ambiguities in the application of certain provisionsof the TCJA, the Company will use what it believes are reasonable interpretations and assumptions in applying the TCJA, but it is possible that theTreasury or the IRS could issue subsequent regulations or guidance that differ from the Company’s prior interpretations and assumptions, which couldmaterially affect the Company’s effective tax rate and cash tax position.Interest paid by the Company’s U.S. subsidiaries to their foreign affiliates is subject to multiple tax-related risks including risks that the interest maybecome subject to a minimum U.S. federal income tax under BEAT, subject to a 30% U.S. withholding tax, subject to foreign income tax, andnon-deductible in whole or in part for U.S. federal income tax purposes.The TCJA has created new rules that limit the deductibility of interest for U.S. federal income tax purposes, which may cause some or all of thededuction for interest paid by the Company’s U.S. subsidiaries to be denied for U.S. federal income tax purposes. Second, to the extent interest paid isdeductible by the Company’s U.S. Subsidiaries, such U.S. subsidiaries may become subject to a minimum U.S. federal income tax charge under BEAT.Third, should interest paid by the Company’s U.S. subsidiaries to their foreign affiliates become ineligible under an applicable income tax treatybetween the United States and the recipient’s jurisdiction of tax residence, such interest could become subject to a 30% U.S. withholding tax. Finally,interest paid by the Company’s U.S. subsidiaries to their foreign affiliates may become subject to income tax in the recipient’s jurisdiction of taxresidence, without regard to whether there is any corresponding tax deduction in the United States, potentially subjecting such interest payments todouble taxation.Global Indemnity or Global Indemnity Reinsurance may be subject to U.S. tax that may have a material adverse effect on Global Indemnity’s orGlobal Indemnity Reinsurance’s results of operations.Global Indemnity is a Cayman company and Global Indemnity Reinsurance is a Bermuda company. The Company seeks to manage its business in amanner designed to reduce the risk that Global Indemnity and Global Indemnity Reinsurance will be treated as being engaged in a U.S. trade orbusiness for U.S. federal income tax purposes. However, because there is considerable uncertainty as to the activities that constitute being engaged in atrade or business within the United States, the Company cannot be certain that the U.S. Internal Revenue Service will not contend successfully thatGlobal Indemnity or Global Indemnity Reinsurance is or has been engaged in a trade or business in the United States. If Global Indemnity or GlobalIndemnity Reinsurance were considered to be engaged in a business in the United States, the Company could be subject to U.S. corporate income andbranch profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case its results of operations could be materiallyadversely affected.U.S. persons who hold shares in the Company may be subject to U.S. income taxation at ordinary income rates on the Company’s undistributedearnings and profits.Controlled Foreign Corporation (“CFC”) Status: The Company’s organizational documents provide, subject to certain exceptions applicable to FoxPaine Company and its affiliates, that if the shares owned, directly, indirectly or by attribution, by any person would otherwise represent more than9.5% of the aggregate voting power of all the Company’s shares, the voting rights attached to those shares will be reduced so that such person may notexercise and is not attributed more than 9.5% of the total voting power of the shares. These provisions were intended to reduce the likelihood that ashareholder of the Company would be a “10 % U.S. Shareholder” as defined below, and that the Company and its non-US subsidiaries are treated asCFCs in any taxable year.Prior to the enactment of the TCJA a “10 % U.S. Shareholder” was any shareholder that is a U.S. person that owns directly, indirectly or by attribution,10% or more of the total voting power of the Company. However, for 45Table of Contentstaxable years beginning after December 31, 2017, the TCJA expands the definition of a “10 % U.S. Shareholder” to include U.S. persons that owndirectly, indirectly or by attribution, 10% or more of either the total voting power of the Company or total value of the stock of the Company. Byexpanding the definition to also reference value, the TCJA will increase the likelihood that the Company and its non-U.S. subsidiaries will be treatedas CFCs in 2018 and in any subsequent taxable years.If the Company were considered a CFC, any 10 % U.S. Shareholder may be subject to current U.S. income taxation at ordinary income tax rates on allor a portion of the Company’s undistributed earnings and profits attributable to the Company’s insurance and reinsurance income, includingunderwriting and investment income. Any gain realized on a sale of common shares by such shareholder may also be taxed as a dividend to the extentof the Company’s earnings and profits attributed to such shares during the period that the shareholder held the shares and while the Company was aCFC (with certain adjustments).Related Person Insurance Income: If the related person insurance income (“RPII”) of any of the Company’s non-U.S. insurance subsidiaries were toequal or exceed 20% of that subsidiary’s gross insurance income in any taxable year, and U.S. persons were treated as owning 25% or more of thesubsidiary’s stock, by vote or value, a U.S. person who directly or indirectly owns any common shares on the last day of such taxable year on which the25% threshold is met would be required to include in income for U.S. federal income tax purposes that person’s ratable share of that subsidiary’s RPIIfor the taxable year. The amount to be included in income is determined as if the RPII were distributed proportionately to U.S. shareholders on thatdate, regardless of whether that income is distributed. The amount of RPII to be included in income is limited by such shareholder’s share of thesubsidiary’s current-year earnings and profits, and possibly reduced by the shareholder’s share of prior year deficits in earnings and profits. The amountof RPII earned by a subsidiary will depend on several factors, including the identity of persons directly or indirectly insured or reinsured by thatsubsidiary. Although the Company does not believe that the 20% threshold will be met for its non-U.S. insurance subsidiaries, some of the factors thatmight affect that determination in any period may be beyond the Company’s control. Consequently, the Company cannot assure that it will not exceedthe RPII threshold in any taxable year.If a U.S. person disposes of shares in a non-U.S. insurance corporation that had RPII (even if the 20% threshold was not met) and the 25% threshold ismet at any time during the five-year period ending on the date of disposition, and the U.S. person owned any shares at such time, any gain from thedisposition will generally be treated as a dividend to the extent of the holder’s share of the corporation’s undistributed earnings and profits that wereaccumulated during the period that the holder owned the shares (possibly whether or not those earnings and profits are attributable to RPII). Inaddition, the shareholder will be required to comply with specified reporting requirements, regardless of the amount of shares owned. The Companybelieves that those rules should not apply to a disposition of common shares because the Company is not itself directly engaged in the insurancebusiness. The Company cannot assure, however, that the IRS will not successfully assert that those rules apply to a disposition of its shares.U.S. persons who hold shares in the Company could be subject to adverse tax consequences if the Company is considered a passive foreigninvestment company for U.S. federal income tax purposes.If the Company is considered a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, a U.S. holder who owns shares inthe Company could be subject to adverse tax consequences, including a greater tax liability than might otherwise apply and an interest charge oncertain taxes that are deferred as a result of the Company’s non-U.S. status. The Company does not believe that the it was a PFIC for U.S. federal incometax purposes for the taxable year ending on December 31, 2017 because the Company believes that it should be considered, through Global IndemnityReinsurance Company, Ltd., to be engaged in the active conduct of a global insurance and reinsurance business. The Company cannot provideassurance that the Company will not be deemed to be a PFIC by the IRS.Further, TCJA limited the exception applicable to corporations engaged in the active conduct of an insurance business by requiring that the applicableinsurance liabilities of such corporation exceed 25 percent of its total 46Table of Contentsassets for the exception to apply. It is unclear regarding how liability reserves are measured and taken into account for purposes of determining theapplicable insurance liabilities. In addition, there are no currently effective Treasury Regulations regarding the application of the PFIC provisions toan insurance company, although proposed regulations were published in April 2015, which do not take into account the recent changes to the PFICprovisions by the TCJA. Due to ambiguities in the application of the relevant provisions of the TCJA and the PFIC provisions in general, there can beno assurance with respect to the Company’s status as a PFIC for the current or any future taxable years of the Company.The Organization for Economic Cooperation and Development (“OECD”) and the European Union (“EU”) are considering measures that mightencourage 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. Itis possible that jurisdictions in which the Company does business could react to the BEPS initiative or their own concerns by enacting tax legislationthat could adversely affect the Company or its shareholders. In addition, the EU issued its Anti-Tax Avoidance Directive in 2016, which requires itsmember states to adopt specific tax reform measures by 2019. The implementation of these measures could have a negative impact on the Company.A number of multilateral organizations, including the EU and the OECD have, in recent years, expressed concern about some countries notparticipating in adequate tax information exchange arrangements and have threatened those that do not agree to cooperate with punitive sanctions bymember 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 countrieswhere 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 resultsof operations.The Company and its subsidiaries which have been incorporated under the laws of the Cayman Islands as exempted companies and, as such, obtainedan undertaking from the Governor in Council of the Cayman Islands substantially that, for a period of 20 years from the date of such undertaking,which is February 9, 2016, no law that is enacted in the Cayman Islands imposing any tax to be levied on profit or income or gains or appreciationshall 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 ofwithholding, on the Company’s ordinary shares. This undertaking would not, however, prevent the imposition of taxes on any person ordinarilyresident in the Cayman Islands or any company in respect of its ownership of real property or leasehold interests in the Cayman Islands. Given thelimited 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-yearperiod.Global Indemnity Reinsurance was formed in 2006 through the amalgamation of the Company’s non-U.S. operations. The Company received anassurance from the Bermuda Minister of Finance, under the Bermuda Exempted Undertakings Tax Protection Act of 1966, as amended, that if anylegislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or anytax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to Global Indemnity Reinsurance or any ofits operations, shares, debentures or other obligations through March 31, 2035. Given the limited duration of the assurance, the Company cannot becertain 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 mayhave a material adverse effect on its results of operations. 47Table of ContentsGlobal Indemnity or Global Indemnity Reinsurance may be subject to U.S. tax that may have a material adverse effect on Global Indemnity’s orGlobal Indemnity Reinsurance’s results of operations.Global Indemnity is a Cayman company and Global Indemnity Reinsurance is a Bermuda company. The Company seeks to manage its business in amanner designed to reduce the risk that Global Indemnity and Global Indemnity Reinsurance will be treated as being engaged in a U.S. trade orbusiness for U.S. federal income tax purposes. However, because there is considerable uncertainty as to the activities that constitute being engaged in atrade or business within the United States, the Company cannot be certain that the U.S. Internal Revenue Service will not contend successfully thatGlobal Indemnity or Global Indemnity Reinsurance is or has been engaged in a trade or business in the United States. If Global Indemnity or GlobalIndemnity Reinsurance were considered to be engaged in a business in the United States, the Company could be subject to U.S. corporate income andbranch profits taxes on the portion of its earnings effectively connected to such U.S. business, in which case its results of operations could be materiallyadversely affected.The impact of the Letters of Commitment by the Cayman Islands and Bermuda or other concessions to the Organization for Economic Co-operationand Development to eliminate harmful tax practices is uncertain and could adversely affect the tax status of the Company’s subsidiaries in theCayman Islands or Bermuda.The Organization for Economic Co-operation and Development, which is commonly referred to as the OECD, has published reports and launched aglobal dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed atcounteracting the effects of tax havens and preferential tax regimes in countries around the world. The Cayman Islands and Bermuda are not listed asuncooperative tax haven jurisdictions because each had previously committed itself to eliminate harmful tax practices and to embrace international taxstandards for transparency, exchange of information and the elimination of any aspects of the regimes for financial and other services that attractbusiness with no substantial domestic activity. The Company is not able to predict what changes will arise from the OECD in the future or whethersuch 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 certain loans and notesissued 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 contendsuccessfully 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 allprevious years for which the statute of limitations has not expired, with interest and penalties. Such a result may have a material adverse effect on theCompany’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, U.A.I. (Ireland) II Unlimited Company, GBLI (Ireland) Limited, and Global Indemnity Group Limited are companiesincorporated under the laws of Ireland. The companies are resident taxpayers fully subject to Irish corporate income tax of 12.5% on any tradingincome and 25.0% on any non-trading income, including interest and dividends from foreign companies. The Company believes it has, to date,managed its operations in such way that there will not be any material taxable income generated in Ireland under Irish law for these entities. 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. 48Table of ContentsItem 1B.UNRESOLVED STAFF COMMENTSNone. Item 2.PROPERTIESAt December 31, 2017, office space leased in Bala Cynwyd, Pennsylvania, holds the Commercial Lines’ principal executive offices andheadquarters. Additional office space leased in California, Georgia, Illinois, and Texas, serve as field offices for Commercial Lines. Some of the officespace in California also serves as office space for Commercial Lines’ claims operations. Office space in Hamilton, Bermuda used by ReinsuranceOperations is shared with one of Global Indemnity Reinsurance’s service providers per an agreement between the two. Office space leased in Arizona,and Nebraska, is used by Personal Lines. Office space leased in Cavan, Ireland is used to support the operating needs of the Insurance and ReinsuranceOperations. The leases for the properties listed are held by various Company subsidiaries. The Company believes the properties listed are suitable andadequate to meet its needs. Item 3.LEGAL PROCEEDINGSThe Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company purchased insurance andreinsurance coverage for risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coveragethat the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that theresolution 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, andtherefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsuranceindustry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business. Item 4.MINE SAFETY DISCLOSURESNone. 49Table of ContentsPART II Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket for the Company’s A Ordinary SharesThe Company’s A ordinary shares, par value $0.0001 per share, began trading on the NASDAQ Global Select Market, formerly the NASDAQ NationalMarket, under the symbol “UNGL” on December 16, 2003. On March 14, 2005 the Company changed its symbol to “INDM.” On July 6, 2010, theCompany changed its symbol to “GBLI” as part of a redomestication transaction whereby all shares of “INDM” were replaced with shares of “GBLI” ona one-for-two basis. On November 7, 2016, in connection with a redomestication from Ireland to Cayman Islands, all of Global Indemnity plc’sordinary shares were cancelled and replaced with one ordinary share of Global Indemnity Limited on a one for one basis. The ordinary shares of GlobalIndemnity Limited continue to trade under the symbol “GBLI”. The following table sets forth, for the periods indicated, the high and low intraday salesprices of the Company’s A ordinary shares as reported by the NASDAQ Global Select Market. High Low Fiscal Year Ended December 31, 2017: First Quarter $40.96 $34.00 Second Quarter 41.55 36.04 Third Quarter 42.96 37.27 Fourth Quarter 49.91 40.11 Fiscal Year Ended December 31, 2016: First Quarter $32.07 $27.39 Second Quarter 32.09 20.96 Third Quarter 31.77 26.55 Fourth Quarter 38.97 29.00 There is no established public trading market for the Company’s B ordinary shares, par value $0.0001 per share.As of February 27, 2018, there were 4 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 622 as of February 27, 2018. The Companybelieves 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 areheld in “street name” by brokers and others on behalf of individual owners.See Note 16 to the consolidated financial statements in Item 8 of Part II of this report for information regarding securities authorized under theCompany’s equity compensation plans. 50Table of ContentsPerformance of the Company’s A Ordinary SharesThe following graph represents a five-year comparison of the cumulative total return to shareholders for the Company’s A ordinary shares and stock ofcompanies included in the NASDAQ Insurance Index and NASDAQ Composite Index, which the Company believes are the most comparative indexes. 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 Global Indemnity Limited $100.0 $114.3 $128.2 $131.1 $172.7 $189.9 NASDAQ Insurance Index 100.0 128.8 139.8 148.8 172.1 177.6 NASDAQ Composite Index 100.0 138.3 156.8 165.8 178.3 228.6 Recent Sales of Unregistered SecuritiesNone.Company Purchases of Ordinary SharesThe Company’s Share Incentive Plan allows employees to surrender A ordinary shares as payment for the tax liability incurred upon the vesting ofrestricted stock that was issued under the Share Incentive Plan. During 2017, the Company purchased an aggregate 29,551 of surrendered A ordinaryshares from employees for $1.2 million. All shares purchased from employees are held as treasury stock and recorded at cost until formally retired.On December 29, 2017, Global Indemnity acquired 3,397,031 of its A ordinary shares for approximately $83.0 million in the aggregate (approximately$24.44 per share) from former investors in vehicles managed by Fox Paine & Company, LLC.See Note 13 to the consolidated financial statements in Item 8 of Part II of this report for additional information on the retirement of the Company’s Aordinary shares as well as a tabular disclosure of the Company’s share repurchases by month.Dividend PolicyOn December 27, 2017, the Company announced the adoption of a dividend program with an anticipated initial dividend rate of $0.25 per share perquarter ($1.00 per share per year). 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.The Company did not declare or pay cash dividends on any class of its ordinary shares in 2017 or 2016.The Company is a holding company and has no direct operations. The ability of Global Indemnity Limited to pay dividends is subject to CaymanIslands regulations and depends, in part, on the ability of its subsidiaries to pay 51Table of Contentsdividends. Global Indemnity Reinsurance and the U.S. insurance subsidiaries are subject to significant regulatory restrictions limiting their ability todeclare and pay dividends. See “Management’s Discussion and Analysis of Financial Condition — Liquidity and Capital Resources — Sources andUses of Funds” in Item 7 of Part II of this report for dividend limitation and Note 19 of the notes to the consolidated financial statement in Item 8 ofPart II of this report for the dividends declared and paid by the U.S. insurance subsidiaries and Global Indemnity Reinsurance in 2017 and themaximum amount of distributions that they could pay as dividends in 2018.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, orwould 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 aggregateof its liabilities and its issued share capital and share premium accounts.For 2018, the Company believes that Global Indemnity Reinsurance should have sufficient liquidity and solvency to pay dividends. In the future, theCompany anticipates using dividends from Global Indemnity Reinsurance to fund obligations of Global Indemnity. Global Indemnity Reinsurance isprohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital or 25% or more of its total statutory capital andsurplus as set out in its previous year’s statutory financial statements, and any application for such approval must include such information as the BMAmay require. Based upon the total statutory capital plus the statutory surplus as set out in its 2017 statutory financial statements that will be filed in2018, Global Indemnity Reinsurance could pay a dividend of up to $227.1 million in 2018 without requesting BMA approval. Global IndemnityReinsurance is dependent on receiving distributions from its subsidiaries in order to pay the full dividend in cash. In 2017, Global IndemnityReinsurance declared a dividend of $120.0 million to its parent, Global Indemnity. Of this amount, $100.0 million was paid to Global Indemnity inDecember, 2017. As of December 31, 2017, accrued dividends were $20.0 million.Barbados resident companies are subject to a 15% withholding tax on dividends to a nonresident company or individual, with a 25% rate for dividendspaid out of tax-exempt profits. Dividends paid by Barbados resident companies classified as International Business Companies (“IBCs”) tononresidents are exempt from withholding tax. GBLI (Barbados) Limited is an IBC.In 2017, profit distributions (not in respect to liquidations) by the Luxembourg Companies were generally subject to Luxembourg dividendwithholding tax at a rate of 15%, unless a domestic law exemption or a lower tax treaty rate applies. Dividends paid by any of the LuxembourgCompanies to their Luxembourg resident parent company are exempt from Luxembourg dividend withholding tax, provided that at the time of thedividend distribution, the resident parent company has held (or commits itself to continue to hold) 10% or more of the nominal paid up capital of thedistributing entity or, in the event of a lower percentage participation, a participation having an acquisition price of EUR 1.2 million or more for aperiod 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’sDiscussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sources and Uses of Funds” in Item 7of Part II, and Note 19 of the notes to the consolidated financial statements in Item 8 of Part II of this report. 52Table of ContentsItem 6.SELECTED FINANCIAL DATAThe following table sets forth selected consolidated historical financial data for the Company and should be read together with the consolidatedfinancial 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 pershare data) For the Years Ended December 31, 2017 2016 2015 2014 2013 Consolidated Statements of Operations Data: Gross premiums written $516,334 $565,845 $590,233 $291,253 $290,723 Net premiums written 450,180 470,940 501,244 273,181 271,984 Net premiums earned 438,034 468,465 504,143 268,519 248,722 Net realized investment gains (losses) 1,576 21,721 (3,374) 35,860 27,412 Total revenues 485,515 534,514 538,778 333,755 319,134 Net income (loss) (9,551) 49,868 41,469 62,856 61,690 Per share data: Net income (loss) available to commonshareholders (1) $(9,551) $49,868 $41,469 $62,856 $61,690 Basic (0.55) 2.89 1.71 2.50 2.46 Diluted (0.55) 2.84 1.69 2.48 2.45 Weighted-average number of shares outstanding Basic 17,308,663 17,246,717 24,253,657 25,131,811 25,072,712 Diluted 17,308,663 17,547,061 24,505,851 25,331,420 25,174,015 (1)For the year ended December 31, 2017, “diluted” loss per share is the same as “basic” loss per share since there was a net loss for the period. Consolidated Insurance Operating Ratios based onthe Company’s GAAP Results: (1) 2017 2016 2015 2014 2013 Loss ratio (2) (3) 61.5 56.4 54.6 51.2 53.5 Expense ratio 41.9 42.0 39.9 40.8 42.5 Combined ratio (2) (3) 103.4 98.4 94.5 92.0 96.0 Net / gross premiums written 87.2 83.2 84.9 93.8 93.6 Financial Position as of Last Day of Period: Total investments and cash and cash equivalents $1,533,900 $1,501,819 $1,516,093 $1,498,009 $1,567,415 Reinsurance receivables, net of allowance 105,060 143,774 115,594 125,718 197,887 Total assets 2,001,669 1,972,946 1,957,294 1,930,033 1,911,779 7.75% Subordinated notes payable 96,619 96,497 96,388 — — 7.875% Subordinated notes payable 125,864 — — — — Margin borrowing facility 72,230 66,646 75,646 174,673 100,000 Unpaid losses and loss adjustment expenses 634,664 651,042 680,047 675,472 779,466 Total shareholders’ equity 718,394 797,951 749,926 908,290 873,280 Book value per share 50.57 45.42 42.98 35.86 34.65 53Table of Contents(1)The Company’s insurance operating ratios are GAAP financial measures that are generally viewed in the insurance industry as indicators ofunderwriting profitability. The loss ratio is the ratio of net losses and loss adjustment expenses to net premiums earned. The expense ratio is theratio 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: • 2017 loss and combined ratios reflect a $53.9 million reduction of net losses and loss adjustment expenses • 2016 loss and combined ratios reflect a $57.3 million reduction of net losses and loss adjustment expenses • 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 expensesSee “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 2017, 2016, 2015, 2014, and 2013 include $61.1 million, $72.1 million, $45.0 million,$14.0 million, and $10.0 million, respectively, of catastrophic losses on a current accident year basis from the Insurance Operations. See “Resultsof 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. Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with theconsolidated financial statements and accompanying notes of Global Indemnity included elsewhere in this report. Some of the information containedin this discussion and analysis or set forth elsewhere in this report, including information with respect to the Company’s plans and strategy, constitutesforward-looking statements that involve risks and uncertainties. Please see “Cautionary Note Regarding Forward-Looking Statements” at the end ofthis 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 importantfactors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein.Recent DevelopmentsOn March 23, 2017, the Company issued Subordinated Notes due in 2047 in the aggregate principal amount of $130.0 million through anunderwritten public offering. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additionalinformation on this debt issuance.In April, 2017, the Company entered into a $50 million commitment to purchase an alternative investment vehicle comprised of stressed and distresseddebt instruments. As of December 31, 2017, the Company has funded $16.5 million of this commitment leaving $33.5 million as unfunded. 54Table of ContentsThe Company was impacted by losses from Hurricanes Harvey, Irma, and Maria as well as the California wildfires during the third and fourth quarter of2017. The Company’s current estimate of net loss is approximately $58.7 million from Hurricanes Harvey, Irma, and Maria and the California wildfires.Actual losses from these events may vary materially from the Company’s current estimate due to the inherent uncertainties resulting from severalfactors, including the preliminary nature of the loss data available and potential inaccuracies and inadequacies of the data provided.Effective September 16, 2017, David J.W. Bruce, Jason B. Hurwitz, and Arik Rashkes were appointed to the Company’s Board of Directors.On December 29, 2017, Global Indemnity acquired 3,397,031 of its A ordinary shares for approximately $83.0 million in the aggregate (approximately$24.44 per share) from former investors in vehicles managed by Fox Paine & Company, LLC. The Company paid an $11.0 million advisory fee to FoxPaine in connection with the redemption as well as other services performed. The Company sold $99.0 million of securities from its consolidatedinvestment portfolio during December, 2017 to provide funding for the redemption and other obligations.During the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend program. Although subject to the absolute discretion of theBoard of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability ofdeclaring a quarterly dividend, the Company currently anticipates an initial dividend rate of $0.25 per share per quarter ($1.00 per share per year).On December 21, 2017, A.M. Best affirmed the financial strength rating of “A” (Excellent) for Global Indemnity Reinsurance and its U.S. insurancesubsidiaries.On December 22, 2017, the United States enacted a budget reconciliation act amending the Internal Revenue Code of 1986. The TCJA containsprovisions that can materially affect the tax treatment of the Company’s U.S. subsidiaries. Among other things, the TCJA reduces the U.S. corporateincome tax rate to 21 percent, imposes a 10 percent base erosion minimum tax on income of a U.S. corporation determined without regard to certainotherwise deductible payments made to certain foreign affiliates (including interest payments as well as gross premium or other consideration paid oraccrued to a related foreign reinsurance company for reinsurance), and significantly limits the deductibility of interest expenses.As a result of the enactment of the TCJA, effective January 1, 2018, premiums being ceded under the quota share arrangement may potentially besubject to a 10% BEAT tax. As a result, Global Indemnity Reinsurance and the Company’s U.S. insurance companies have agreed to terminate thequota share arrangement effective January 1, 2018. Regulatory approval is still pending.OverviewThe Company operates and manages its business through three business segments: Commercial Lines, Personal Lines, and Reinsurance Operations.The Company’s Commercial Lines segment distribute property and casualty insurance products through a group of approximately 120 professionalgeneral agencies that have limited quoting and binding authority, as well as a number of wholesale insurance brokers who in turn sell the Company’sinsurance 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 includesproperty and general liability products for small commercial businesses 55Table of Contentsdistributed through a select network of wholesale general agents with specific binding authority; 2) United National, which includes property, generalliability, and professional lines products distributed through program administrators with specific binding authority; 3) Diamond State, which includesproperty, casualty, and professional lines products distributed through wholesale brokers and program administrators with specific binding authority;and 4) Vacant Express, which primarily insures dwellings which are currently vacant, undergoing renovation, or are under construction and isdistributed through aggregators, brokers, and retail agents.The Company’s Personal Lines segment, via American Reliable, offers specialty personal lines and agricultural coverage through a group ofapproximately 275 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, currently provides reinsurance solutionsthrough brokers and on a direct basis. Global Indemnity Reinsurance is a Bermuda based treaty reinsurer for specialty property and casualty insuranceand reinsurance companies. Global Indemnity Reinsurance conducts business in Bermuda and is focused on using its capital capacity to writecatastrophe-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 investmentportfolio, net of fees paid for investment management services. The amount of insurance premiums that the Company receives is a function of theamount 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 otheroperating expenses, interest, investment expenses, and income taxes. Losses and loss adjustment expenses are estimated by management and reflect theCompany’s best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates. The Company recordsits best estimate of losses and loss adjustment expenses considering both internal and external actuarial analyses of the estimated losses the Companyexpects 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 theCompany writes, net of ceding commissions earned from reinsurers. Other underwriting expenses consist primarily of personnel expenses and generaloperating expenses related to underwriting activities. Corporate and other operating expenses are comprised primarily of outside legal fees, otherprofessional and accounting fees, directors’ fees, management fees & advisory fees, and salaries and benefits for company personnel whose servicesrelate to the support of corporate activities. Interest expense is primarily comprised of amounts due on outstanding debt.Critical Accounting Estimates and PoliciesThe Company’s consolidated financial statements are prepared in conformity with GAAP, which require it to make estimates and assumptions thataffect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during thereporting periods. See Note 3 of the notes to consolidated financial statements contained in Item 8 of Part II of this report. Actual results could differfrom those estimates and assumptions.The Company believes that of the Company’s significant accounting policies, the following may involve a higher degree of judgment and estimation. 56Table of ContentsLiability for Unpaid Losses and Loss Adjustment ExpensesAlthough variability is inherent in estimates, the Company believes that the liability for unpaid losses and loss adjustment expenses reflectsManagement’s best estimate for future amounts needed to pay losses and related loss adjustment expenses and the impact of its reinsurance coveragewith respect to insured events.In developing loss and loss adjustment expense (“loss” or “losses”) reserve estimates for the U.S. Insurance Operations, the Company’s actuariesperform detailed reserve analyses each quarter. To perform the analysis, the data is organized at a “reserve category” level. A reserve category can be aline of business such as commercial automobile liability, or it can be a particular type of claim such as construction defect. The reserves within areserve category level are characterized as long-tail or short-tail. For long-tail business, it will generally be several years between the time the businessis written and the time when all claims are settled. The Company’s long-tail exposures include general liability, professional liability, productsliability, 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, UnitedNational, Diamond State, American Reliable, and Vacant Express. 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 andshort-tail exposures. Every reserve category is analyzed by the Company’s actuaries each quarter. Management is responsible for the finaldetermination of loss reserve selections.Loss reserve estimates for the Company’s Reinsurance Operations are developed by independent, external actuaries; at least annually; however,management is responsible for the final determination of loss reserve selections. The data for this analysis is organized by treaty and treaty year. Aswith the Company’s reserves for its Insurance Operations, reserves for its Reinsurance Operations are characterized as long-tail or short-tail. Long-tailexposures include workers compensation, professional liability, and excess and umbrella liability. Short-tail exposures are primarily catastropheexposed property and marine accounts.In addition to the Company’s internal reserve analysis, independent external actuaries perform a full, detailed review of the Insurance and ReinsuranceOperations’ reserves annually. The Company reviews both the internal and external actuarial analyses in determining its reserve position.The actuarial methods used to project ultimate losses for both long-tail and short-tail reserve categories 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 expectedchanges in paid loss. Selection of the paid loss pattern requires analysis of several factors including the impact of inflation on claims costs, the rate atwhich claims professionals make claim payments and close claims, the impact of judicial decisions, the impact of underwriting changes, the impact oflarge claim payments and other factors. Claim cost inflation itself requires evaluation of changes in the cost of repairing or replacing property, changesin the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors. Because this methodassumes 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. 57Table of ContentsFor many reserve categories, paid loss data for recent periods may be too immature or erratic for reliable loss projections. This situation often exists forlong-tail exposures. In addition, changes in the factors described above may result in inconsistent payment patterns. Finally, estimating the paid losspattern 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 methoduses more data (case reserves in addition to paid losses) than the Paid Development method, the incurred development patterns may be less variablethan paid development patterns. However, selection of the incurred loss pattern requires analysis of all of the factors listed in the description of the PaidDevelopment method. In addition, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place and theuse of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature pointavailable.The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. This methodmay be useful if loss development patterns are inconsistent, losses emerge very slowly, or there is relatively little loss history from which to estimatefuture losses. The selection of the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis ofinflationary 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 Ratiomethod. This method normally determines expected loss ratios similar to the method used for the Expected Loss Ratio method and requires analysis ofthe same factors described above. The method assumes that only future losses will develop at the expected loss ratio level. The percent of paid loss toultimate 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 patternfrom the Paid Development method requires consideration of all factors listed in the description of the Paid Development method. The estimate oflosses yet to be paid is added to current paid losses to estimate the ultimate loss for each accident year. This method will react very slowly if actualultimate 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 lossesexcept that it uses case incurred losses. The use of case incurred losses instead of paid losses can result in development patterns that are less variablethan 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 incurred claims by an estimated ultimate average loss for each accident year toproduce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this methodcan provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively. Inaddition, this method can more directly account for changes in coverage that impact the number and size of claims. However, this method can bedifficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes. Projecting theultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the Company, the impact ofjudicial decisions, the impact of underwriting changes and other factors. Estimating the ultimate average loss requires analysis of the impact of largelosses 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 ofwage replacement, judicial decisions, legislative changes and other factors.For many reserve categories, especially those that can be considered long-tail, a particular accident year may not have a sufficient volume of paidlosses to produce a statistically reliable estimate of ultimate losses. In such a 58Table of Contentscase, the Company’s actuaries typically assign more weight to the Incurred Development method than to the Paid Development method. As claimscontinue to settle and the volume of paid losses increases, the actuaries may assign additional weight to the Paid Development method. For most of theCompany’s reserve categories, even the case incurred losses for accident years that are early in the claim settlement process will not be of sufficientvolume to produce a reliable estimate of ultimate losses. In these cases, the Company will not assign any weight to the Paid and Incurred Developmentmethods and will use the Bornhuetter-Ferguson and Expected Loss Ratio methods. For short-tail exposures, the Paid and Incurred Developmentmethods can often be relied on sooner primarily because the Company’s history includes a sufficient number of accident years to cover the entireperiod over which paid and incurred losses are expected to change. However, the Company may also assign weights to the Expected Loss Ratio,Bornhuetter-Ferguson and Average Loss methods for short-tail exposures when developing estimates of ultimate losses.Generally, reserves for long-tail lines give more weight to the Expected Loss Ratio method in the more recent immature years. As the accident yearsmature, weight shifts to the Bornhuetter-Ferguson methods and eventually to the Incurred and/or Paid Development method. Claims related toumbrella business are usually reported later than claims for other long-tail lines. For umbrella business, the shift from the Expected Loss Ratio methodto the Bornhuetter-Ferguson methods to the Loss Development method may be more protracted than for most long-tailed lines. Reserves for short-taillines 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 methodstailored to the characteristics of the specific situation. Such reserve categories include losses from construction defect and A&E claims.For construction defect losses, the Company’s actuaries organize losses by the year in which they were reported to develop an IBNR provision fordevelopment on known cases. To estimate losses from claims that have occurred but have not yet been reported to the Company (pure IBNR), variousextrapolation techniques are applied to the pattern of claims that have been reported to estimate the number of claims yet to be reported. This processrequires analysis of several factors including the rate at which policyholders report claims to the Company, the impact of judicial decisions, the impactof underwriting changes and other factors. An average claim size is determined from past experience and applied to the number of unreported claims toestimate 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, bankruptcy filings as a result of asbestos-related liabilities, and judicial interpretations that often expand theories ofrecovery 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 asbestosmanufacturers. 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 foundin most comprehensive general liability policies. The Company continues to closely monitor its asbestos exposure and make adjustments where theyare warranted.Reserve analyses performed by the Company’s internal and external actuaries result in actuarial point estimates. The results of the detailed reservereviews were summarized and discussed with the Company’s senior management to determine the best estimate of reserves. This group consideredmany factors in making this decision. The factors included, but were not limited to, the historical pattern and volatility of the actuarial indications, thesensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency ofcase reserving practices, changes in the Company’s pricing and underwriting, and overall pricing and underwriting trends in the insurance market. 59Table of ContentsManagement’s best estimate at December 31, 2017 was recorded as the loss reserve. Management’s best estimate is as of a particular point in time andis based upon known facts, the Company’s actuarial analyses, current law, and the Company’s judgment. This resulted in carried gross and net reservesof $634.7 million and $537.4 million, respectively, as of December 31, 2017. A breakout of the Company’s gross and net reserves, excluding theeffects of the Company’s intercompany pooling arrangements and intercompany stop loss and quota share reinsurance agreements, as of December 31,2017 is as follows: Gross Reserves (Dollars in thousands) Case IBNR (1) Total Commercial Lines $116,222 $302,820 $419,042 Personal Lines 40,443 79,812 120,255 Reinsurance Operations 31,100 64,267 95,367 Total $187,765 $446,899 $634,664 Net Reserves (2) (Dollars in thousands) Case IBNR (1) Total Commercial Lines $92,313 $250,636 $342,949 Personal Lines 32,792 66,384 99,176 Reinsurance Operations 31,099 64,197 95,296 Total $156,204 $381,217 $537,421 (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 ultimateliability in the operating results for the periods in which the adjustments are made. The establishment of loss and loss adjustment expense reservesmakes no provision for the possible broadening of coverage by legislative action or judicial interpretation, or the emergence of new types of losses notsufficiently represented in the Company’s historical experience or that cannot yet be quantified or estimated. The Company regularly analyzes itsreserves and reviews reserving methodologies so that future adjustments to prior accident year reserves can be minimized. However, given thecomplexity of this process, reserves require continual updates and the ultimate liability may be higher or lower than previously indicated. Changes inestimates for loss and loss adjustment expense reserves are recorded in the period that the change in these estimates is made. See Note 11 to theconsolidated financial statements in Item 8 of Part II of this report for details concerning the changes in the estimate for incurred loss and lossadjustment expenses related to prior accident years.The detailed reserve analyses that the Company’s internal and external actuaries complete use a variety of generally accepted actuarial methods andtechniques to produce a number of estimates of ultimate loss. The Company determines its best estimate of ultimate loss by reviewing the variousestimates provided by its actuaries and other relevant information. The reserve estimate is the difference between the estimated ultimate loss and thelosses 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 haveoccurred but have not yet been reported to the Company (pure IBNR).In light of the many uncertainties associated with establishing the estimates and making the assumptions necessary to establish reserve levels, theCompany reviews its reserve estimates on a regular basis and makes adjustments in the period that the need for such adjustments is determined. 60Table of ContentsThe key assumptions fundamental to the reserving process are often different for various reserve categories and accident years. Some of theseassumptions are explicit assumptions that are required of a particular method, but most of the assumptions are implicit and cannot be preciselyquantified. An example of an explicit assumption is the pattern employed in the Paid Development method. However, the assumed pattern is itselfbased on several implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals close claims. Lossfrequency 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 reservecategory 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 frequencyand severity assumptions in prior periods and could lead to the identification of a need for additional material changes in loss and loss adjustmentexpense reserves, which could materially affect results of operations, equity, business and insurer financial strength and debt ratings. Factors affectingloss frequency include, among other things, the effectiveness of loss controls and safety programs and changes in economic activity or weatherpatterns. Factors affecting loss severity include, among other things, changes in policy limits and deductibles, rate of inflation and judicialinterpretations. Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between theoccurrence 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 accuratelypredict loss frequency (loss frequencies are more predictable for short-tail lines) as well as the amount of reserves needed for IBNR.If the actual levels of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s bestestimate. For most of its reserve categories, the Company believes that frequency can be predicted with greater accuracy than severity. Therefore, theCompany believes management’s best estimate is more likely influenced by changes in severity than frequency. The following table, which theCompany 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 lossestimate of $323.1 million for claims occurring during the year ended December 31, 2017: Severity Change (Dollars in thousands) -10% -5% 0% 5% 10% Frequency Change -5% $(46,850) $(31,502) $(16,155) $(808) $14,540 -3% (41,034) (25,363) (9,693) 5,977 21,648 -2% (38,126) (22,294) (6,462) 9,370 25,202 -1% (35,218) (19,224) (3,231) 12,762 28,756 0% (32,310) (16,155) — 16,155 32,310 1% (29,402) (13,086) 3,231 19,548 35,864 2% (26,494) (10,016) 6,462 22,940 39,418 3% (23,586) (6,947) 9,693 26,333 42,972 5% (17,771) (808) 16,155 33,118 50,081 The Company’s net reserves for losses and loss adjustment expenses of $537.4 million as of December 31, 2017 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 ReceivablesThe Company regularly reviews the collectability of its reinsurance receivables, and includes adjustments resulting from this review in earnings in theperiod in which the adjustment arises. A.M. Best ratings, financial history, available collateral, and payment history with the reinsurers are several ofthe factors that the Company considers when judging collectability. Changes in loss reserves can also affect the valuation of reinsurance 61Table of Contentsreceivables if the change is related to loss reserves that are ceded to reinsurers. Certain amounts may be uncollectible if the Company’s reinsurersdispute 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 9 of the notes to consolidated financial statements in Item 8 of Part II of this report for further information surrounding the Company’sreinsurance receivable balances and collectability as of December 31, 2017 and 2016. For a listing of the ten reinsurers for which the Company has thelargest reinsurance asset amounts as of December 31, 2017, see “Reinsurance of Underwriting Risk” in Item 1 of Part I of this report.InvestmentsThe carrying amount of the Company’s investments approximates their fair value. The Company regularly performs various analytical valuationprocedures with respect to investments, including reviewing each fixed maturity security in an unrealized loss position to determine the amount ofunrealized loss related to credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portionof 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 thedebt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amountrelating to factors other than credit losses are recorded in other comprehensive income, net of taxes. During its review, the Company considers creditrating, market price, and issuer specific financial information, among other factors, to assess the likelihood of collection of all principal and interest ascontractually due. Securities for which the Company determines that a credit loss is likely are subjected to further analysis to estimate the credit loss tobe recognized in earnings, if any. See Note 3 of the notes to consolidated financial statements in Item 8 of Part II of this report for the specificmethodologies and significant assumptions used by asset class. Upon identification of such securities and periodically thereafter, a detailed review isperformed to determine whether the decline is considered other than temporary. This review includes an analysis of several factors, including but notlimited 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, 2017 and 2016, and for other than temporary impairmentlosses that the Company recorded for the years ended December 31, 2017, 2016, and 2015, please see Note 5 of the notes to the consolidated financialstatements in Item 8 of Part II of this report.Fair Value MeasurementsThe Company categorizes its invested assets and derivative instruments that are accounted for at fair value in the consolidated statements into a fairvalue hierarchy. The fair value hierarchy is directly related to the amount of subjectivity associated with the inputs utilized to determine the fair valueof these assets. The reported value of financial instruments not carried at fair value, principally cash and cash equivalents and margin borrowingfacility approximate fair value. See Note 7 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further informationabout the fair value hierarchy and the Company’s assets that are accounted for at fair value.Goodwill and Intangible AssetsThe Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicableaccounting 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 unitgoodwill. Based on the qualitative assessment performed, there was no impairment of goodwill as of December 31, 2017. 62Table of ContentsImpairment of intangible assets with indefinite useful lives is tested at least annually and more frequently as circumstances warrant in accordance withapplicable accounting guidance. Accounting guidance allows for the testing of intangible assets for impairment using both qualitative andquantitative factors. Impairment of indefinite lived intangible assets is recognized only if the carrying amount of the intangible assets exceeds the fairvalue 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, 2017.Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of definitelived intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment isrecognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as thedifference between the carrying amount and the estimated fair value of the asset. As of December 31, 2017, there were no triggering events thatoccurred during the year that would result in an impairment of definite lived intangible assets.See Note 8 of the notes to the consolidated financial statements in Item 8 of Part II of this report for more details concerning the Company’s goodwilland intangible assets.Deferred Acquisition CostsThe costs of acquiring new and renewal insurance and reinsurance contracts include commissions, premium taxes and certain other costs that aredirectly related to the successful acquisition of new and renewal insurance and reinsurance contracts. The excess of the Company’s costs of acquiringnew and renewal insurance and reinsurance contracts over the related ceding commissions earned from reinsurers is capitalized as deferred acquisitioncosts 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 amountsrecoverable from premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to beincurred as the premium is earned. A premium deficiency is recognized if the sum of expected loss and loss adjustment expenses and unamortizedacquisition costs exceeds related unearned premium. This evaluation is done at a product line level in Insurance Operations and at a treaty level inReinsurance Operations. Any future expected loss on the related unearned premium is recorded first by impairing the unamortized acquisition costs onthe related unearned premium followed by an increase to loss and loss adjustment expense reserves on additional expected loss in excess ofunamortized acquisition costs. The Company calculates deferred acquisition costs for Insurance Operations separately by product lines and for itsReinsurance Operations separately for each treaty.TaxationThe Company provides for income taxes in accordance with applicable accounting guidance. The Company’s deferred tax assets and liabilitiesprimarily result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of the Company’sassets 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 thannot that all, or some portion, of the deferred tax assets will not be realized. A valuation allowance would be based on all available informationincluding the Company’s assessment of uncertain tax positions and projections of future taxable income from each tax-paying component in eachjurisdiction, principally derived from business plans and available tax planning strategies. There are no valuation allowances as of December 31, 2017and 2016. The deferred tax asset balance is analyzed regularly by management. This assessment requires significant judgment and considers, amongother matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of 63Table of Contentscarryforward periods, and tax planning strategies and/or actions. Based on these analyses, the Company has determined that its deferred tax asset isrecoverable. Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actualexperience. If, in the future, the Company’s assumptions and estimates that resulted in the forecast of future taxable income for each tax-payingcomponent prove to be incorrect, a valuation allowance may be required. This could have a material adverse effect on the Company’s financialcondition, 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 thathave a greater than 50% likelihood of being sustained upon examination by the taxing authorities. Please see Note 10 of the notes to the consolidatedfinancial statements in Item 8 of Part II of this report for a discussion of the Company’s tax uncertainties.Business SegmentsThe Company manages its business through three business segments: Personal Lines, Commercial Lines, and Reinsurance Operations. The PersonalLines and Commercial Lines segments comprise the Company’s U.S. Insurance Operations, which currently includes the operations of United NationalInsurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company, Penn-Patriot InsuranceCompany, American Reliable Insurance Company, American Insurance Adjustment Agency, Inc., Collectibles Insurance Services, LLC, GlobalIndemnity Insurance Agency, LLC, and J.H. Ferguson & Associates, LLC. Reinsurance Operations includes the operations of Global IndemnityReinsurance Company, Ltd.The Company evaluates the performance of these three segments based on gross and net premiums written, revenues in the form of net premiumsearned, and expenses in the form of (1) net losses and loss adjustment expenses, (2) acquisition costs, and (3) other underwriting expenses.During the 1st quarter of 2017, the Company re-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions ofbusiness will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportablesegments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included aspart of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs writtenby American Reliable Insurance Company, which was previously included within the Personal Lines segment, is now aggregated within theCommercial Lines segment. Accordingly, the segment results for the years ended December 31, 2016 and 2015 have been revised to reflect thesechanges.See “Business Segments” in Item 1 of Part I of this report for a description of the Company’s segments. 64Table of ContentsResults of OperationsThe following table summarizes the Company’s results for the years ended December 31, 2017, 2016, and 2015: Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 2016 (4) 2016 (4) 2015 (4) Gross premiums written $516,334 $565,845 (8.7%) $565,845 $590,233 (4.1%) Net premiums written $450,180 $470,940 (4.4%) $470,940 $501,244 (6.0%) Net premiums earned $438,034 $468,465 (6.5%) $468,465 $504,143 (7.1%) Other income 6,582 10,345 (36.4%) 10,345 3,400 204.3% Total revenues 444,616 478,810 (7.1%) 478,810 507,543 (5.7%) Losses and expenses: Net losses and loss adjustment expenses 269,212 264,003 2.0% 264,003 275,368 (4.1%) Acquisition costs and other underwriting expenses 183,733 196,650 (6.6%) 196,650 201,303 (2.3%) Underwriting income (loss) (8,329) 18,157 (145.9%) 18,157 30,872 (41.2%) Net investment income 39,323 33,983 15.7% 33,983 34,609 (1.8%) Net realized investment gains (losses) 1,576 21,721 (92.7%) 21,721 (3,374) NM Corporate and other operating expenses (25,714) (17,338) 48.3% (17,338) (24,448) (29.1%) Interest expense (16,906) (8,905) 89.8% (8,905) (4,913) 81.3% Income (loss) before income taxes (10,050) 47,618 (121.1%) 47,618 32,746 45.4% Income tax benefit 499 2,250 (77.8%) 2,250 8,723 (74.2%) Net income (loss) $(9,551) $49,868 (119.2%) $49,868 $41,469 20.3% Underwriting Ratios: Loss ratio (1): 61.5% 56.4% 56.4% 54.6% Expense ratio (2) 41.9% 42.0% 42.0% 39.9% Combined ratio (3) 103.4% 98.4% 98.4% 94.5% NM — not meaningful(1)The loss ratio is a GAAP financial measure that is generally viewed in the insurance industry as an indicator of underwriting profitability and iscalculated by dividing net losses and loss adjustment expenses by net premiums earned.(2)The expense ratio is a GAAP financial measure that is calculated by dividing the sum of acquisition costs and other underwriting expenses by netpremiums earned.(3)The combined ratio is a GAAP financial measure and is the sum of the Company’s loss and expense ratios.(4)On September 30, 2016, Diamond State Insurance Company sold all the outstanding shares of capital stock of one of its wholly ownedsubsidiaries, United National Specialty Insurance Company. Financial results for 2016 and 2015 include United National Specialty Insurance.Company. This transaction did not have a significant impact on the Company’s ongoing business operations. Subsequent to the sale, anybusiness previously written by United National Specialty Insurance Company is being written by other companies within the Company’s U.S.Insurance Operations. 65Table of ContentsPremiumsThe following table summarizes the change in premium volume by business segment: Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 2016 2016 2015 Gross premiums written (1) Personal Lines (3) (4) $249,777 $302,947 (17.6%) $302,947 $327,147 (7.4%) Commercial Lines (4) 212,670 203,061 4.7% 203,061 213,353 (4.8%) Reinsurance (5) 53,887 59,837 (9.9%) 59,837 49,733 20.3% Total gross premiums written $516,334 $565,845 (8.7%) $565,845 $590,233 (4.1%) Ceded premiums written Personal Lines (4) $39,978 $74,764 (46.5%) $74,764 $73,990 1.0% Commercial Lines (4) 26,222 20,105 30.4% 20,105 14,949 34.5% Reinsurance (5) (46) 36 (227.8%) 36 50 (28.0%) Total ceded premiums written $66,154 $94,905 (30.3%) $94,905 $88,989 6.6% Net premiums written (2) Personal Lines (4) $209,799 $228,183 (8.1%) $228,183 $253,157 (9.9%) Commercial Lines (4) 186,448 182,956 1.9% 182,956 198,404 (7.8%) Reinsurance (5) 53,933 59,801 (9.8%) 59,801 49,683 20.4% Total net premiums written $450,180 $470,940 (4.4%) $470,940 $501,244 (6.0%) Net premiums earned Personal Lines (4) $215,983 $237,555 (9.1%) $237,555 $253,948 (6.5%) Commercial Lines (4) 178,798 189,342 (5.6%) 189,342 198,404 (4.6%) Reinsurance (5) 43,253 41,568 4.1% 41,568 51,791 (19.7%) Total net premiums earned $438,034 $468,465 (6.5%) $468,465 $504,143 (7.1%) NM — not meaningful(1)Gross premiums written represent the amount received or to be received for insurance policies written without reduction for reinsurance costs orother deductions.(2)Net premiums written equal gross premiums written less ceded premiums written.(3)Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsuranceagreement of ($1.3) million, $35.3 million, and $55.8 million during the years ended December 31, 2017, 2016, and 2015, respectively.(4)Includes business ceded to the Company’s Reinsurance Operations.(5)External business only, excluding business assumed from affiliates.Gross premiums written decreased by 8.7% for year ended December 31, 2017 as compared to 2016. Gross premiums written include business writtenby American Reliable that is ceded to insurance entities owned by Assurant under a 100% quota share reinsurance agreement in the amount of ($1.3)million and $35.3 million for the years ended December 31, 2017 and 2016, respectively. Excluding the business that is ceded 100% to insuranceentities owned by Assurant, gross premiums written decreased by 2.4% for the year ended December 31, 2017 as compared to 2016. The decline ismainly due to the discontinuance of one unprofitable program within the Company’s Commercial Lines, underwriting actions taken within theCompany’s Personal Lines to improve profitability, and a reduction in premiums written within the Company’s Reinsurance Operations related tocancellation of a treaty. This decline was partially offset by an increase in gross premiums written within the Company’s Commercial Lines due to theintroduction of a new program as well as increased production as a result of providing additional commission incentives for increased business. 66Table of ContentsGross premiums written decreased by 4.1% for year ended December 31, 2016 as compared to 2015. Gross premiums written include business writtenby American Reliable that is ceded to insurance entities owned by Assurant under a 100% quota share reinsurance agreement in the amount of$35.3 million and $55.8 million for the years ended December 31, 2016 and 2015, respectively. Excluding the business that is ceded 100% toinsurance entities owned by Assurant, gross premiums written decreased by 0.7% for the year ended December 31, 2016 as compared to 2015. Thedecline is mainly due to targeted reductions in catastrophe exposed business within the Company’s U.S. Insurance Operations offset by an increase ingross premiums written within the Company’s Reinsurance Operations due to a new mortgage insurance treaty written in the fourth quarter of 2016.This new mortgage insurance treaty contributed $22.4 million to gross premiums written in 2016 and is expected to earn over an eight year period.Net RetentionThe ratio of net premiums written to gross premiums written is referred to as the Company’s net premium retention. The Company’s net premiumretention is summarized by segments as follows: Years EndedDecember 31, Change Years EndedDecember 31, Change (Dollars in thousands) 2017 2016 2016 2015 Personal Lines (1) 83.5% 85.3% (1.8%) 85.3% 93.3% (8.0%) Commercial Lines 87.7% 90.1% (2.4%) 90.1% 93.0% (2.9%) Reinsurance 100.1% 99.9% 0.2% 99.9% 99.9% 0.0% Total (1) 87.0% 88.8% (1.8%) 88.8% 93.8% (5.0%) (1)Excludes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsuranceagreement of ($1.3) million and $35.3 million during the years ended December 31, 2017 and 2016, respectively.The net premium retention for the year ended December 31, 2017 decreased by 1.7 points for Personal Lines and decreased by 2.4 points forCommercial Lines as compared to 2016 primarily due to the Property Catastrophe Quota Share Treaty that became effective on April 15, 2017. Pleasesee the Liquidity and Capital Resource section below for additional information on the Property Catastrophe Quota Share.The net premium retention for the Personal Lines segment for the year ended December 31, 2016 decreased by 8.0 points compared to the same periodin 2015. The reduction in the Personal Lines’ retention rate for the year ended December 31, 2016 was primarily due to an increase in catastrophereinsurance as well as the quota share arrangement that was put in place during the second quarter of 2016.Net Premiums earnedNet premiums earned within the Personal Lines segment decreased by 9.1% for the year ended December 31, 2017 as compared to the same period in2016 primarily due to a decline in gross premiums written as well as the ceding of additional premiums under the property catastrophe treaties.Property net premiums earned were $183.5 million and $203.1 million for the years ended December 31, 2017 and 2016, respectively. Casualty netpremiums earned were $32.5 million and $34.4 million for the years ended December 31, 2017 and 2016, respectively.Net premiums earned within the Personal Lines segment decreased by 6.5% for the year ended December 31, 2016 as compared to the same period in2015. This decline was due to the purchase of additional catastrophereinsurance. In addition, net premiums earned also decreased due to incurring a reinstatement premium of 67Table of Contents$7.1 million in connection with wildfires that occurred in Tennessee during the 4th quarter of 2016 . These wildfires resulted in the Company incurring$25.0 million in net losses in 2016. Property net premiums earned were $203.1 million and $223.6 million for the years ended December 31, 2016 and2015, respectively. Casualty net premiums earned were $34.4 million and $30.3 million for the years ended December 31, 2016 and 2015, respectively.Net premiums earned within the Commercial Lines segment decreased by 5.6% for the year ended December 31, 2017 as compared to the same periodin 2016. The decline in net premiums earned was primarily due to the Company discontinuing one of its programs within the Commercial Lines as wellas the Company ceding additional premiums under the new Property Catastrophe Quota Share Treaty which was effective April 15, 2017. This declinewas partially offset by an increase in gross premiums due to the introduction of a new program. Property net premiums earned were $90.0 million and$102.4 million for the years ended December 31, 2017 and 2016, respectively. Casualty net premiums earned were $88.8 million and $87.0 million forthe years ended December 31, 2017 and 2016, respectively.Net premiums earned within the Commercial Lines segment decreased by 4.6% for the year ended December 31, 2016 as compared to the same periodin 2015. The decline in net premiums earned was primarily due to decreasing the Company’s property retention, the purchase of additional propertyexcess of loss reinsurance, and a slight reduction in gross premiums written. Property net premiums earned were $102.4 million and $112.6 million forthe years ended December 31, 2016 and 2015, respectively. Casualty net premiums earned were $87.0 million and $85.8 million for the years endedDecember 31, 2016 and 2015, respectively.Net premiums earned within the Reinsurance Operations segment increased by 4.1% for the year ended December 31, 2017 as compared to the sameperiod in 2016. This increase was primarily due to a new mortgage treaty written in the fourth quarter of 2016 which is expected to earn out over aneight year period. This new mortgage insurance treaty will not be renewed. Property net premiums earned were $38.4 million and $37.6 million for theyears ended December 31, 2017 and 2016, respectively. Casualty net premiums earned were $4.8 million and $4.0 million for the years endedDecember 31, 2017 and 2016, respectively.Net premiums earned within the Reinsurance Operations segment decreased by 19.7% for the year ended December 31, 2016 as compared to the sameperiod in 2015. The decline in net premiums earned was primarily due to one treaty being non-renewed in 2016 in an effort to reduce catastropheexposure. Property net premiums earned were $37.6 million and $49.5 million for the years ended December 31, 2016 and 2015, respectively. Casualtynet premiums earned were $4.0 million and $2.3 million for the years ended December 31, 2016 and 2015, respectively. 68Table of ContentsUnderwriting ResultsPersonal LinesThe components of income from the Company’s Personal Lines segment and corresponding underwriting ratios are as follows: Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 (3) 2016 (3) 2016 (3) 2015 (3) Gross premiums written (1) $249,777 $302,947 (17.6%) $302,947 $327,147 (7.4%) Net premiums written $209,799 $228,183 (8.1%) $228,183 $253,157 (9.9%) Net premiums earned $215,983 $237,555 (9.1%) $237,555 $253,948 (6.5%) Other income 6,288 3,712 69.4% 3,712 3,493 6.3% Total revenues 222,271 241,267 (7.9%) 241,267 257,441 (6.3%) Losses and expenses: Net losses and loss adjustment expenses 165,798 174,528 (5.0%) 174,528 163,045 7.0% Acquisition costs and other underwriting expenses (2) 93,113 99,109 (6.0%) 99,109 97,687 1.5% Underwriting income (loss) $(36,640) $(32,370) (13.2%) $(32,370) $(3,291) NM Years EndedDecember 31, PointChange Years EndedDecember 31, PointChange 2017 (3) 2016 (3) 2016 (3) 2015 (3) Underwriting Ratios: Loss ratio: Current accident year 79.8% 73.5% 6.3 73.5% 64.4% 9.1 Prior accident year (3.1%) 0.0% (3.1) 0.0% (0.2%) 0.2 Calendar year loss ratio 76.7% 73.5% 3.2 73.5% 64.2% 9.3 Expense ratio 43.1% 41.7% 1.4 41.7% 38.5% 3.2 Combined ratio 119.8% 115.2% 4.6 115.2% 102.7% 12.5 NM — not meaningful(1)Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsuranceagreement of ($1.3) million, $35.3 million, and $55.8 during the years ended December 31, 2017, 2016, and 2015, respectively.(2)Includes excise tax related to cessions from the Company’s Personal Lines to its Reinsurance Operations of $0.9 million, $0.9 million, and$1.3 million for the years ended December 31, 2017, 2016, and 2015, respectively.(3)Includes business ceded to the Company’s Reinsurance Operations.PremiumsSee “Result of Operations” above for a discussion on consolidated premiums for 2017.Other IncomeOther income was $6.3 million, $3.7 million and $3.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. Other income isprimarily comprised of fee income on installments, commission income, and accrued interest on the anticipated indemnification of unpaid loss and lossadjustment 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 69Table of Contentssemi-annually. The increase in other income is primarily the result of the Company increasing its estimate of unpaid losses and loss adjustmentexpenses that would be indemnified by $19.4 million and $1.5 million during 2017 and 2016, respectively.Loss RatioThe current accident year losses and loss ratio is summarized as follows: Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 2016 2016 2015 Property losses Catastrophe $51,015 $58,590 (12.9%) $58,590 $33,961 72.5% Non-catastrophe 98,676 91,521 7.8% 91,521 110,225 (17.0%) Property losses 149,691 150,111 (0.3%) 150,111 144,186 4.1% Casualty losses 22,711 24,398 (6.9%) 24,398 19,285 26.5% Total accident year losses $172,402 $174,509 (1.2%) $174,509 $163,471 6.8% Years EndedDecember 31, PointChange Years EndedDecember 31, PointChange 2017 2016 2016 2015 Current accident year loss ratio: Property Catastrophe 27.8% 28.8% (1.0) 28.8% 15.2% 13.6 Non-catastrophe 53.8% 45.1% 8.7 45.1% 49.3% (4.2) Property loss ratio 81.6% 73.9% 7.7 73.9% 64.5% 9.4 Casualty loss ratio 69.8% 70.9% (1.1) 70.9% 63.6% 7.3 Total accident year loss ratio 79.8% 73.5% 6.3 73.5% 64.4% 9.1 The current accident year catastrophe loss ratio for 2017 improved by 1.0 point compared to 2016. 2016 included net losses from the Tennesseewildfires as well as some smaller catastrophes. 2017 included catastrophe losses from hurricanes Harvey, Irma, and Maria as well as losses from theCalifornia wildfires. The current accident year catastrophe loss ratio for 2016 increased by 13.6 points compared to 2015 primarily due to the highercatastrophe losses experienced during the fourth accident quarter of 2016, particularly from the Tennessee Wildfires.The current accident year non-catastrophe loss ratio for 2017 increased by 8.7 point compared to 2016 mainly due to higher claims frequency andseverity compared to last year. The current accident year non-catastrophe loss ratio for 2016 improved by 4.2 point compared to 2015 mainly due tolower case incurred emergence resulting from a decrease in reported claim frequency.The current accident year casualty loss ratio for 2017 improved by 1.1 points compared to 2016 driven primarily by lower reported claims frequency ascompared to the same period last year. The current accident year casualty loss ratio for 2016 increased by 7.3 points compared to 2015 mainly due toan increase in claims severity compared to the previous year.The calendar year loss ratio for the years ended December 31, 2017, 2016, and 2015 includes a decrease of $6.6 million, or 3.1 percentage points, anincrease of $0.02 million, or less than 0.1 percentage points, and a decrease of $0.4 million, or 0.2 percentage points, respectively, related to reservedevelopment on prior accident years. There were no changes to net prior accident year losses during the year ended December 31, 2015. Please seeNote 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for further discussion on prior accident year development. 70Table of ContentsReconciliation of non-GAAP financial measures and ratiosThe table below reconciles the non-GAAP measures or ratios to its most directly comparable GAAP measure or ratio. The Company believes thenon-GAAP measures or ratios are useful to investors when evaluating the Company’s underwriting performance as trends in the Company’s PersonalLines may be obscured by prior accident year adjustments. These non-GAAP measures or ratios should not be considered as a substitute for its mostdirectly comparable GAAP measure or ratio and does not reflect the overall underwriting profitability of the Company. Years Ended December 31, 2017 2016 2015 Losses $ LossRatio Losses $ LossRatio Losses $ LossRatio Property Non catastrophe property losses and ratio excluding the effect of prior accidentyear (1) $98,676 53.8% $91,521 45.1% $110,225 49.3% Effect of prior accident year (3,933) (2.1%) 39 — (314) (0.1%) Non catastrophe property losses and ratio (2) $94,743 51.6% $91,560 45.1% $109,911 49.2% Catastrophe losses and ratio excluding the effect of prior accident year (1) $51,015 27.8% $58,590 28.8% $33,961 15.2% Effect of prior accident year (2,188) (1.2%) (20) — (112) (0.1%) Catastrophe losses and ratio (2) $48,827 26.6% $58,570 28.8% $33,849 15.1% Total property losses and ratio excluding the effect of prior accident year (1) $149,691 81.6% $150,111 73.9% $144,186 64.5% Effect of prior accident year (6,121) (3.3%) 19 — (426) (0.2%) Total property losses and ratio (2) $143,570 78.3% $150,130 73.9% $143,760 64.3% Casualty Total Casualty losses and ratio excluding the effect of prior accident year (1) $22,711 69.8% $24,398 70.9% $19,285 63.6% Effect of prior accident year (483) (1.5%) — — — — Total Casualty losses and ratio (2) $22,228 68.4% $24,398 70.9% $19,285 63.6% Total Total net losses and loss adjustment expense and total loss ratio excluding theeffect of prior accident year (1) $172,402 79.8% $174,509 73.5% $163,471 64.4% Effect of prior accident year (6,604) (3.1%) 19 — (426) (0.2%) Total net losses and loss adjustment expense and total loss ratio (2) $165,798 76.7% $174,528 73.5% $163,045 64.2% (1)Non-GAAP measure / ratio(2)Most directly comparable GAAP measure / ratioExpense RatiosThe expense ratio increased 1.4 points from 41.7% for 2016 to 43.1% for 2017 mainly due to a reduction in Personal Lines’ net premiums earned in2017 as compared to 2016; as a result of underwriting actions taken to improve profitability.The expense ratio increased 3.2 points from 38.5% for 2015 to 41.7% for 2016 primarily due to the reduction in earned premiums in 2016 as a result ofthe quota share arrangement and the purchase of additional reinsurance. 71Table of ContentsThe increase in the expense ratio was also due to the 2015 expense ratio benefitting from accounting adjustments related to the purchase of AmericanReliable.Commercial LinesThe components of income from the Company’s Commercial Lines segment and corresponding underwriting ratios are as follows: Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 (2) 2016 (2) 2016 (2) 2015 (2) Gross premiums written $212,670 $203,061 4.7% $203,061 $213,353 (4.8%) Net premiums written $186,448 $182,956 1.9% $182,956 $198,404 (7.8%) Net premiums earned $178,798 $189,342 (5.6%) $189,342 $198,404 (4.6%) Other income 78 6,857 (98.9%) 6,857 — NM Total revenues 178,876 196,199 (8.8%) 196,199 198,404 (1.1%) Losses and expenses: Net losses and loss adjustment expenses 62,834 75,401 (16.7%) 75,401 98,471 (23.4%) Acquisition costs and other underwriting expenses (1) 75,990 81,477 (6.7%) 81,477 84,623 (3.7%) Underwriting income (loss) $40,052 $39,321 1.9% $39,321 $15,310 156.8% Years EndedDecember 31, PointChange Years EndedDecember 31, PointChange 2017 (2) 2016 (2) 2016 (2) 2015 (2) Underwriting Ratios: Loss ratio: Current accident year 57.2% 63.0% (5.8) 63.0% 62.3% 0.7 Prior accident year (22.0%) (23.1%) 1.1 (23.1%) (12.7%) (10.4) Calendar year loss ratio 35.2% 39.9% (4.7) 39.9% 49.6% (9.7) Expense ratio 42.5% 43.0% (0.5) 43.0% 42.7% 0.3 Combined ratio 77.7% 82.9% (5.2) 82.9% 92.3% (9.4) NM — not meaningful(1)Includes excise tax related to cessions from the Company’s Commercial Lines to its Reinsurance Operations of $0.7 million, $0.8 million, and$1.0 million for the years ended December 31, 2017, 2016, and 2015, respectively.(2)Includes business ceded to the Company’s Reinsurance Operations.PremiumsSee “Result of Operations” above for a discussion on consolidated premiums.Other IncomeOther income was $0.1 million and $6.9 million for the years ended December 31, 2017 and 2016, respectively. There was no other income in 2015.For the years ended December 31, 2017, other income is primarily comprised of fee income. For the year ended December 31, 2016, other income iscomprised of the net gain on the asset sale of the Company’s wholly owned subsidiary, United National Specialty Insurance Company. 72Table of ContentsLoss RatioThe current accident year losses and loss ratio is summarized as follows: Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 2016 2016 2015 Property losses Catastrophe $10,081 $13,550 (25.6%) $13,550 $11,037 22.8% Non-catastrophe 35,879 49,812 (28.0%) 49,812 53,865 (7.5%) Property losses 45,960 63,362 (27.5%) 63,362 64,902 (2.4%) Casualty losses 56,229 55,842 0.7% 55,842 58,771 (5.0%) Total accident year losses $102,189 $119,204 (14.3%) $119,204 $123,673 (3.6%) Years EndedDecember 31, PointChange Years EndedDecember 31, PointChange 2017 2016 2016 2015 Current accident year loss ratio: Property Catastrophe 11.2% 13.2% (2.0) 13.2% 9.8% 3.4 Non-catastrophe 39.8% 48.7% (8.9) 48.7% 47.9% 0.8 Property loss ratio 51.0% 61.9% (10.9) 61.9% 57.7% 4.2 Casualty loss ratio 63.4% 64.2% (0.8) 64.2% 68.5% (4.3) Total accident year loss ratio 57.2% 63.0% (5.8) 63.0% 62.3% 0.7 The current accident year catastrophe loss ratio for 2017 improved by 2.0 points compared to 2016 primarily due to lower claims severity in 2017. Thecurrent accident year catastrophe loss ratio for 2016 increased by 3.4 points compared to 2015 primarily due to losses from convective stormsoccurring during the first six months of the year.The current accident year property non-catastrophe loss ratio for 2017 improved by 8.9 points compared to 2016 primarily due to Property Brokeragehaving several large losses in 2016. The current accident year property non-catastrophe loss ratio for 2016 increased by 0.8 points compared to 2015.The current accident year casualty loss ratio for 2017 improved by 0.8 points compared to 2016 driven primarily by lower reported claims frequency ascompared to the same period last year. The current accident year casualty loss ratio for 2016 improved by 4.3 points compared to 2015 mainly due tothe decrease in reported claim frequency which reflects the milder winter weather experienced during 2016. Also, underwriting actions and rateincreases over the past several years have contributed to the improvement experienced to date.The calendar year loss ratio for the years ended December 31, 2017, 2016, and 2015 includes a decrease of $39.4 million, or 22.0 percentage points, adecrease of $43.8 million or 23.1 percentage points, and a decrease of $25.2 million or 12.7 percentage points, respectively, related to reservedevelopment on prior accident years. Please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for furtherdiscussion on prior accident year development.Reconciliation of non-GAAP financial measures and ratiosThe table below reconciles the non-GAAP measures or ratios, which excludes the impact of prior accident year adjustments, to its most directlycomparable GAAP measure or ratio. The Company believes the non-GAAP measures or ratios are useful to investors when evaluating the Company’sunderwriting performance as trends in 73Table of Contentsthe Company’s Commercial Lines may be obscured by prior accident year adjustments. These non-GAAP measures or ratios should not be consideredas a substitute for its most directly comparable GAAP measure or ratio and does not reflect the overall underwriting profitability of the Company. Years Ended December 31, 2017 2016 2015 Losses $ LossRatio Losses $ LossRatio Losses $ LossRatio Property Non catastrophe property losses and ratio excluding the effect of prioraccident year (1) $35,879 39.8% $49,812 48.7% $53,865 47.9% Effect of prior accident year (4,903) (5.4%) 926 0.9% (887) (0.8%) Non catastrophe property losses and ratio (2) $30,976 34.4% $50,738 49.6% $52,978 47.1% Catastrophe losses and ratio excluding the effect of prior accident year (1) $10,081 11.2% $13,550 13.2% $11,037 9.8% Effect of prior accident year (1,351) (1.5%) (482) (0.5%) 361 0.3% Catastrophe losses and ratio (2) $8,730 9.7% $13,068 12.7% $11,398 10.1% Total property losses and ratio excluding the effect of prior accident year (1) $45,960 51.0% $63,362 61.9% $64,902 57.7% Effect of prior accident year (6,255) (6.9%) 444 0.4% (526) (0.5%) Total property losses and ratio (2) $39,705 44.1% $63,806 62.3% $64,376 57.2% Casualty Total Casualty losses and ratio excluding the effect of prior accident year (1) $56,229 63.4% $55,842 64.2% $58,771 68.5% Effect of prior accident year (33,100) (37.3%) (44,247) (50.9%) (24,676) (28.7%) Total Casualty losses and ratio (2) $23,129 26.1% $11,595 13.3% $34,095 39.8% Total Total net losses and loss adjustment expense and total loss ratio excluding theeffect of prior accident year (1) $102,189 57.2% $119,204 63.0% $123,673 62.3% Effect of prior accident year (39,355) (22.0%) (43,803) (23.1%) (25,202) (12.7%) Total net losses and loss adjustment expense and total loss ratio (2) $62,834 35.2% $75,401 39.9% $98,471 49.6% (3)Non-GAAP measure / ratio(4)Most directly comparable GAAP measure / ratioExpense RatiosThe expense ratio improved 0.5 points from 43.0% for 2016 to 42.5% for 2017.The expense ratio increased 0.3 points from 42.7% for 2015 to 43.0% for 2016. 74Table of ContentsReinsurance OperationsThe components of income from the Company’s Reinsurance Operations segment and corresponding underwriting ratios are as follows: Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 (1) 2016 (1) 2016 (1) 2015 (1) Gross premiums written $53,887 $59,837 (9.9%) $59,837 $49,733 20.3% Net premiums written $53,933 $59,801 (9.8%) $59,801 $49,683 20.4% Net premiums earned $43,253 $41,568 4.1% $41,568 $51,791 (19.7%) Other income (loss) 216 (224) (196.4%) (224) (93) 140.9% Total revenues 43,469 41,344 5.1% 41,344 51,698 (20.0%) Losses and expenses: Net losses and loss adjustment expenses 40,580 14,074 188.3% 14,074 13,852 1.6% Acquisition costs and other underwriting expenses 14,630 16,064 (8.9%) 16,064 18,993 (15.4%) Underwriting income (loss) $(11,741) $11,206 (204.8%) $11,206 $18,853 (40.6%) Years EndedDecember 31, PointChange Years EndedDecember 31, PointChange 2017 (1) 2016 (1) 2016 (1) 2015 (1) Underwriting Ratios: Loss ratio: Current accident year (2) 112.2% 66.3% 45.9 66.3% 44.3% 22.0 Prior accident year (18.4%) (32.4%) 14.0 (32.4%) (17.5%) (14.9) Calendar year loss ratio (3) 93.8% 33.9% 59.9 33.9% 26.8% 7.1 Expense ratio 33.8% 38.6% (4.8) 38.6% 36.7% 1.9 Combined ratio 127.6% 72.5% 55.1 72.5% 63.5% 9.0 (1)External business only, excluding business assumed from affiliates(2)Non-GAAP ratio(3)Most directly comparable GAAP ratioReconciliation of non-GAAP financial ratiosThe table above includes a reconciliation of the current accident year loss ratio, which is a non-GAAP ratio, to its calendar year loss ratio, which is itsmost directly comparable GAAP ratio. The Company believes this non-GAAP ratio is useful to investors when evaluating the Company’s underwritingperformance as trends in the Company’s Reinsurance Operations may be obscured by prior accident year adjustments. This non-GAAP ratio should notbe considered as a substitute for its most directly comparable GAAP ratio and does not reflect the overall underwriting profitability of the Company.PremiumsSee “Result of Operations” above for a discussion on consolidated premiums.Other Income (Loss)Reinsurance Operations recognized other income of $0.2 million in 2017, a loss of $0.2 million in 2016, and a loss of $0.1 million in 2015. Otherincome (loss) is comprised of foreign exchange gains and losses. 75Table of ContentsLoss RatioThe current accident year loss ratio for 2017 increased by 45.9 points compared to 2016. The increase in the loss ratio was mainly attributable to thehigher impact from catastrophes, primarily hurricanes Harvey, Irma, and Maria as well as the California wildfires, as compared to the same period lastyear. The current accident year loss ratio for 2016 increased by 22.0 points compared to 2015 primarily in the property lines for both catastrophe andnon-catastrophe contracts. The higher catastrophe losses were being driven by the Fort McMurray fires in Canada, Hurricane Matthew, and the NewZealand earthquake. The higher non-catastrophe experience reflects the impact of the Jubilee platform breakdown in Africa.The calendar year loss ratio for the years ended December 31, 2017, 2016, and 2015 includes a decrease of $7.9 million, or 18.4 percentage points, adecrease of $13.5 million or 32.4 percentage points, and a decrease of $9.1 million or 17.5 percentage points, respectively, related to reservedevelopment on prior accident years. Please see Note 11 of the notes to the consolidated financial statements in Item 8 of Part II of this report for furtherdiscussion on prior accident year development.Expense RatioThe expense ratio improved 4.8 points from 38.6% for 2016 to 33.8% for 2017. The improvement in the expense ratio is primarily due to receiving afederal excise tax refund related to prior years as well as lower contingent commission.The expense ratio increased 1.9 points from 36.7% for 2015 to 38.6% for 2016. The increase is primarily due to higher ceding commission on businesswritten as well as improvements in prior year losses resulting in higher contingent commission partially offset by a reduction in profit sharingcommissions and a recovery of prior year cascading excise tax.Unallocated Corporate ItemsThe Company’s investments are managed distinctly according to assets supporting future insurance obligations and assets in excess of thosesupporting future insurance obligations. Assets supporting insurance obligations are referred to as the Insurance Obligations Portfolio. The InsuranceObligations Portfolio consists of cash and high-quality fixed income investments. Assets in excess of insurance obligations are referred to as theSurplus Portfolio. The Surplus Portfolio targets higher returns and is comprised of cash, fixed income, common stocks, and alternative investments.The Insurance Obligations Portfolio has a market value of $845.2 million. Of this amount, $845.2 million are fixed income securities with a creditquality of AA- and duration of 3.1 years. The Surplus Portfolio has a market value of $690.2 million. Of this amount, $425.7 million are fixed incomesecurities with a credit quality of A- and duration of 3.5 years.Since the Company began managing its investments as two portfolios during the 2nd quarter of 2017, year to dateperformance metrics are an approximation. The Insurance Obligations Portfolio returned 2.2% for the year ended December 31, 2017 with netinvestment income of $18.7 million and realized gains of $0.8 million. The Surplus Portfolio returned 4.7% for the year ended December 31, 2017 withnet investment income of $20.6 million and realized gains of $0.9 million. 76Table of ContentsNet Investment Income Years EndedDecember 31, %Change Years EndedDecember 31, %Change (Dollars in thousands) 2017 2016 2016 2015 Gross investment income (1) $42,250 $39,151 7.9% $39,151 $37,918 3.3% Investment expenses (2,927) (5,168) (43.4%) (5,168) (3,309) 56.2% Net investment income $39,323 $33,983 15.7% $33,983 $34,609 (1.8%) (1)Excludes realized gains and lossesGross investment income for 2017 increased by 7.9% compared to 2016. The increase was primarily due to an increase in yield and a larger fixedmaturities portfolio resulting from $130.0 million in borrowings offset by a reduction in the investment portfolio of $83.0 million for the redemption inDecember, 2017. Gross investment income for 2016 increased by 3.3% compared to 2015. The increase was primarily due to the increase in incomerelated to the Company’s limited liability investments during 2016 partially offset by a reduction in the size of the investment portfolio due toredeeming $190.0 million of A ordinary shares during the fourth quarter of 2015.Investment expenses for 2017 decreased by 43.4% compared to 2016. Investment expenses for 2016 increased by 56.2% compared to 2015. Theincrease in investment expense in 2016 and subsequent decrease in 2017 is mainly attributable to $1.5 million in upfront fees paid in 2016 to enterinto a new investment in middle market corporate debt and equity investments in limited liability companies.At December 31, 2017, the Company held agency mortgage-backed securities with a market value of $81.2 million. Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 3.2 years as of December 31, 2017, compared with 1.9 years asof December 31, 2016. Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agencymortgage-backed securities, was 3.0 years as of December 31, 2017 compared with 1.8 years as of December 31, 2016. Changes in interest rates cancause principal payments on certain investments to extend or shorten which can impact duration. At December 31, 2017, the Company’s embeddedbook yield on its fixed maturities, not including cash, was 2.7% compared with 2.1% at December 31, 2016. The embedded book yield on the$95.1 million of municipal bonds in the Company’s portfolio, which includes $93.5 million of taxable municipal bonds, was 3.0% at December 31,2017, compared to an embedded book yield of 2.7% on the Company’s municipal bond portfolio of $156.4 million at December 31, 2016.At December 31, 2016, the Company held agency mortgage-backed securities with a market value of $59.9 million. Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 1.9 years as of December 31, 2016, compared with 2.4 years asof December 31, 2015. Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agencymortgage-backed securities, was 1.8 years as of December 31, 2016 compared with 2.3 years as of December 31, 2015. Changes in interest rates cancause principal payments on certain investments to extend or shorten which can impact duration. At December 31, 2016, the Company’s embeddedbook yield on its fixed maturities, not including cash, was 2.1% compared with 2.2% at December 31, 2015. The embedded book yield on the$156.4 million of municipal bonds in the Company’s portfolio, which includes $103.6 million of taxable municipal bonds, was 2.7% at December 31,2016, compared to an embedded book yield of 2.7% on the Company’s municipal bond portfolio of $205.2 million at December 31, 2015. 77Table of ContentsNet Realized Investment Gains (Losses)The components of net realized investment gains (losses) for the years ended December 31, 2017, 2016, and 2015 were as follows: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Common stock $3,547 $27,049 $9,444 Fixed maturities 710 2,515 1,505 Interest rate swap (75) (1,110) (6,988) Other than temporary impairment losses (2,606) (6,733) (7,335) Net realized investment gains (losses) $1,576 $21,721 $(3,374) 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-taxbasis for the years ended December 31, 2017, 2016, and 2015.Corporate and Other Operating ExpensesCorporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees, management fees & advisory fees, salariesand 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 $25.7 million, $17.3 million, and $24.4 million during the years ended December 31, 2017, 2016, and2015, respectively. The increase in 2017 as compared to 2016 is primarily due to incurring a $11.0 million advisory fee related to the redemption andother services performed, whereas, 2016 included cost incurred in connection with the re-domestication in 2016 of $4.2 million. The decrease in 2016as compared to 2015 is primarily due to 2015 including costs incurred in connection with the American Reliable acquisition of $8.3 million; whereas,2016 included costs incurred in connection with the redomestication of $4.2 million.Interest ExpenseInterest expense was $16.9 million, $8.9 million, and $4.9 million during the years ended December 31, 2017, 2016, and 2015, respectively. Theincrease in 2017 as compared to 2016 is primarily due to the Company’s $130 million debt offering in March, 2017. The increase in 2016 as comparedto 2015 is primarily due to the Company’s $100 million debt offering in August 2015 offset by a reduction in interest expense on margin borrowingfacility due to decreased borrowings.See Note 12 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 Benefit/ExpenseThe income tax benefit was $0.5 million for the year ended December 31, 2017 compared with income tax benefit of $2.3 million for the year endedDecember 31, 2016. The decrease in the income tax benefit is primarily due to incurring a provisional tax expense of $17.5 million related to thereduction in the deferred tax asset as a result of the TCJA enacted on December 22, 2017 which lowered the U.S. tax rate from 35% to 21% offset by a$18.4 million tax benefit primarily due to an increase in losses incurred in the Company’s U.S. operations for 2017 compared to 2016. The income taxbenefit was $2.3 million for the year ended December 31, 2016 compared with income tax benefit of $8.7 million for the year ended December 31,2015. The decrease in income tax benefit is primarily due to capital gains and the gain on the sale of United National Specialty Insurance Companyduring the year ended December 31, 2016.See Note 10 of the notes to the consolidated financial statements in Item 8 of Part II of this report for a comparison of income tax between periods. 78Table of ContentsNet Income (Loss)The factors described above resulted in a net loss of $9.6 million, net income of $49.9 million, and net income of $41.5 million for the years endedDecember 31, 2017, 2016, and 2015, respectively.Liquidity and Capital ResourcesSources and Uses of FundsGlobal Indemnity is a holding company. Its principal asset is its ownership of the shares of its direct and indirect subsidiaries, including those of itsU.S. insurance companies: United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-StarInsurance Company, Penn-Patriot Insurance Company, and American Reliable Insurance Company; and its Reinsurance Operations: Global IndemnityReinsurance.The principal sources of cash that Global Indemnity requires to meet its short term and long term liquidity needs, including the payment of corporateexpenses, debt service payments, and share repurchases, includes dividends, other permitted disbursements from its direct and indirect subsidiaries,reimbursement for equity awards granted to employees and intercompany borrowings. The principal sources of funds at these direct and indirectsubsidiaries include underwriting operations, investment income, and proceeds from sales and redemptions of investments. Funds are used principallyby these operating subsidiaries to pay claims and operating expenses, to make debt payments, fund margin requirements on interest rate swapagreements, to purchase investments, and to make dividend payments. In addition, the Company periodically reviews opportunities related to businessacquisitions and as a result, liquidity may be needed in the future.On March 23, 2017, the Company issued 7.875% Subordinated Notes due in 2047 in the aggregate principal amount of $130.0 million through anunderwritten public offering. See Note 12 of the notes to consolidated financial statements in Item 8 of Part II of this report for additional informationon this debt issuance.On December 29, 2017, Global Indemnity acquired 3,397,031 of its A ordinary shares for approximately $83.0 million in the aggregate (approximately$24.44 per share) from former investors in vehicles managed by Fox Paine & Company, LLC. The Company sold $99.0 million of securities from itsconsolidated investment portfolio during December, 2017 to provide funding for the redemption and other obligations.During the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend program. Although subject to the absolute discretion of theBoard of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability ofdeclaring a quarterly dividend, the Company currently anticipates an initial dividend rate of $0.25 per share per quarter ($1.00 per share per year). Asof December 31, 2017, there are currently 14,206,742 shares issued and outstanding.As of December 31, 2017, the Company also had future funding commitments of $57.7 million related to investments. The timing of commitmentsrelated to investments is uncertain.The future liquidity of Global Indemnity is dependent on the ability of its subsidiaries to pay dividends. Global Indemnity’s U.S. insurance companiesare restricted by statute as to the amount of dividends that they may pay without the prior approval of regulatory authorities. The dividend limitationsimposed by state laws are based on the statutory financial results of each insurance company within the Insurance Operations that are determined byusing statutory accounting practices that differ in various respects from accounting principles used in financial statements prepared in conformity withGAAP. See “Regulation — Statutory Accounting Principles.” Key differences relate to, among other items, deferred acquisition costs, limitations ondeferred income taxes, reserve calculation assumptions and surplus notes. 79Table of ContentsUnder Indiana law, Diamond State Insurance Company may not pay any dividend or make any distribution of cash or other property, the fair marketvalue of which, together with that of any other dividends or distributions made within the 12 consecutive months ending on the date on which theproposed 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 lastpreceding 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 commissionerapproves the proposed payment or fails to disapprove such payment within 30 days after receiving notice of such payment. An additional limitation isthat Indiana does not permit a domestic insurer to declare or pay a dividend except out of unassigned surplus unless otherwise approved by thecommissioner before the dividend is paid.Under Pennsylvania law, United National Insurance Company, Penn-America Insurance Company, and Penn-Star Insurance Company may not pay anydividend or make any distribution that, together with other dividends or distributions made within the preceding 12 consecutive months, exceeds thegreater 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 suchstatement, not including pro rata distributions of any class of its own securities, unless the commissioner has received notice from the insurer of thedeclaration of the dividend and the commissioner approves the proposed payment or fails to disapprove such payment within 30 days after receivingnotice of such payment. An additional limitation is that Pennsylvania does not permit a domestic insurer to declare or pay a dividend except out ofunassigned funds (surplus) unless otherwise approved by the commissioner before the dividend is paid. Furthermore, no dividend or other distributionmay 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 amountrequired by the Insurance Department for the kind or kinds of business that it is authorized to transact. Pennsylvania law allows loans to affiliates up to10% 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 marketvalue 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 the12 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, unlessthe commissioner approves the proposed payment or fails to disapprove such payment within 30 days after receiving notice of such payment. Indetermining whether the dividend must be approved, undistributed net income from the second and third preceding years, not including net realizedcapital gains, may be carried forward.Under Arizona law, American Reliable Insurance Company may not pay any dividend or make any distribution of cash or other property, the fairmarket 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 ofDecember of the last preceding year, not including pro rata distributions of any class of its securities, unless the commissioner approves the proposedpayment or fails to disapprove such payment within 30 days after receiving notice of such payment.See Note 19 of the notes to consolidated financial statements in Item 8 of Part II of this report for the dividends declared and paid by GlobalIndemnity’s U.S. insurance companies in 2017 and the maximum amount of distributions that U.S. insurance companies could pay as dividends in2018.Global Indemnity Reinsurance is prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital or 25% or moreof its total statutory capital and surplus as set out in its previous year’s statutory financial statements, and any application for such approval mustinclude such information as the BMA may require. Based upon the total statutory capital plus the statutory surplus as set out in its 2017 statutoryfinancial statements that will be filed in 2018, the Company believes Global Indemnity Reinsurance could pay a dividend of up to $227.1 millionwithout requesting BMA approval. For 2018, the Company believes that Global 80Table of ContentsIndemnity Reinsurance, including distributions it could receive from its subsidiaries, should have sufficient liquidity and solvency to pay dividends.In 2017, Global Indemnity Reinsurance declared a dividend of $120.0 million to its parent, Global Indemnity. Of this amount, $100.0 million was paidto Global Indemnity in December, 2017. As of December 31, 2017, accrued dividends were $20.0 million.Surplus LevelsGlobal 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 toidentify property and casualty insurers that may be inadequately capitalized based on the inherent risks of each insurer’s assets and liabilities and mixof net premiums written. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action. Based on the standardscurrently adopted, the policyholders’ surplus of each of the U.S. insurance companies is in excess of the prescribed minimum company action levelrisk-based capital requirements.Sources of operating funds consist primarily of net premiums written and investment income. Funds are used primarily to pay claims and operatingexpenses and to purchase investments. As a result of the new dividend policy, funds may also be used in the future to pay dividends to shareholders ofGlobal Indemnity Limited.The Company’s reconciliation of net income to cash provided from (used for) 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 2017, 2016, and 2015 was ($23.7) million, ($24.4) million and $3.8 million, respectively.In 2017, the increase in operating cash flows of approximately $0.7 million from the prior year was primarily a net result of the following items: 2017 2016 Change Net premiums collected $422,075 $480,799 $(58,724) Net losses paid (266,238) (321,188) 54,950 Underwriting and corporate expenses (202,055) (217,845) 15,790 Net investment income 37,186 37,915 (729) Net federal income taxes recovered (paid) (114) 4,694 (4,808) Interest paid (14,504) (8,771) (5,733) Net cash provided by (used for) operating activities $(23,650) $(24,396) $746 81Table of ContentsIn 2016, the decrease in operating cash flows of approximately $28.1 million from the prior year was primarily a net result of the following items: 2016 2015 Change Net premiums collected $480,799 $527,123 $(46,324) Net losses paid (321,188) (336,316) 15,128 Underwriting and corporate expenses (217,845) (229,738) 11,893 Net investment income 37,915 46,709 (8,794) Net federal income taxes recovered (paid) 4,694 (102) 4,796 Interest paid (8,771) (3,926) (4,845) Net cash provided by (used for) operating activities $(24,396) $3,750 $(28,146) See the consolidated statements of cash flows in the financial statements in Item 8 of Part II of this report for details concerning the Company’sinvesting and financing activities.LiquidityCurrently, the Company believes each company in its Insurance Operations and Reinsurance Operations maintains sufficient liquidity to pay claimsthrough cash generated by operations and liquid investments. The holding companies also maintain sufficient liquidity to meet their obligations. TheCompany 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 theCompany’s investment policy. The Company’s investment policy allows the Company to invest in taxable and tax-exempt fixed income investmentsas well as publicly traded and private equity investments. With respect to bonds, the Company’s credit exposure limit for each issuer varies with theissuer’s credit quality. The allocation between taxable and tax-exempt bonds is determined based on market conditions and tax considerations. Thefixed income portfolio currently has a duration of 3.23 years which allows the Company to defensively position itself during the current low interestrate environment.The Company has access to various capital sources including dividends from insurance subsidiaries, invested assets in its non-U.S. subsidiaries, andaccess to the debt and equity capital markets. The Company believes it has sufficient liquidity to meet its capital needs. See Note 19 of the notes to theconsolidated financial statements in Item 8 of Part II of this report for a discussion of the Company’s dividend capacity. However, the Company’sfuture capital requirements depend on many factors, including the amount of premium it writes, the amount of loss reserves by lines of business, andcatastrophe exposure. 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 financialcondition could be adversely affected.On December 29, 2017, Global Indemnity acquired 3,397,031 of its A ordinary shares for approximately $83.0 million in the aggregate (approximately$24.44 per share) from former investors in vehicles managed by Fox Paine & Company, LLC. The Company sold $99.0 million of securities from itsconsolidated investment portfolio during December, 2017 to provide funding for the redemption and other obligations.During the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend program. Although subject to the absolute discretion of theBoard of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability ofdeclaring a quarterly dividend, the Company currently anticipates an initial dividend rate of $0.25 per share per quarter ($1.00 per share per year). Asof December 31, 2017, there are currently 14,206,742 shares issued and outstanding. 82Table of ContentsOn March 23, 2017, the Company issued 7.875% Subordinated Notes due in 2047 in the aggregate principal amount of $130.0 million through anunderwritten public offering. See Note 12 of the notes to consolidated financial statements in Item 8 of Part II of this report for additional informationon this debt issuance.Property Catastrophe Quota ShareEffective April 15, 2017, the Company entered into an agreement to cede 50% of its property catastrophe losses for all single occurrences over$3 million up to a loss of $40 million. This treaty has an aggregate limit of $60 million and will expire on June 1, 2018.As a result of entering into this treaty, the Company did not renew the $20 million in excess of $20 million layer of its property catastrophe treaty onJune 1, 2017.Stop Loss Agreement, Quota Share Arrangements and Intercompany Pooling ArrangementGlobal Indemnity’s U.S. insurance companies, excluding Personal Lines, and Global Indemnity Reinsurance participated in a stop loss agreement thatprovided protection to the U.S. insurance companies, excluding Personal Lines, in a loss corridor from 70% to 90% subject to certain restrictions. Thisagreement was terminated on a prospective basis on January 1, 2016.During 2015, the Company’s U.S. insurance companies participated in quota share reinsurance agreements with Global Indemnity Reinsurancewhereby 50% of the net retained business of the U.S. insurance companies was ceded to Global Indemnity Reinsurance. Effective January 1, 2016, thecession percentage was lowered to 40% from 50%. These agreements exclude named storms. As a result of the enactment of the TCJA, effectiveJanuary 1, 2018, premiums being ceded under the quota share arrangement may potentially be subject to a 10% BEAT tax. As a result, GlobalIndemnity Reinsurance and the Company’s U.S. insurance companies have agreed to terminate the quota share arrangement effective January 1, 2018.Regulatory approval is still pending.Global Indemnity Reinsurance is an unauthorized reinsurer. As a result, any losses and unearned premiums that are ceded to Global IndemnityReinsurance by the U.S. insurance companies must be collateralized. To satisfy this requirement, Global Indemnity Reinsurance has set up custodialtrust accounts on behalf of the U.S. insurance companies.Global Indemnity Reinsurance also has established trust accounts to collateralize exposure it has to certain third party ceding companies. TheCompany invests the funds in securities that have durations that closely match the expected duration of the liabilities assumed. The Company believesthat 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 sharedpro rata amongst the U.S. insurance companies.Capital ResourcesAs a result of the changes in the worldwide tax environment, several of the intercompany financing structures are expected to be restructured.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 payoperating expenses that arise in the normal course of business. The loan is a demand loan and bears interest at 4.38%. Due to the liquidation of UnitedAmerica Indemnity, Ltd. in 2016, this loan was assumed by Global Indemnity Limited. At December 31, 2017, there was $1.0 million outstanding onthis loan with accrued interest of $1.9 million. Global Indemnity Limited is dependent on its subsidiaries to pay its dividends and operating expenses. 83Table of ContentsIn February, 2010, the line of credit between Global Indemnity Reinsurance and United America Indemnity, Limited was converted to a non-interestbearing note payable for the full amount of principal and accrued interest to date totaling $53.0 million. In May, 2014, United America Indemnity, Ltd.repaid $20 million of the outstanding balance due under this note. In November, 2016, this note was assumed by Global Indemnity Limited. As ofDecember 31, 2017, there was $33.0 million outstanding on the note payable.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 three loans in the amountof $125.0 million, $100.0 million, and $120.0 million from Global Indemnity Group, Inc. The $175.0 million and $110.0 million notes bear interest ata rate of 6.64% and 6.20%, respectively, and mature in 2018 and 2020, respectively. The $125.0 million, $100.0 million, and $120.0 million loansbears interest at 5.78%, 8.06%, and 8.15%, respectively, and matures in 2024, 2045, and 2047, respectively. Interest on these agreements is paidannually. At December 31, 2017, accrued interest on these notes and loans was $19.6 million. Other than its investment portfolio, Global IndemnityGroup, Inc. has no income producing operations. The ability of Global Indemnity Group, Inc. to generate cash to repay the notes and loan is dependenton 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. whichbears 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%, tofund 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 repurchaseauthorization. In September, 2015, U.A.I. (Luxembourg) Investment S.à.r.l. increased the demand line of credit that it previously issued to GlobalIndemnity (Cayman) Limited from $125.0 million to $225.0 million. In 2016, the amounts owed by Global Indemnity plc were assigned to GlobalIndemnity Limited. On May 5, 2017, Global Indemnity (Cayman) Limited was merged into Global Indemnity Limited. As a result, the loan betweenGlobal Indemnity (Cayman) Limited and Global Indemnity Limited was expunged and Global Indemnity Limited assumed the loan payable to U.A.I.(Luxembourg) Investment S.à.r.l. As of December 31, 2017, Global Indemnity Limited had $181.5 million outstanding on the line of credit with U.A.I.(Luxembourg) Investment S.à.r.l., with accrued interest of $9.1 million.In November, 2012, American Insurance Service, Inc. (“AIS”) issued a $35.0 million loan to Global Indemnity Reinsurance, bearing interest at the sixmonth London Interbank Offered Rate (“LIBOR”) plus 3.5%. The proceeds of the loan were used to fund trust accounts in the normal course ofbusiness. Effective October 31, 2013, American Insurance Service, Inc. (“AIS”) assigned all of its rights, obligations, duties, and liabilities under thenote to Global Indemnity Group, Inc. As of December 31, 2017, there was $5.0 million outstanding on the note payable, with accrued interest of$0.2 million payable to AIS and $1.3 million payable to Global Indemnity Group, Inc.As of December 31, 2017, the Company had available a margin borrowing facility. At December 31, 2017, the borrowing rate for this facility was tiedto the Fed Funds Effective rate and was approximately 1.6%. At December 31, 2016, the borrowing rate for this facility was tied to LIBOR and wasapproximately 1.6%. This facility is due on demand. The borrowings are subject to maintenance margin, which is a minimum account balance thatmust be maintained. A decline in market conditions could require an additional deposit of collateral. As of December 31, 2017, approximately$88.0 million in securities were deposited as collateral to support borrowings. The amount borrowed against the margin account may fluctuate asroutine investment transactions, such as dividends received, investment income received, maturities and pay-downs, impact cash balances. The marginfacility contains customary events of default, including, without limitation, insolvency, failure to make required payments, failure to comply with anyrepresentations or warranties, failure to adequately assure future performance, and failure of a guarantor to perform under its guarantee. The amountoutstanding on the Company’s margin borrowing facility was $72.2 million and $66.6 million as of December 31, 2017 and 2016, respectively. 84Table of ContentsOn May 12, 2014, Global Indemnity Group, Inc. entered into an agreement to loan $200 million to Global Indemnity (Cayman) Limited. In December,2014, Global Indemnity (Cayman) Limited repaid $125.0 million of the outstanding principal. On May 5, 2017, Global Indemnity (Cayman) Limitedwas merged into Global Indemnity Limited. In 2017, this note was refinanced at the Applicable Federal Rate of 1.11%. As of December 31, 2017,Global Indemnity Limited owed $75.0 million under this loan agreement with accrued interest of $1.4 million.The Company entered into two $100 million derivative instruments. Due to fluctuations in interest rates, the Company received $1.5 million and paid$1.0 million in connection with these derivative instruments for the years ended December 31, 2017 and 2016, respectively.During the first quarter of 2017, Global Indemnity made a capital contribution in the amount of $96.0 million to its subsidiary, Global Indemnity(Gibraltar) Limited. Through a series of additional capital contributions and repayment of certain intercompany balances, U.A.I. (Luxembourg) IVS.à.r.l. was the ultimate recipient of this capital contribution in the amount of $93.5 million.Contractual ObligationsThe Company has commitments in the form of operating leases, commitments to fund limited liability investments, subordinated notes, and unpaidlosses and loss expense obligations. As of December 31, 2017, contractual obligations related to Global Indemnity’s commitments, including anyprincipal and interest payments, were as follows: Payment Due by Period (Dollars in thousands) Total Less than 1year 1 – 3 years 3 – 5 years More than5 years Operating leases (1) $5,466 $3,147 $2,319 $— $— Commitments to fund limited liability investments (2) 57,714 57,714 — — — Subordinated notes due 2045 (3) 315,063 7,750 15,500 15,500 276,313 Subordinated notes due 2047 (4) 432,006 10,238 20,475 20,475 380,818 Unpaid losses and loss adjustment expenses obligations (5) 634,664 281,791 219,593 74,256 59,024 Total $1,444,913 $360,640 $257,887 $110,231 $716,155 (1)The Company leases office space and equipment as part of its normal operations. The amounts shown above represent future commitments undersuch operating leases.(2)Represents future funding commitment of the Company’s participation in three separate limited partnership investments. See Note 10 of thenotes to the consolidated financial statements in Item 8 of Part II of this report for additional information on these commitments.(3)Represents the Subordinated Notes 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. See Note 12 of the notes to the consolidated financial statements inItem 8 of Part II of this report for additional information on the 2045 Subordinated Notes.(4)Represents the Subordinated Notes due in 2047 in the aggregate principal amount of $130.0 million through an underwritten public offering.The notes bear interest at an annual rate equal to 7.875% payable quarterly. See Note 12 of the notes to the consolidated financial statements inItem 8 of Part II of this report for additional information on the 2047 Subordinated Notes.(5)These amounts represent the gross future amounts needed to pay losses and related loss adjustment expenses and do not reflect amounts that areexpected to be recovered from the Company’s reinsurers. See discussion in “Liability for Unpaid Losses and Loss Adjustment Expenses” for moredetails. 85Table of ContentsOff Balance Sheet ArrangementsThe Company has no off balance sheet arrangements.InflationProperty and casualty insurance premiums are established before the Company knows the amount of losses and loss adjustment expenses or the extentto which inflation may affect such amounts. The Company attempts to anticipate the potential impact of inflation in establishing its reserves.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 theinvestment portfolio and resulting in unrealized losses and reductions in shareholders’ equity.Cautionary Note Regarding Forward-Looking StatementsSome of the statements under “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere inthis report may include forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934, as amended, that reflectthe Company’s current views with respect to future events and financial performance. Forward-looking statements are statements that are not historicalfacts. 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 projectionsand estimates and their underlying assumptions, statements regarding plans, objectives, expectations or consequences of identified transactions ornatural 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 andexperience 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 forward-looking statements contained in this report are primarily based on the Company’s current expectations and projections about future eventsand trends that it believes may affect the Company’s business, financial condition, results of operations, prospects, business strategy and financialneeds. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factorsdescribed in the section captioned “Risk Factors” and elsewhere in this report. These risks are not exhaustive. Other sections of this report includeadditional factors that could adversely impact the Company’s business and financial performance. Moreover, the Company operates in a verycompetitive environment. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks anduncertainties that could have an impact on the forward-looking statements contained in this report. The Company cannot provide assurance that theresults, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstancescould differ materially from those described in the forward-looking statements.In addition, statements that “the Company believes” and similar statements reflect the Company’s beliefs and opinions on the relevant subject. Thesestatements are based upon information available to the Company as of the date of this report, and while the Company believes such information formsa reasonable basis for such statements, such information may be limited or incomplete, and these statements should not be read to indicate that theCompany have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherentlyuncertain and investors are cautioned not to unduly rely upon these statements. 86Table of ContentsThis report and the documents that are referenced in this report and have filed as exhibits to this report should be read with the understanding thatactual future results, levels of activity, performance and achievements may be materially different from what the Company expects. The Companyqualifies all of its forward-looking statements by these cautionary statements.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 noobligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket RiskMarket 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 interestrates, equity prices, credit risk, illiquidity, foreign exchange rates and commodity prices. The Company’s consolidated balance sheet includes theestimated fair values of assets that are subject to market risk. The Company’s primary market risks are interest rate risk and credit risks associated withinvestments in fixed maturities, equity price risk associated with investments in equity securities, and foreign exchange risk associated with premiumreceived that is denominated in foreign currencies. Each of these risks is discussed in more detail below. The Company has no commodity risk.Interest Rate RiskThe 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’sfixed income investments fall, and the converse is also true. The Company seeks to manage interest rate risk through an active portfolio managementstrategy that involves the selection, by the Company’s managers, of investments with appropriate characteristics, such as duration, yield, currency, andliquidity that are tailored to the anticipated cash outflow characteristics of the Company’s liabilities. The Company’s strategy for managing interestrate risk also includes maintaining a high quality bond portfolio with a relatively short duration to reduce the effect of interest rate changes on bookvalue. A significant portion of the Company’s investment portfolio matures each year, allowing for reinvestment at current market rates.As of December 31, 2017, assuming identical shifts in interest rates for securities of all maturities, the table below illustrates the sensitivity of marketvalue 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) $1,317,538 $76,101 6.1% (100) 1,279,357 37,920 3.1% No change 1,241,437 — 0% 100 1,204,561 (36,876) (3.0%) 200 1,168,582 (72,855) (5.9%) 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 ofthese financial instruments. As interest rates decline, the market value of the Company’s interest rate swaps fall, and the converse is also true. Since theCompany has designated the 87Table of Contentsinterest rate swaps as non-hedge instruments, the changes in the fair value is recognized as net realized investment gains / losses in the consolidatedstatements of operations. Therefore, changes in interest rates will have a direct impact to the Company’s results of operations. In addition, on a dailybasis, 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 marketvalue 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 fairmarket value of the interest rate swap.As of December 31, 2017, the table below illustrates the sensitivity of market value of the Company’s interest rate swaps as well as the impact on theconsolidated statements of operation to selected hypothetical changes in basis point increases and decreases: (Dollars in thousands) Basis Point Change MarketValue Change in MarketValue and Impact toConsolidatedStatements ofOperations (200) $(32,108) $(24,140) (100) (19,645) (11,677) No change (7,968) — 100 2,973 10,941 200 13,225 21,193 Credit RiskThe Company’s investment policy requires that its investments in debt instruments are of high credit quality issuers and limit the amount of creditexposure to any one issuer based upon the rating of the security.As of December 31, 2017, the Company had approximately $29.6 million worth of investment exposure to subprime and Alt-A investments. As ofDecember 31, 2017, approximately $29.2 million of those investments have been rated BBB+ to AAA by Standard & Poor’s and $0.4 million wererated below investment grade. As of December 31, 2016, the Company had approximately $25.7 million worth of investment exposure to subprime andAlt-A investments. As of December 31, 2016, approximately $25.2 million of those investments have been rated BBB+ to AAA by Standard & Poor’sand $0.5 million were rated below investment grade. There were no impairments recognized on these investments during the years ended December 31,2017 or 2016.In addition, the Company has credit risk exposure to its general agencies and reinsurers. The Company seeks to mitigate and control its risks toproducers by typically requiring its general agencies to render payments within no more than 45 days after the month in which a policy is effective andincluding provisions within the Company’s general agency contracts that allow it to terminate a general agency’s authority in the event ofnon-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 havingadequate financial strength and sufficient capital to fund their obligation. In addition, the Company seeks to mitigate credit risk to reinsurers throughthe use of trusts and letters of credit for collateral.Equity Price RiskIn 2017, the strategy for the Company’s equity portfolio followed a large cap value approach. This investment style placed primary emphasis onselecting the best relative values from those issues having a projected normalized price-earnings ratio at a discount to the market multiple. 88Table of ContentsThe 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 thecustom benchmark index. In 2017, the Company’s common stock portfolio returned a total return of 15.0%, not including investment advisor fees,compared to the benchmark gain of 13.3%.The carrying values of investments subject to equity price risk are based on quoted market prices as of the balance sheet dates. Market prices aresubject to fluctuation and thus the amount realized in the subsequent sale of an investment may differ from the reported market value. Fluctuation inthe market price of an equity security results from perceived changes in the underlying economic makeup of a stock, the price of alternativeinvestments and overall market conditions.The Company attempts to mitigate its unsystemic risk, which is the risk that is associated with holding a particular security, by holding a large numberof securities in that market. At year end, no security represented more than 5.2% of the market value of the equity portfolio. The Company continues tohave 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, 2017, the table below summarizes the Company’s equity price risk and reflects the effect of a hypothetical 10% and 20% increaseor decrease in market prices. The selected hypothetical changes do not indicate what could be the potential best or worst scenarios. (Dollars in thousands) Hypothetical PriceChange Estimated Fair Valueafter HypotheticalChange in Prices HypotheticalPercentageIncrease (Decrease) inShareholders’ Equity (1) (20%) $112,183 (2.5%) (10%) 126,206 (1.3%) No change 140,229 — 10% 154,252 1.3% 20% 168,274 2.5% (1)Net of 35% taxForeign Currency Exchange RiskThe Company has foreign currency exchange risk associated with a portion of the business written at Global Indemnity Reinsurance, as well as a smallportion of expenses related to corporate overhead in its Ireland and Luxembourg offices. The Company also maintains investments in foreigndenominated securities and cash accounts in foreign currencies in order to pay expenses in foreign countries. At period-end, the Company re-measuresthose non-U.S. currency financial assets to their current U.S. dollar equivalent. Financial liabilities, if any, are generally adjusted within the reservingprocess. However, for known losses on claims to be paid in foreign currencies, the Company re-measures the liabilities to their current U.S. dollarequivalent each period end. 89Table of ContentsItem 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAGLOBAL INDEMNITY LIMITEDIndex to Financial Statements Report of Independent Registered Public Accounting Firm 91 Consolidated Balance Sheets 92 Consolidated Statements of Operations 93 Consolidated Statements of Comprehensive Income 94 Consolidated Statements of Changes in Shareholders’ Equity 95 Consolidated Statements of Cash Flows 96 Notes to Consolidated Financial Statements 97 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-7 Schedule IV Reinsurance Earned Premiums S-8 Schedule V Valuation and Qualifying Accounts and Reserves S-9 Schedule VI Supplementary Information for Property Casualty Underwriters S-10 90Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Global Indemnity LimitedOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Global Indemnity Limited (the Company) as of December 31, 2017 and 2016, therelated consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the periodended December 31, 2017, and the related notes and the financial statement schedules listed in the Index at Item 15 (collectively referred to as the“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, inconformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 9, 2018, expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respectto the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2015.Philadelphia, PAMarch 9, 2018 91Table of ContentsGLOBAL INDEMNITY LIMITEDConsolidated Balance Sheets(In thousands, except share amounts) December 31,2017 December 31,2016 ASSETS Fixed maturities: Available for sale, at fair value (amortized cost: $1,243,144 and $1,241,339) $1,241,437 $1,240,031 Equity securities: Available for sale, at fair value (cost: $124,915 and $119,515) 140,229 120,557 Other invested assets 77,820 66,121 Total investments 1,459,486 1,426,709 Cash and cash equivalents 74,414 75,110 Premiums receivable, net 84,386 92,094 Reinsurance receivables, net 105,060 143,774 Funds held by ceding insurers 45,300 13,114 Federal income taxes receivable 10,332 — Deferred federal income taxes 26,196 40,957 Deferred acquisition costs 61,647 57,901 Intangible assets 22,549 23,079 Goodwill 6,521 6,521 Prepaid reinsurance premiums 28,851 42,583 Receivable for securities sold 1,543 — Other assets 75,384 51,104 Total assets $2,001,669 $1,972,946 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Unpaid losses and loss adjustment expenses $634,664 $651,042 Unearned premiums 285,397 286,984 Federal income taxes payable — 219 Ceded balances payable 10,851 14,675 Payable for securities purchased — 3,717 Contingent commissions 7,984 9,454 Debt 294,713 163,143 Other liabilities 49,666 45,761 Total liabilities 1,283,275 $1,174,995 Commitments and contingencies (Note 15) — — Shareholders’ equity: Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A ordinary shares issued: 10,102,927and 13,436,548, respectively; A ordinary shares outstanding: 10,073,376 and 13,436,548, respectively; Bordinary shares issued and outstanding: 4,133,366 and 4,133,366, respectively 2 2 Additional paid-in capital 434,730 430,283 Accumulated other comprehensive income, net of taxes 8,983 (618) Retained earnings 275,838 368,284 A ordinary shares in treasury, at cost: 29,551 and 0 shares, respectively (1,159) — Total shareholders’ equity 718,394 797,951 Total liabilities and shareholders’ equity $2,001,669 $1,972,946 See accompanying notes to consolidated financial statements. 92Table of ContentsGLOBAL INDEMNITY LIMITEDConsolidated Statements of Operations(In thousands, except shares and per share data) Years Ended December 31, 2017 2016 2015 Revenues: Gross premiums written $516,334 $565,845 $590,233 Net premiums written $450,180 $470,940 $501,244 Net premiums earned $438,034 $468,465 $504,143 Net investment income 39,323 33,983 34,609 Net realized investment gains (losses): Other than temporary impairment losses on investments (2,606) (6,733) (7,335) Other net realized investment gains 4,182 28,454 3,961 Total net realized investment gains (losses) 1,576 21,721 (3,374) Other income 6,582 10,345 3,400 Total revenues 485,515 534,514 538,778 Losses and Expenses: Net losses and loss adjustment expenses 269,212 264,003 275,368 Acquisition costs and other underwriting expenses 183,733 196,650 201,303 Corporate and other operating expenses 25,714 17,338 24,448 Interest expense 16,906 8,905 4,913 Income (loss) before income taxes (10,050) 47,618 32,746 Income tax benefit (499) (2,250) (8,723) Net income (loss) $(9,551) $49,868 $41,469 Per share data: Net income (loss) (1) Basic $(0.55) $2.89 $1.71 Diluted $(0.55) $2.84 $1.69 Weighted-average number of shares outstanding Basic 17,308,663 17,246,717 24,253,657 Diluted 17,308,663 17,547,061 24,505,851 (1)For the year ended December 31, 2017, “diluted” loss per share is the same as “basic” loss per share since there was a net loss for the period.See accompanying notes to consolidated financial statements. 93Table of ContentsGLOBAL INDEMNITY LIMITEDConsolidated Statements of Comprehensive Income(In thousands) Years Ended December 31, 2017 2016 2015 Net income (loss) $(9,551) $49,868 $41,469 Other comprehensive income (loss), net of tax: Unrealized holding gains (losses) 9,677 10,058 (17,457) Portion of other than temporary impairment losses recognized in other comprehensive income (loss) (3) (3) (4) Reclassification adjustment for gains included in net income (848) (14,809) (1,985) Unrealized foreign currency translation gains 775 58 140 Other comprehensive income (loss), net of tax 9,601 (4,696) (19,306) Comprehensive income, net of tax $50 $45,172 $22,163 See accompanying notes to consolidated financial statements. 94Table of ContentsGLOBAL INDEMNITY LIMITEDConsolidated Statements of Changes in Shareholders’ Equity(In thousands, except share amounts) Years Ended December 31, 2017 2016 2015 Number of A ordinary shares issued: Number at beginning of period 13,436,548 16,424,546 16,331,577 Ordinary shares issued under share incentive plans 2,204 115,711 121,812 Ordinary shares issued to directors 27,121 35,185 36,321 B ordinary shares converted to A ordinary shares — — 7,928,004 Ordinary shares redeemed (3,397,031) — (8,260,870) Adjustment for shares redeemed indirectly owned by subsidiary 34,085 Ordinary shares issued in connection with American Reliable acquisition — — 267,702 Reduction in treasury shares due to redomestication — (3,138,894) — Number at end of period 10,102,927 13,436,548 16,424,546 Number of B ordinary shares issued: Number at beginning and end of period 4,133,366 4,133,366 12,061,370 B Ordinary shares converted to A ordinary shares — — (7,928,004) Number at end of period 4,133,366 4,133,366 4,133,366 Par value of A ordinary shares: Balance at beginning of period $1 $2 $2 Reduction in treasury shares due to redomestication — (1) — Balance at end of period $1 $1 $2 Par value of B ordinary shares: Balance at beginning and end of period $1 $1 $1 Additional paid-in capital: Balance at beginning of period $430,283 $529,872 $519,590 Reduction in treasury shares due to redomestication — (103,248) — Adjustment for shares redeemed indirectly owned by subsidiary 706 Share compensation plans 3,741 3,532 10,272 Tax benefit on share-based compensation expense — 127 10 Balance at end of period $434,730 $430,283 $529,872 Accumulated other comprehensive income, net of deferred income tax: Balance at beginning of period $(618) $4,078 $23,384 Other comprehensive income (loss): Change in unrealized holding gains (losses) 8,829 (4,751) (19,436) Change in other than temporary impairment losses recognized in other comprehensive income (loss) (3) (3) (10) Unrealized foreign currency translation gains 775 58 140 Other comprehensive income (loss) 9,601 (4,696) (19,306) Balance at end of period $8,983 $(618) $4,078 Retained earnings: Balance at beginning of period $368,284 $318,416 $466,717 Ordinary shares redeemed (83,015) — (189,770) Adjustment for gain on shares redeemed indirectly owned by subsidiary 120 Net income (loss) (9,551) 49,868 41,469 Balance at end of period $275,838 $368,284 $318,416 Number of treasury shares: Number at beginning of period — 3,110,795 3,064,815 A ordinary shares purchased 29,551 28,099 11,895 Elimination of shares indirectly owned by subsidiary — — 34,085 Reduction in treasury shares due to redomestication — (3,138,894) — Number at end of period 29,551 — 3,110,795 Treasury shares, at cost: Balance at beginning of period $— $(102,443) $(101,404) A ordinary shares purchased, at cost (1,159) (805) (333) Elimination of shares indirectly owned by subsidiary — — (706) Reduction in treasury shares due to redomestication — 103,248 — Balance at end of period $(1,159) $— $(102,443) Total shareholders’ equity $718,394 $797,951 $749,926 See accompanying notes to consolidated financial statements. 95Table of ContentsGLOBAL INDEMNITY LIMITEDConsolidated Statements of Cash Flows(In thousands) Years Ended December 31, 2017 2016 2015 Cash flows from operating activities: Net income (loss) $(9,551) $49,868 $41,469 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Amortization of the value of business acquired — — 25,500 Amortization and depreciation 6,505 6,312 5,284 Amortization of debt issuance costs 232 123 47 Restricted stock and stock option expense 3,741 3,531 10,271 Deferred federal income taxes (1,018) (2,727) (7,201) Amortization of bond premium and discount, net 7,899 9,828 13,643 Net realized investment (gains) losses (1,576) (21,721) 3,374 Equity in the earnings of equity method limited liability investments (4,741) (5,190) (2,533) Gain on the disposition of subsidiary — (6,857) — Changes in: Premiums receivable, net 7,708 (2,849) 25,325 Reinsurance receivables, net 38,714 (28,180) 23,966 Funds held by ceding insurers (31,635) 2,923 9,147 Unpaid losses and loss adjustment expenses (16,378) (29,005) (84,914) Unearned premiums (1,587) 699 (6,764) Ceded balances payable (3,824) 10,086 (11,430) Other assets and liabilities, net (27,061) (15,065) (6,070) Contingent commissions (1,470) (1,615) (6,264) Federal income tax receivable/payable 406 5,047 (1,689) Deferred acquisition costs, net (3,746) (1,384) (31,279) Prepaid reinsurance premiums 13,732 1,780 3,868 Net cash provided by (used for) operating activities (23,650) (24,396) 3,750 Cash flows from investing activities: Cash release from escrow for business acquisition — — 113,696 Acquisition of business, net of cash acquired — — (92,336) Proceeds from sale of fixed maturities 918,439 381,389 647,404 Proceeds from sale of equity securities 32,218 111,156 39,723 Proceeds from sale of preferred stock — — 1,540 Proceeds from maturity of fixed maturities 145,475 86,009 157,845 Proceeds from limited partnership distribution 17,040 9,450 5,959 Proceeds from disposition of subsidiary, net of cash and cash equivalents disposed of $1,269 — 16,922 — Amount received (paid) in connection with derivatives 1,464 (1,010) (6,604) Purchases of fixed maturities (1,078,199) (437,690) (627,983) Purchases of equity securities (36,647) (109,940) (38,451) Purchases of other invested assets (24,000) (14,125) (3,550) Net cash provided by (used for) investing activities (24,210) 42,161 197,243 Cash flows from financing activities: Net borrowings (repayments) under margin borrowing facility 5,584 (9,000) (99,027) Redemption of ordinary shares (83,015) — (189,770) Proceeds from issuance of subordinated notes 130,000 — 100,000 Debt issuance cost (4,246) (14) (3,659) Purchases of A ordinary shares (1,159) (805) (333) Tax benefit on share-based compensation expense — 127 10 Net cash provided by (used for) financing activities 47,164 (9,692) (192,779) Net change in cash and cash equivalents (696) 8,073 8,214 Cash and cash equivalents at beginning of period 75,110 67,037 58,823 Cash and cash equivalents at end of period $74,414 $75,110 $67,037 See accompanying notes to consolidated financial statements. 96Table of Contents1. Principles of Consolidation and Basis of PresentationGlobal Indemnity Limited (“Global Indemnity” or “the Company”), incorporated on February 9, 2016, is domiciled in the Cayman Islands. OnNovember 7, 2016, Global Indemnity replaced Global Indemnity plc as the ultimate parent company as a result of a redomestication transaction. TheCompany’s A ordinary shares are publicly traded on the NASDAQ Global Select Market under the ticker symbol GBLI. See Note 2 below for detailsregarding the redomestication. In connection with the redomestication, Global Indemnity plc was converted to a private unlimited company and wasplaced into liquidation. The liquidation was finalized in 2017.The Company manages its business through three business segments: Commercial Lines, Personal Lines, and Reinsurance Operations. The Company’sCommercial Lines offers specialty property and casualty insurance products in the excess and surplus lines marketplace. The Company manages itsCommercial Lines by differentiating them into four product classifications: Penn-America, which markets property and general liability products tosmall commercial businesses through a select network of wholesale general agents with specific binding authority; United National, which marketsinsurance products for targeted insured segments, including specialty products, such as property, general liability, and professional lines throughprogram administrators with specific binding authority; Diamond State, which markets property, casualty, and professional lines products, which aredeveloped by the Company’s underwriting department by individuals with expertise in those lines of business, through wholesale brokers and alsomarkets through program administrators having specific binding authority; and Vacant Express, which primarily insures dwellings which are currentlyvacant, undergoing renovation, or are under construction and is distributed through aggregators, brokers, and retail agents. These productclassifications comprise the Company’s Commercial Lines business segment and are not considered individual business segments because eachproduct has similar economic characteristics, distribution, and coverage. The Company’s Personal Lines segment offers specialty personal lines andagricultural coverage through general and specialty agents with specific binding authority on an admitted basis. Collectively, the Company’s U.S.insurance subsidiaries are licensed in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The Company’s ReinsuranceOperations consist solely of the operations of its Bermuda-based wholly-owned subsidiary, Global Indemnity Reinsurance. Global IndemnityReinsurance is a treaty reinsurer of specialty property and casualty insurance and reinsurance companies. The Company’s Reinsurance Operationssegment provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies.During the 1st quarter of 2017, the Company re-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions ofbusiness will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportablesegments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included aspart of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs writtenby American Reliable Insurance Company (“American Reliable”), which was previously included within the Personal Lines segment, is nowaggregated within the Commercial Lines segment. Accordingly, the segment results for 2016 and 2015 have been revised to reflect these changes. SeeNote 20 for additional information regarding segments.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 ofconsolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amountsof 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 andtransactions have been eliminated in consolidation. 97Table of Contents2. RedomesticationOn June 20, 2016, the Company’s Board of Directors unanimously approved a plan for the Company to redomicile from Ireland to the Cayman Islands.On September 14, 2016, the Company held a special meeting of the holders of its A ordinary shares and B ordinary shares and an extraordinary generalmeeting of its shareholders. All resolutions required to effectuate the redomestication were approved by the requisite shareholder vote. On October 21,2016, the High Court of Ireland sanctioned Global Indemnity plc’s scheme of arrangement related to the redomestication from Ireland to CaymanIslands. The redomestication transaction was completed on November 7, 2016 and as a result, Global Indemnity Limited, a Cayman Islands exemptedcompany, replaced Global Indemnity plc as the ultimate holding company of the Global Indemnity group of companies.In connection with the redomestication to the Cayman Islands, each A ordinary share of Global Indemnity plc was cancelled and replaced with one Aordinary share of Global Indemnity Limited and each B ordinary share of Global Indemnity plc was cancelled and replaced with one B ordinary shareof Global Indemnity Limited. The Global Indemnity Limited A ordinary shares trade on the NASDAQ Global Select Market (“NASDAQ”) under theticker symbol GBLI, the same symbol under which Global Indemnity plc’s A ordinary shares were previously listed.3. Summary of Significant Accounting PoliciesInvestmentsThe Company’s investments in fixed maturities and equity securities are classified as available for sale and are carried at their fair value. Fair value isdefined 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 themeasurement date. The fair values of the Company’s available for sale portfolio, excluding interests in limited liability companies and limitedpartnerships, are determined on the basis of quoted market prices where available. If quoted market prices are not available, the Company uses thirdparty pricing services to assist in determining fair value. In many instances, these services examine the pricing of similar instruments to estimate fairvalue. The Company purchases bonds with the expectation of holding them to their maturity; however, changes to the portfolio are sometimes requiredto assure it is appropriately matched to liabilities. In addition, changes in financial market conditions and tax considerations may cause the Companyto sell an investment before it matures. The difference between amortized cost and fair value of the Company’s available for sale investments, net of theeffect of deferred income taxes, is reflected in accumulated other comprehensive income in shareholders’ equity and, accordingly, has no effect on netincome other than for the credit loss component of impairments deemed to be other than temporary.For investments in limited liability companies and limited partnerships where the ownership interest is less than 3%, the Company carries theseinvestments at fair value, and the change in the difference between cost and the fair value of the partnership interests, net of the effect of deferredincome taxes, is reflected in accumulated other comprehensive income in shareholders’ equity and, accordingly, has no effect on net income other thanfor impairments deemed to be other than temporary. The Company uses the equity method to account for an investments in limited liability companiesand limited partnerships where its ownership interest exceeds 3%. The equity method of accounting for an investment in a limited liability company orlimited partnership requires that its cost basis be updated to account for the income or loss earned on the investment. The income or loss associatedwith the limited liability companies or limited partnerships is reflected in the consolidated statements of operations, and the adjusted cost basisapproximates fair value.The Company’s investments in other invested assets were valued at $77.8 million and $66.1 million as of December 31, 2017 and 2016, respectively.These amounts relate to investments in limited liability companies and limited partnerships. The Company does not have access to daily valuations,therefore; the estimated fair value of the limited liability companies and limited partnerships are based on net asset value as a practical expedient forthe limited liability companies and limited partnerships. 98Table of ContentsNet 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 maturitysecurity 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 toestimate the credit loss to be recognized in earnings, if any. The specific methodologies and significant assumptions used by asset class are discussedbelow. Upon identification of such securities and periodically thereafter, a detailed review is performed to determine whether the decline is consideredother than temporary. This review includes an analysis of several factors, including but not limited to, the credit ratings and cash flows of the securitiesand the magnitude and length of time that the fair value of such 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)the investment has an unrealized loss and was identified by the Company’s investment manager as an investment to be sold beforerecovery or maturity; and (7)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 sellthe 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 securitiesin an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a security is other than temporary. If theimpairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amountrepresenting the credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of theamortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debtsecurity prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amountrelating 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 furtherfocuses 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 inwhich the impairment arose.For an analysis of other than temporary losses that were recorded for the years ended December 31, 2017, 2016, and 2015, please see Note 5 below. 99Table of ContentsVariable Interest EntitiesA Variable Interest Entity (“VIE”) refers to an investment in which an investor holds a controlling interest that is not based on the majority of votingrights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest inthe entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participatein a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significantmanagement influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do notconsolidate the VIE in their financial results.The Company has variable interests in three VIEs for which it is not the primary beneficiary. These investments are accounted for under the equitymethod of accounting as their ownership interest exceeds 3% of their respective investments.Cash and Cash EquivalentsFor the purpose of the statements of cash flows, the Company considers all liquid instruments with an original maturity of three months or less to becash equivalents. The Company has a cash management program that provides for the investment of excess cash balances primarily in short-termmoney market instruments. Generally, bank balances exceed federally insured limits. The carrying amount of cash and cash equivalents approximatesfair value.At December 31, 2017 and 2016, the Company had approximately $67.1 million and $52.0 million, respectively, of cash and cash equivalents that wasinvested in a diversified portfolio of high quality short-term debt securities.Valuation of Premium ReceivableThe Company evaluates the collectability of premium receivable based on a combination of factors. In instances in which the Company is aware of aspecific circumstance where a party may be unable to meet its financial obligations to the Company, a specific allowance for bad debts againstamounts 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 $2.2 million and$1.9 million as of December 31, 2017 and 2016, respectively.Goodwill and Intangible AssetsThe Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicableaccounting 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 unitgoodwill. Based on the qualitative assessment performed, there was no impairment of goodwill as of December 31, 2017.Impairment of intangible assets with an indefinite useful life is tested at least annually and more frequently as circumstances warrant in accordancewith applicable accounting guidance. Accounting guidance allows for the testing of indefinite lived intangible assets for impairment using bothqualitative and quantitative factors. Impairment of indefinite lived intangible assets is recognized only if the carrying amount of the intangible assetsexceeds 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 ofsaid assets. Based on the qualitative assessment performed, there were no impairments of indefinite lived intangible assets as of December 31, 2017. 100Table of ContentsIntangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of definitelived intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment isrecognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as thedifference between the carrying amount and the estimated fair value of the asset. As of December 31, 2017, there were no triggering events thatoccurred during the year that would result in an impairment of definite lived intangible assets.See Note 8 for additional information on goodwill and intangible assets.ReinsuranceIn the normal course of business, the Company seeks to reduce the loss that may arise from events that cause unfavorable underwriting results byreinsuring certain levels of risk from various areas of exposure with reinsurers. Amounts receivable from reinsurers are estimated in a manner consistentwith the reinsured policy and the reinsurance contract.The Company regularly reviews the collectability of reinsurance receivables. An allowance for uncollectible reinsurance receivable is recognizedbased on the financial strength of the reinsurers and the length of time any balances are past due. Any changes in the allowance resulting from thisreview are included in net losses and loss adjustment expenses on the consolidated statements of operations during the period in which thedetermination ismade. The allowance for uncollectible reinsurance was $8.0 million as of December 31, 2017 and 2016.The applicable accounting guidance requires that the reinsurer must assume significant insurance risk under the reinsured portions of the underlyinginsurance contracts and that there must be a reasonably possible chance that the reinsurer may realize a significant loss from the transaction. TheCompany has evaluated its reinsurance contracts and concluded that each contract qualifies for reinsurance accounting treatment pursuant to thisguidance.Income TaxesDeferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expectedto apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assetsand 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 taxasset 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 planningstrategies and/or actions. Management believes that it is more likely than not that the results of future operations can generate sufficient taxableincome to realize the remaining deferred income tax assets, and accordingly, the Company has not established any valuation allowances.Deferred Acquisition CostsThe costs of acquiring new and renewal insurance and reinsurance contracts include commissions, premium taxes and certain other costs that aredirectly related to the successful acquisition of new and renewal insurance and reinsurance contracts. The excess of the Company’s costs of acquiringnew and renewal insurance and reinsurance contracts over the related ceding commissions earned from reinsurers is capitalized as deferred acquisitioncosts and amortized over the period in which the related premiums are earned. 101Table of ContentsThe amortization of deferred acquisition costs for the years ended December 31, 2017, 2016, and 2015 was $109.0 million, $114.3 million, and$86.2 million, respectively.Premium DeficiencyA premium deficiency is recognized if the sum of expected loss and loss adjustment expenses and unamortized acquisition costs exceeds relatedunearned premium after consideration of investment income. This evaluation is done at a product line level in Insurance Operations and at a treatylevel in Reinsurance Operations. Any future expected loss on the related unearned premium is recorded first by impairing the unamortized acquisitioncosts on the related unearned premium followed by an increase to loss and loss adjustment expense reserves on additional expected loss in excess ofunamortized acquisition costs.For the years ended December 31, 2017, 2016, and 2015, the total premium deficiency charges were $0.3 million, $0.3 million, and $0.2 million,respectively, comprised solely of reductions to unamortized deferred acquisition costs within the commercial automobile lines in the CommercialLines Segment. Based on the Company’s analysis, the Company expensed acquisition cost as incurred for the remainder of 2017, 2016 and 2015 forthe commercial automobile lines in the Commercial Lines Segment. As the charges were a reduction of unamortized deferred acquisition costs in eachrespective period, no premium deficiency reserve existed as of December 31, 2017 or 2016.Derivative InstrumentsThe Company uses derivative instruments to manage its exposure to cash flow variability from interest rate risk. The derivative instruments are carriedon the balance sheet at fair value and included in other assets and other liabilities. Changes in the fair value of the derivative instruments and theperiodic net interest settlements under the derivatives instruments are recognized as net realized investment gains (losses) on the consolidatedstatements of operations.Margin Borrowing FacilityThe 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 facility are shown net in the consolidated statements of cash flows.Subordinated NotesThe carrying amounts reported in the balance sheet represent the outstanding balances, net of deferred issuance cost. See Note 12 for details.Unpaid Losses and Loss Adjustment ExpensesThe liability for unpaid losses and loss adjustment expenses represents the Company’s best estimate of future amounts needed to pay losses and relatedsettlement expenses with respect to events insured by the Company. This liability is based upon the accumulation of individual case estimates forlosses reported prior to the close of the accounting period with respect to direct business, estimates received from ceding companies with respect toassumed 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 andmanagement’s judgment. In some cases, significant periods of time, up to several years or more, may elapse between the occurrence of an insured lossand the reporting of that loss to the Company. To establish this liability, the Company regularly reviews and updates the methods of making suchestimates and establishing the resulting liabilities. Any resulting adjustments are recorded in consolidated statements of operations during the periodin which the determination is made. 102Table of ContentsRetirement of Treasury StockUpon the formal retirement of treasury stock, the Company offsets the par value of the treasury stock that is being retired against Ordinary Shares andreflects any excess of cost over par value as a deduction from Additional Paid-in Capital.Share RedemptionsWhen shares are redeemed, the Company offsets the par value of the redeemed shares against Ordinary Shares and reflects any excess of cost over parvalue as a deduction from Retained Earnings.PremiumsPremiums are recognized as revenue ratably over the term of the respective policies and treaties. Unearned premiums are computed on a pro rata basisto the day of expiration.Mandatory reinstatement premiums assessed on reinsurance policies are earned in the period of the loss event that gave rise to the reinstatementpremiums.Contingent CommissionsCertain professional general agencies of the Insurance Operations are paid special incentives, referred to as contingent commissions, when results ofbusiness produced by these agencies are more favorable than predetermined thresholds. Similarly, in some circumstances, companies that cede businessto the Reinsurance Operations are paid profit commissions based on the profitability of the ceded portfolio. These commissions are charged to otherunderwriting expenses when incurred.Share-Based CompensationThe Company accounts for stock options and other equity based compensation using the modified prospective application of the fair value-basedmethod permitted by the appropriate accounting guidance. See Note 16 for details.Earnings per ShareBasic earnings per share have been calculated by dividing net income available to common shareholders by the weighted-average ordinary sharesoutstanding. In periods of net income, diluted earnings per share have been calculated by dividing net income available to common shareholders bythe sum of the weighted-average ordinary shares outstanding and the weighted-average common share equivalents outstanding, which include optionsand other equity awards. In periods of net loss, diluted earnings per share is the same as basic earnings per share. See Note 18 for details.Foreign CurrencyThe Company maintains investments and cash accounts in foreign currencies related to the operations of its business. At period-end, the Companyre-measures non-U.S. currency financial assets to their current U.S. dollar equivalent. The resulting gain or loss for foreign denominated investments isreflected in accumulated other comprehensive income in shareholders’ equity; whereas, the gain or loss on foreign denominated cash accounts isreflected in income during the period. Financial liabilities, if any, are generally adjusted within the reserving process. However, for known losses onclaims to be paid in foreign currencies, the Company re-measures the liabilities to their current U.S. dollar equivalent each period end with theresulting gain or loss reflected in income during the period. Net transaction gains and losses, primarily comprised of re-measurement of known losseson claims to be paid in foreign currencies, were a gain of $2.1 million and $0.4 million for the years ended December 31, 2017 and 2015, respectively,and a loss $0.7 million for the year ended December 31, 2016. 103Table of ContentsOther IncomeOn September 30, 2016, Diamond State Insurance Company sold all the outstanding shares of capital stock of one of its wholly owned subsidiaries,United National Specialty Insurance Company, to an unrelated party. Diamond State Insurance Company received a one-time payment of$18.7 million and recognized a pretax gain of $6.9 million which is reflected in other income in 2016. This transaction did not have an impact on theCompany’s ongoing business operations. Subsequent to the sale, any business previously written by United National Specialty Insurance Company isbeing written by other companies within the Company’s U.S. Insurance Operations.In addition, other income is comprised of fee income on policies issued, commission income, accrued interest on the anticipated indemnification ofunpaid loss and loss adjustment expense reserve, and foreign exchange gains and losses.4. AcquisitionOn January 1, 2015, Global Indemnity Group, Inc., a subsidiary of the Company, acquired 100% of the voting equity interest of American Reliablefrom 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 Share Purchase Agreement (“SPA”), the ultimate purchase price is subject to (i) accountingprocedures that were performed in 2015 to determine GAAP book value and (ii) indemnification on future development on recorded loss and lossadjustment expenses as of December 31, 2014. In accordance with the SPA, on the third calendar year following the calendar year of the closing, if lossand 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 foraccident years 2014 and prior exceed recorded unpaid loss and loss adjustment expenses as of December 31, 2014, American Bankers Group, Inc. willpay the variance to Global Indemnity Group, Inc. In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. andAmerican Bankers Group, Inc., any variance paid related to the loss indemnification will be subject to interest of 5% compounded semi-annually. TheCompany’s purchase price, based on available financial information at the date of acquisition, was $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 acquisitionon January 1, 2015.The purchase of American Reliable expanded Global Indemnity’s product offerings. American Reliable is a specialty company that distributes personallines products written on an admitted basis that are unusual and harder to place. It complements Global Indemnity’s existing U.S. Insurance Operationsthat 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 areincluded in the Company’s results of operations for the year ended December 31, 2015. 104Table of ContentsThe Company has finalized its process of valuing the assets acquired and liabilities assumed. The following table summarizes the estimated fair valueof the assets acquired and liabilities assumed at the date of the acquisition. (Dollars in thousands) ASSETS: Investments $226,458 Cash and cash equivalents 21,360 Premiums receivables, net 26,102 Accounts receivable 11,311 Reinsurance receivables 13,842 Prepaid reinsurance premiums 43,506 Intangible assets 32,000 Deferred federal income taxes 915 Other assets 6,473 Total assets 381,967 LIABILITIES: Unearned premiums 172,234 Unpaid losses and loss adjustment expenses 89,489 Reinsurance balances payable 13,219 Contingent commissions 3,903 Other liabilities 5,026 Total liabilities 283,871 Estimated fair value of net assets acquired 98,096 Purchase price 99,797 Goodwill $1,701 The transaction was accounted for using the purchase method of accounting. The assets and liabilities acquired by the Company were adjusted toestimated 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 theoperations of Global Indemnity and American Reliable. The Company has assigned goodwill of $1.7 million to the Personal Lines segment. There isno tax goodwill.An identification and valuation of intangible assets was performed that resulted in the recognition of intangible assets of $32.0 million with valuesassigned as follows: (Dollars in thousands)Description Useful Life Amount State insurance licenses Indefinite $5,000 Value of business acquired < 1 year 25,500 Agent relationships 10 years 900 Trade name 7 years 600 $32,000 Intangible assets arising from the acquisition are deductible for income tax purposes over 15 years. 105Table of ContentsThe 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 AccumulatedAmortization NetValue State insurance licenses Indefinite $5,000 $— $5,000 Value of business acquired < 1 year 25,500 25,500 0 Agent relationships 10 years 900 90 810 Trade name 7 years 600 86 514 $32,000 $25,676 $6,324 Amortization related to the Company’s definite lived intangible assets resulting from American Reliable acquisition was $25.7 million for the yearended December 31, 2015.As of December 31, 2015, the Company expected that amortization expense for the next five years related to the American Reliable acquisition will beas follows: (Dollars in thousands) 2016 $176 2017 176 2018 176 2019 176 2020 176 As of December 31, 2015, the fair value, gross contractual amounts due, and contractual cash flows not expected to be collected of acquired receivableswere as follows: (Dollars in thousands) Fair Value GrossContractualAmounts Due Contractualcash flows notexpected to becollected Premium receivables $26,102 $26,896 $794 Accounts receivable 11,311 11,311 — Reinsurance receivables 13,842 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 theadditional 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 was included in corporate and other operating expenses on the Company’s Consolidated Statements of Operationsduring the year ended December 31, 2015. As payment for these fees, 267,702 A ordinary shares of Global Indemnity were issued under the GlobalIndemnity plc Share Incentive Plan in May, 2015. These shares were registered but cannot be sold until the earlier of five years or a change of control.See Note 16 for additional information on the Company’s share incentive plan, including 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 Operationsduring the years ended December 31, 2015 and 2014, respectively.During the year ended December 31, 2015, the Company paid approximately $1.6 million in employee compensation related costs, which were relatedto periods prior to the Acquisition. These costs were accrued by American Reliable and were included in the fair value of net assets acquired by GlobalIndemnity Group, Inc. on January 1, 2015. 106Table of Contents5. InvestmentsThe amortized cost and estimated fair value of investments were as follows as of December 31, 2017 and 2016: (Dollars in thousands) AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses EstimatedFair Value Other thantemporaryimpairmentsrecognized inAOCI (1) As of December 31, 2017 Fixed maturities: U.S. treasury and agency obligations $105,311 $562 $(1,193) $104,680 $— Obligations of states and political subdivisions 94,947 441 (274) 95,114 — Mortgage-backed securities 150,237 404 (1,291) 149,350 — Asset-backed securities 203,827 267 (393) 203,701 (1) Commercial mortgage-backed securities 140,761 101 (1,067) 139,795 — Corporate bonds 422,486 2,295 (1,391) 423,390 — Foreign corporate bonds 125,575 377 (545) 125,407 — Total fixed maturities 1,243,144 4,447 (6,154) 1,241,437 (1) Common stock 124,915 18,574 (3,260) 140,229 — Other invested assets 77,820 — — 77,820 — Total $1,445,879 $23,021 $(9,414) $1,459,486 $(1) (1)Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulatedother comprehensive income (“AOCI”). (Dollars in thousands) AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Estimated Fair Value Other thantemporaryimpairmentsrecognized inAOCI (1) As of December 31, 2016 Fixed maturities: U.S. treasury and agency obligations $71,517 $763 $(233) $72,047 $— Obligations of states and political subdivisions 155,402 1,423 (379) 156,446 — Mortgage-backed securities 88,131 895 (558) 88,468 — Asset-backed securities 233,890 684 (583) 233,991 (4) Commercial mortgage-backed securities 184,821 118 (1,747) 183,192 — Corporate bonds 381,209 1,666 (2,848) 380,027 — Foreign corporate bonds 126,369 164 (673) 125,860 — Total fixed maturities 1,241,339 5,713 (7,021) 1,240,031 (4) Common stock 119,515 3,445 (2,403) 120,557 — Other invested assets 66,121 — — 66,121 — Total $1,426,975 $9,158 $(9,424) $1,426,709 $(4) (1)Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulatedother 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% ofshareholders’ equity at December 31, 2017 and 2016. 107Table of ContentsThe amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at December 31, 2017, bycontractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepayobligations with or without call or prepayment penalties. (Dollars in thousands) AmortizedCost Estimated Fair Value Due in one year or less $70,222 $70,165 Due in one year through five years 435,122 434,078 Due in five years through ten years 235,233 236,552 Due in ten years through fifteen years 2,187 2,205 Due after fifteen years 5,555 5,591 Mortgage-backed securities 150,237 149,350 Asset-backed securities 203,827 203,701 Commercial mortgage-backed securities 140,761 139,795 Total $1,243,144 $1,241,437 The following table contains an analysis of the Company’s securities with gross unrealized losses, categorized by the period that the securities were ina continuous loss position as of December 31, 2017: Less than 12 months 12 months or longer (1) Total (Dollars in thousands) Fair Value GrossUnrealizedLosses Fair Value GrossUnrealizedLosses Fair Value GrossUnrealizedLosses Fixed maturities: U.S. treasury and agency obligations $79,403 $(962) $17,469 $(231) $96,872 $(1,193) Obligations of states and political subdivisions 34,537 (149) 12,060 (125) 46,597 (274) Mortgage-backed securities 127,991 (1,247) 1,866 (44) 129,857 (1,291) Asset-backed securities 97,817 (371) 6,423 (22) 104,240 (393) Commercial mortgage-backed securities 83,051 (523) 27,976 (544) 111,027 (1,067) Corporate bonds 147,064 (754) 53,024 (637) 200,088 (1,391) Foreign corporate bonds 53,320 (305) 20,582 (240) 73,902 (545) Total fixed maturities 623,183 (4,311) 139,400 (1,843) 762,583 (6,154) Common stock 32,759 (3,260) — — 32,759 (3,260) Total $655,942 $(7,571) $139,400 $(1,843) $795,342 $(9,414) (1)Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of non-credit losses on investment gradesecurities 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 beforerecovery. The Company has analyzed these securities and has determined that they are not other than temporarily impaired. 108Table of ContentsThe following table contains an analysis of the Company’s securities with gross unrealized losses, categorized by the period that the securities were ina continuous loss position as of December 31, 2016: Less than 12 months 12 months or longer (1) Total (Dollars in thousands) Fair Value GrossUnrealizedLosses Fair Value GrossUnrealizedLosses Fair Value GrossUnrealizedLosses Fixed maturities: U.S. treasury and agency obligations $39,570 $(233) $— $— $39,570 $(233) Obligations of states and political subdivisions 46,861 (369) 670 (10) 47,531 (379) Mortgage-backed securities 52,780 (541) 298 (17) 53,078 (558) Asset-backed securities 62,737 (493) 23,937 (90) 86,674 (583) Commercial mortgage-backed securities 94,366 (1,090) 69,747 (657) 164,113 (1,747) Corporate bonds 171,621 (2,731) 9,218 (117) 180,839 (2,848) Foreign corporate bonds 76,036 (673) — — 76,036 (673) Total fixed maturities 543,971 (6,130) 103,870 (891) 647,841 (7,021) Common stock 57,439 (2,403) — — 57,439 (2,403) Total $601,410 $(8,533) $103,870 $(891) $705,280 $(9,424) (1)Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of non-credit losses on investment gradesecurities 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 beforerecovery. 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 theCompany as of December 31, 2017 concluded the unrealized losses discussed above are not other than temporary impairments. The impairmentevaluation process is discussed in the “Investment” section of Note 3 (“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 lossrecognized in earnings, if any:U.S. treasury and agency obligations — As of December 31, 2017, gross unrealized losses related to U.S. treasury and agency obligations were$1.193 million. Of this amount, $0.231 million have been in an unrealized loss position for twelve months or greater and rated AA+. Macroeconomicand market analysis is conducted in evaluating these securities. Consideration is given to the interest rate environment, duration and yield curvemanagement of the portfolio, sector allocation and security selection.Obligations of states and political subdivisions — As of December 31, 2017, gross unrealized losses related to obligations of states and politicalsubdivisions were $0.274 million. Of this amount, $0.125 million have been in an unrealized loss position for twelve months or greater and are ratedinvestment grade or better. All factors that influence performance of the municipal bond market are considered in evaluating these securities. Theaforementioned factors include investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. Theanalysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform extensive in-housefundamental analysis on each issuer, regardless of their rating by the major agencies.Mortgage-backed securities (“MBS”) — As of December 31, 2017, gross unrealized losses related to mortgage-backed securities were $1.291 million.Of this amount, $0.044 million have been in an unrealized loss 109Table of Contentsposition for twelve months or greater. 95.5% of the unrealized losses for twelve months or greater are related to securities rated AA+ or better.Mortgage-backed securities are modeled to project principal losses under downside, base, and upside scenarios for the economy and home prices. Theprimary assumption that drives the security and loan level modeling is the Home Price Index (“HPI”) projection. These forecasts incorporate not justnational macro-economic trends, but also regional impacts to arrive at the most granular and accurate projections. These assumptions are incorporatedinto the model as a basis to generate delinquency probabilities, default curves, loss severity curves, and voluntary prepayment curves at the loan levelwithin each deal. The model utilizes HPI-adjusted current LTV, payment history, loan terms, loan modification history, and borrower characteristics asinputs to generate expected cash flows and principal loss for each bond under various scenarios.Asset backed securities (“ABS”) — As of December 31, 2017, gross unrealized losses related to asset backed securities were $0.393 million. Of thisamount, $0.022 million have been in an unrealized loss position for twelve months or greater and are rated AA or better. The weighted average creditenhancement for the Company’s asset backed portfolio is 23.4. This represents the percentage of pool losses that can occur before an asset backedsecurity will incur its first dollar of principal losses. Every ABS transaction is analyzed on a stand-alone basis. This analysis involves a thoroughreview of the collateral, prepayment, and structural risk in each transaction. Additionally, the analysis includes an in-depth credit analysis of theoriginator and servicer of the collateral. The analysis projects an expected loss for a deal given a set of assumptions specific to the asset type. Theseassumptions 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 thisratio are loss severities, recovery lags, and no advances on principal and interest.Commercial mortgage-backed securities (“CMBS”) — As of December 31, 2017, gross unrealized losses related to the CMBS portfolio were$1.067 million. Of this amount, $0.544 million have been in an unrealized loss position for twelve months or greater and are rated AA+ or better. Theweighted average credit enhancement for the Company’s CMBS portfolio is 24.7. This represents the percentage of pool losses that can occur before amortgage-backed security will incur its first dollar of principal loss. For the Company’s CMBS portfolio, a loan level analysis is utilized where everyunderlying CMBS loan is re-underwritten based on a set of assumptions reflecting expectations for the future path of the economy. Each loan isanalyzed over time using a series of tests to determine if a credit event will occur during the life of the loan. Inherent in this process are severaleconomic scenarios and their corresponding rent/vacancy and capital market states. The five primary credit events that frame the analysis include loanmodifications, term default, balloon default, extension, and ability to pay off at balloon. The resulting output is the expected loss adjusted cash flowsfor each bond under the base case and distressed scenarios.Corporate bonds — As of December 31, 2017, gross unrealized losses related to corporate bonds were $1.391 million. Of this amount, $0.637 millionhave been in an unrealized loss position for twelve months or greater and are rated investment grade or better. The analysis for this asset class includesmaintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicingcapabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industryconditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatoryenvironment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includesrunning 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, 2017, gross unrealized losses related to foreign bonds were $0.545 million. Of this amount, $0.240 million havebeen in an unrealized loss position for twelve months or greater and are rated investment grade or better. For this asset class, detailed financial modelsare maintained that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capitalstructure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which theissuer operates, the issuer’s current competitive 110Table of Contentsposition, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuercreditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default aswell as potential losses in the event of default.Common stock — As of December 31, 2017, gross unrealized losses related to common stock were $3.260 million. All unrealized losses have been inan unrealized loss position for less than twelve months. To determine if an other than temporary impairment of an equity security has occurred, theCompany considers, among other things, the severity and duration of the decline in fair value of the equity security. The Company also examines otherfactors to determine if the equity security could recover its value in a reasonable period of time.The Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for the years ended December 31, 2017,2016, and 2015: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Fixed maturities: OTTI losses, gross $(31) $(259) $(24) Portion of loss recognized in other comprehensive income (pre-tax) — — — Net impairment losses on fixed maturities recognized in earnings (31) (259) (24) Equity securities (2,575) (6,474) (7,311) Total $(2,606) $(6,733) $(7,335) The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company as of December 31, 2017, 2016,and 2015 for which a portion of the OTTI loss was recognized in other comprehensive income. Years EndedDecember 31, (Dollars in thousands) 2017 2016 2015 Balance at beginning of period $31 $31 $50 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 notwill be required to sell before recovery — — — Reductions reflecting increases in expected cash flows to be collected — — — Reductions for securities sold during the period (18) — (19) Balance at end of period $13 $31 $31 111Table of ContentsAccumulated Other Comprehensive Income, Net of TaxAccumulated other comprehensive income, net of tax, as of December 31, 2017 and 2016 was as follows: December 31, (Dollars in thousands) 2017 2016 Net unrealized gains (losses) from: Fixed maturities $(1,707) $(1,308) Common stock 15,314 1,042 Foreign currency fluctuations 551 — Deferred taxes (5,175) (352) Accumulated other comprehensive income, net of tax $8,983 $(618) The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the years ended December 31,2017 and 2016: Year Ended December 31, 2017(Dollars in thousands) Unrealized Gainsand Losses onAvailable forSale Securities,Net of Tax Foreign CurrencyItems, Net of Tax Accumulated OtherComprehensiveIncome, Net of Tax Beginning balance $(554) $(64) $(618) Other comprehensive income (loss) beforereclassification 9,455 994 10,449 Amounts reclassified from accumulated othercomprehensive income (loss) (629) (219) (848) Other comprehensive income (loss) 8,826 775 9,601 Ending balance $8,272 $711 $8,983 Year Ended December 31, 2016(Dollars in thousands) Unrealized Gainsand Losses onAvailable forSale Securities,Net of Tax Foreign CurrencyItems, Net of Tax Accumulated OtherComprehensiveIncome, Net of Tax Beginning balance $4,200 $(122) $4,078 Other comprehensive income (loss) beforereclassification 10,374 (261) 10,113 Amounts reclassified from accumulated othercomprehensive income (loss) (15,128) 319 (14,809) Other comprehensive income (loss) (4,754) 58 (4,696) Ending balance $(554) $(64) $(618) 112Table of ContentsThe reclassifications out of accumulated other comprehensive income for the years ended December 31, 2017 and 2016 were as follows: (Dollars in thousands) Amounts Reclassifiedfrom AccumulatedOther ComprehensiveIncome Years EndedDecember 31, Details about Accumulated OtherComprehensive Income Components Affected Line Item in the ConsolidatedStatements of Operations 2017 2016 Unrealized gains and losses on available for sale securities Other net realized investment (gains) $(3,921) $(30,055) Other than temporary impairment losses oninvestments 2,606 6,733 Total before tax (1,315) (23,322) Income tax expense 686 8,194 Unrealized gains and losses on available for salesecurities, net of tax (629) (15,128) Foreign currency items Other net realized investment (gains) losses (336) 491 Income tax expense (benefit) 117 (172) Foreign currency items, net of tax (219) 319 Total reclassifications Total reclassifications, net of tax $(848) $(14,809) Net Realized Investment Gains (Losses)The components of net realized investment gains (losses) for the years ended December 31, 2017, 2016, and 2015 were as follows: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Fixed maturities: Gross realized gains $4,066 $2,947 $3,565 Gross realized losses (3,387) (691) (2,180) Net realized gains 679 2,256 1,385 Common stock: Gross realized gains 4,178 28,785 10,379 Gross realized losses (3,206) (8,210) (8,246) Net realized gains 972 20,575 2,133 Preferred stock: Gross realized gains — — 96 Gross realized losses — — — Net realized gains — — 96 Derivatives: Gross realized gains 3,555 3,733 — Gross realized losses (3,630) (4,843) (6,988) Net realized gains (losses) (1) (75) (1,110) (6,988) Total net realized investment gains (losses) $1,576 $21,721 $(3,374) 113Table of Contents(1)Includes $3.6 million, $4.8 million, and $5.4 million of periodic net interest settlements related to the derivatives for the years endedDecember 31, 2017, 2016, and 2015, respectively.The proceeds from sales and redemptions of available for sale securities resulting in net realized investment gains (losses) for the years endedDecember 31, 2017, 2016, and 2015 were as follows: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Fixed maturities $918,439 $381,389 $647,404 Equity securities 32,218 111,156 39,723 Preferred stock — — 1,540 Net Investment IncomeThe sources of net investment income for the years ended December 31, 2017, 2016, and 2015 were as follows: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Fixed maturities $33,020 $30,337 $32,091 Equity securities 3,595 3,302 3,125 Cash and cash equivalents 894 217 82 Other invested assets 4,741 5,295 2,620 Total investment income 42,250 39,151 37,918 Investment expense (1) (2,927) (5,168) (3,309) Net investment income $39,323 $33,983 $34,609 (1)Investment expense for the year ended December 31, 2016 includes $1.5 million in upfront fees necessary to enter into a new investment. SeeNote 15 for additional information on the Company’s $40 million commitment related to this investment.The Company’s total investment return on a pre-tax basis for the years ended December 31, 2017, 2016, and 2015 were as follows: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Net investment income $39,323 $33,983 $34,609 Net realized investment gains (losses) 1,576 21,721 (3,374) Change in unrealized holding gains and losses 14,424 (8,240) (25,673) Net realized and unrealized investment returns 16,000 13,481 (29,047) Total investment return $55,323 $47,464 $5,562 Total investment return % 3.5% 3.1% 0.3% Average investment portfolio $1,597,487 $1,507,184 $1,752,785 Insurance Enhanced Asset-Backed and Credit SecuritiesAs of December 31, 2017, the Company held insurance enhanced asset-backed, commercial mortgage-backed, and credit securities with a market valueof approximately $33.9 million. Approximately $1.6 million of these 114Table of Contentssecurities were tax-free municipal bonds, which represented approximately 0.1% 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 “AA.” None of these bonds are pre-refunded with U.S. treasurysecurities, nor would they have carried a lower credit rating had they not been insured.A summary of the Company’s insurance enhanced municipal bonds that are backed by financial guarantors, including the pre-refunded bonds that areescrowed in U.S. government obligations, as of December 31, 2017, is as follows: (Dollars in thousands)Financial Guarantor Total Pre-refundedSecurities GovernmentGuaranteedSecurities Exposure Netof Pre-refunded& GovernmentGuaranteedSecurities Municipal Bond Insurance Association $1,157 $— $— $1,157 Gov’t National Housing Association 425 — 425 — Total backed by financial guarantors 1,582 — 425 1,157 Other credit enhanced municipal bonds — — — — Total 1,582 — 425 1,157 In addition to the tax-free municipal bonds, the Company held $32.3 million of insurance enhanced bonds, which represented approximately 2.1% ofthe Company’s total invested assets, net of receivable/payable for securities purchased and sold. The insurance enhanced bonds are comprised of$21.8 million of taxable municipal bonds, $10.4 million of commercial mortgage-backed securities, and $0.1 million of asset-backed securities. Thefinancial guarantors of the Company’s $32.3 million of insurance enhanced asset-backed, commercial-mortgage-backed, and taxable municipalsecurities include Municipal Bond Insurance Association ($6.4 million), Assured Guaranty Corporation ($15.5 million), and Federal Home LoanMortgage Corporation ($10.4 million).The Company had no direct investments in the entities that have provided financial guarantees or other credit support to any security held by theCompany at December 31, 2017.Bonds Held on DepositCertain cash balances, cash equivalents, equity securities, and bonds available for sale were deposited with various governmental authorities inaccordance with statutory requirements, were held as collateral pursuant to borrowing arrangements, or were held in trust pursuant to intercompanyreinsurance agreements. The fair values were as follows as of December 31, 2017 and 2016: Estimated Fair Value (Dollars in thousands) December 31,2017 December 31,2016 On deposit with governmental authorities $26,852 $29,079 Intercompany trusts held for the benefit of U.S. policyholders 328,494 351,002 Held in trust pursuant to third party requirements 94,098 88,178 Letter of credit held for third party requirements 3,944 4,871 Securities held as collateral for borrowing arrangements (1) 88,040 85,939 Total $541,428 $559,069 (1)Amount required to collateralize margin borrowing facility. 115Table of ContentsVariable Interest EntitiesA Variable Interest Entity (VIE) refers to an investment in which an investor holds a controlling interest that is not based on the majority of votingrights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest inthe entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participatein a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significantmanagement influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do notconsolidate the VIE in their financial results.The Company has variable interests in three VIE’s for which it is not the primary beneficiary. These investments are accounted for under the equitymethod of accounting as their ownership interest exceeds 3% of their respective investments.The fair value of one of the Company’s VIE’s, which invests in distressed securities and assets, was $26.3 million and $32.9 million as of December 31,2017 and 2016, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was$40.5 million and $48.6 million at December 31, 2017 and 2016, respectively. The fair value of a second VIE that provides financing for middlemarket companies, was $33.8 million and $33.2 million at December 31, 2017 and 2016, respectively. The Company’s maximum exposure to loss fromthis VIE, which factors in future funding commitments, was $43.8 million and $42.3 million at December 31, 2017 and 2016, respectively. During the2nd quarter of 2017, the Company invested in a new limited partnership that also invests in distressed securities and assets and is considered a VIE. TheCompany’s investment in this partnership has a fair value of $17.8 million as of December 31, 2017. The Company’s maximum exposure to loss fromthis VIE, which factors in future funding commitments, was $51.3 million at December 31, 2017. The Company’s investment in VIEs is included inother invested assets on the consolidated balance sheet with changes in fair value recorded in the consolidated statements of operations.6. Derivative InstrumentsInterest rate swaps are used by the Company primarily to reduce risks from changes in interest rates. Under the terms of the interest rate swaps, theCompany agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts ascalculated 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 orother liabilities on the consolidated balance sheets with the changes in fair value recognized as net realized investment gains in the consolidatedstatements of operations. The Company is ultimately responsible for the valuation of the interest rate swaps. To aid in determining the estimated fairvalue 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 asof December 31, 2017 and 2016: (Dollars in thousands) December 31, 2017 December 31, 2016 Derivatives Not Designated as HedgingInstruments under ASC 815 Balance SheetLocation NotionalAmount Fair Value NotionalAmount Fair Value Interest rate swap agreements Other liabilities $200,000 $(7,968) $200,000 $(11,524) 116Table of ContentsThe following table summarizes the net gains (losses) included in the consolidated statements of operations for changes in the fair value of thederivatives and the periodic net interest settlements under the derivatives for the years ended December 31, 2017, 2016, and 2015: Years Ended December 31, (Dollars in thousands) Consolidated Statements ofOperations Line 2017 2016 2015 Interest rate swap agreements Net realized investment gains(losses) $(75) $(1,110) $(6,988) As of December 31, 2017 and 2016, the Company is due $3.1 million and $5.3 million, respectively, for funds it needed to post to execute the swaptransaction and $9.5 million and $12.6 million, respectively, for margin calls made in connection with the interest rate swaps. These amounts areincluded in other assets on the consolidated balance sheets. 7.Fair Value MeasurementsThe accounting standards related to fair value measurements define fair value, establish a framework for measuring fair value, outline a fair valuehierarchy based on inputs used to measure fair value, and enhance disclosure requirements for fair value measurements. These standards do not changeexisting guidance as to whether or not an instrument is carried at fair value. The Company has determined that its fair value measurements are inaccordance with the requirements of these accounting standards.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 themeasurement 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 valuehierarchy within which the fair value measurement falls has been determined based on the lowest level input that is significant to the fair valuemeasurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requiresjudgment, and considers factors specific to the asset. 117Table of ContentsThe following table presents information about the Company’s invested assets and derivative instruments measured at fair value on a recurring basis asof December 31, 2017 and 2016, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fairvalue. As of December 31, 2017 Fair Value Measurements (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets: Fixed maturities: U.S. treasury and agency obligations $104,680 $— $— $104,680 Obligations of states and political subdivisions — 95,114 — 95,114 Mortgage-backed securities — 149,350 — 149,350 Commercial mortgage-backed securities — 139,795 — 139,795 Asset-backed securities — 203,701 — 203,701 Corporate bonds — 423,390 — 423,390 Foreign corporate bonds — 125,407 — 125,407 Total fixed maturities 104,680 1,136,757 — 1,241,437 Common stock 140,229 — — 140,229 Total assets measured at fair value (1) $244,909 $1,136,757 $— $1,381,666 Liabilities: Derivative instruments $— $7,968 $— $7,968 Total liabilities measured at fair value $— $7,968 $— $7,968 (1)Excluded from the table above are limited partnerships of $77.8 million at December 31, 2017 whose fair value is based on net asset value as apractical expedient. As of December 31, 2016 Fair Value Measurements (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets: Fixed maturities: U.S. treasury and agency obligations $72,047 $— $— $72,047 Obligations of states and political subdivisions — 156,446 — 156,446 Mortgage-backed securities — 88,468 — 88,468 Commercial mortgage-backed securities — 183,192 — 183,192 Asset-backed securities — 233,991 — 233,991 Corporate bonds — 380,027 — 380,027 Foreign corporate bonds — 125,860 — 125,860 Total fixed maturities 72,047 1,167,984 — 1,240,031 Common stock 120,557 — — 120,557 Total assets measured at fair value (1) $192,604 $1,167,984 $— $1,360,588 Liabilities: Derivative instruments $— $11,524 $— $11,524 Total liabilities measured at fair value $— $11,524 $— $11,524 (1)Excluded from the table above are limited partnerships of $66.1 million at December 31, 2016 whose fair value is based on net asset value as apractical expedient.The securities classified as Level 1 in the above table consist of U.S. Treasuries and equity securities actively traded on an exchange. 118Table of ContentsThe securities classified as Level 2 in the above table consist primarily of fixed maturity securities and derivative instruments. Based on the typicaltrading volumes and the lack of quoted market prices for fixed maturities, security prices are derived through recent reported trades for identical orsimilar securities making adjustments through the reporting date based upon available market observable information. If there are no recent reportedtrades, matrix or model processes are used to develop a security price where future cash flow expectations are developed based upon collateralperformance and discounted at an estimated market rate. Included in the pricing of asset-backed securities, collateralized mortgage obligations, andmortgage-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates arederived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected forthe underlying collateral. The estimated fair value of the derivative instruments, consisting of interest rate swaps, is obtained from a third partyfinancial institution that 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, 2017 and 2016 was as follows: December 31, 2017 December 31, 2016 (Dollars in thousands) CarryingValue Fair Value CarryingValue Fair Value Margin Borrowing Facility $72,230 $72,230 $66,646 $66,646 7.75% Subordinated Notes due 2045 (1) 96,619 100,059 96,497 95,697 7.875% Subordinated Notes due 2047 (2) 125,864 130,429 — — Total $294,713 $302,718 $163,143 $162,343 (1)As of December 31,2017 and 2016, the carrying value and fair value of the 7.75% Subordinated Notes due 2045 are net of unamortized debtissuance cost of $3.4 million and $3.5 million, respectively.(2)As of December 31, 2017, the carrying value and fair value of the 7.875% Subordinated Notes due 2047 are net of unamortized debt issuancecost of $4.1 million.The fair value of the margin borrowing facility approximates its carrying value due to the facility being due on demand. The subordinated notes due2045 and 2047 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, 2017, 2016, and 2015.The following table presents changes in Level 3 investments measured at fair value on a recurring basis for the year ended December 31, 2017 and2016: Years EndedDecember 31, (Dollars in thousands) 2017 2016 Beginning balance $— $— Total gains (realized / unrealized): Amortization of bond premium and discount, net — 75 Included in realized gains (losses) — 486 Purchases — 27,303 Sales — (27,864) Ending balance $— $— The investments classified as Level 3 in the above table consist of privately placed debt instruments purchased in 2017 with unobservable inputs. TheCompany does not have access to daily valuations; therefore, market trades, 119Table of Contentsperformance of the underlying assets, and key risks are considered in order to estimate fair values of these middle market corporate debt instruments. Inthe fourth quarter of 2016, the Company exchanged the debt instruments purchased in previous quarters of 2016, along with cash and equity related tothe debt instruments, for a single interest in the Private Middle Market Loan Fund, LP, which is considered a VIE. As this investment is priced using aNet Asset Value (“NAV”) it is excluded from the level 3 investment table above. See Note 4 of the notes to the consolidated financial statements inItem 8 of Part II of this report for further information regarding the Company’s investment in VIEs for the years ended December 31, 2017 and 2016.Fair Value of Alternative InvestmentsOther invested assets consist of limited liability partnerships whose fair value is based on net asset value per share practical expedient. The followingtable provides the fair value and future funding commitments related to these investments at December 31, 2017 and 2016. December 31, 2017 December 31, 2016 (Dollars in thousands) FairValue Future FundingCommitment FairValue Future FundingCommitment Real Estate Fund, LP (1) $— $— $— $— European Non-Performing Loan Fund, LP (2) 26,262 14,214 32,922 15,714 Private Middle Market Loan Fund, LP (3) 33,760 10,000 33,199 9,054 Distressed Debt Fund, LP (4) 17,798 33,500 — — Total $77,820 $57,714 $66,121 $24,768 (1)This limited partnership invests in real estate assets through a combination of direct or indirect investments in partnerships, limited liabilitycompanies, mortgage loans, and lines of credit. The Company does not have the contractual option to redeem its limited partnership interest butreceives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limitedpartnership interest without consent from the general partner. The Company continues to hold an investment in this limited partnership and haswritten the fair value down to zero.(2)This limited partnership invests in distressed securities and assets through senior and subordinated, secured and unsecured debt and equity, inboth public and private large-cap and middle-market companies. The Company does not have the ability to sell or transfer its limited partnershipinterest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interestbut receives distributions based on the liquidation of the underlying assets. Based on the terms of the partnership agreement, the Companyanticipates its interest in this partnership to be redeemed by 2020.(3)This limited partnership provides financing for middle market companies. The Company does not have the ability to sell or transfer its limitedpartnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limitedpartnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the investmentmanagement agreement, the Company anticipates its interest to be redeemed no later than 2024.(4)This limited partnership invests in stressed and distressed debt instruments. The Company does not have the ability to sell or transfer its limitedpartnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limitedpartnership 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 to be redeemed no later than 2027.Limited Liability Companies and Limited Partnerships with ownership interest exceeding 3%The Company uses the equity method to account for investments in limited liability companies and limited partnerships where its ownership interestexceeds 3%. The equity method of accounting for an investment in a limited liability company and limited partnership requires that its cost basis beupdated to account for the income 120Table of Contentsor loss earned on the investment. The investment income associated with these limited liability companies or limited partnerships, which is reflected inthe consolidated statements of operations, was $4.7 million, $5.2 million, and $2.5 million for the years ended December 31, 2017, 2016, and 2015,respectively.PricingThe Company’s pricing vendors provide prices for all investment categories except for investments in limited partnerships whose fair value is based onnet asset values as a practical expedient. Two primary vendors are utilized to 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 terms and conditions sourced from commercial vendors. Bonds with similarcharacteristics are grouped into specific sectors. Both asset classes use standard inputs and utilize bid price or spread, quotes, benchmarkyields, discount rates, market data feeds, and financial statements. • Data from commercial vendors is aggregated with market information, then converted into a prepayment/spread/LIBOR curve model usedfor commercial mortgage obligations (“CMO”). CMOs 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 interpolatedbenchmark curve. For both asset classes, evaluations utilize standard inputs plus new issue data, monthly payment information, andcollateral performance. The evaluated pricing models incorporate discount rates, loan level information, prepayment speeds, treasurybenchmarks, and LIBOR and swap curves. • For obligations of state and political subdivisions, an integrated evaluation system is used. The pricing models incorporate trades, spreads,benchmark curves, market data feeds, new issue data, and trustee reports. • 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, various external analytical products are utilized and purchased from commercial vendors.The Company performs certain procedures to validate whether the pricing information received from the pricing vendors is reasonable, to ensure thatthe fair value determination is consistent with accounting guidance, and to ensure that its assets are properly classified in the fair value hierarchy. TheCompany’s procedures include, but are not limited to: • Reviewing periodic reports provided by the Investment Manager that provides information regarding rating changes and securities placedon watch. This procedure allows the Company to understand why a particular security’s market value may have changed or may potentiallychange. • Understanding and periodically evaluating the various pricing methods and procedures used by the Company’s pricing vendors to ensurethat 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 asecond pricing vendor for a sample of securities.During 2017 and 2016, the Company has not adjusted quotes or prices obtained from the pricing vendors. 121Table of Contents8.Goodwill and Intangible AssetsGoodwillAs a result of acquisitions in 2015 and 2010, the Company has goodwill, within the Personal Lines segment, of $6.5 million as of December 31, 2017and 2016. The goodwill represents the excess purchase price over the Company’s best estimate of the fair value of the assets acquired. Impairmenttesting performed in 2017 and 2016 did not result in impairment of the goodwill acquired.Intangible assetsThe following table presents details of the Company’s intangible assets as of December 31, 2017: (Dollars in thousands)Description Useful Life Cost AccumulatedAmortization NetValue Trademarks Indefinite $4,800 $— $4,800 Tradenames Indefinite 4,200 — 4,200 State insurance licenses Indefinite 10,000 — 10,000 Customer relationships 15 years 5,300 2,724 2,576 Agent relationships 10 years 900 270 630 Trade names 7 years 600 257 343 $25,800 $3,251 $22,549 The following table presents details of the Company’s intangible assets as of December 31, 2016: (Dollars in thousands)Description Useful Life Cost AccumulatedAmortization NetValue Trademarks Indefinite $4,800 $— $4,800 Tradenames Indefinite 4,200 — 4,200 State insurance licenses Indefinite 10,000 — 10,000 Customer relationships 15 years 5,300 2,369 2,931 Agent relationships 10 years 900 179 721 Trade names 7 years 600 173 427 $25,800 $2,721 $23,079 Amortization related to the Company’s definite lived intangible assets, other than VOBA, was $0.5 million, for each of the years ended December 31,2017, 2016 and 2015. Amortization related to the Value of Business Added (“VOBA”) was $25.5 million for the year ended December 31, 2015. TheCompany did not have any amortization related to VOBA during the years ended December 31, 2017 or 2016.The Company expects that amortization expense for the next five years will be as follows: (Dollars in thousands) 2018 $529 2019 529 2020 529 2021 529 2022 443 Intangible assets with indefinite livesAs of December 31, 2017 and 2016, indefinite lived intangible assets, which are comprised of tradenames, trademarks, and state insurance licenses,were $19.0 million. The Company reviewed internal business unit 122Table of Contentsresults, the growth of competitors and the overall property and casualty insurance market for indicators of impairment of its indefinite lived intangibleassets. Impairment testing performed in 2017 and 2016 indicated that there was no impairment of these assets.Intangible assets with definite livesAs of December 31, 2017 and 2016, definite lived intangible assets, net of accumulated amortization, were $3.5 million and $4.1 million, respectively,and were comprised of customer relationships, agent relationships, and tradenames. The Company reviewed internal business unit results, the growth ofcompetitors and the overall property and casualty insurance market for indicators of impairment of its definite lived intangible assets. There was noimpairment of these assets in 2017 or 2016. 9.ReinsuranceThe 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 netloss exposure on insurance contracts. Reinsurance ceded arrangements do not discharge the Company of primary liability. Moreover, reinsurers mayfail to pay the Company due to a lack of reinsurer liquidity, perceived improper underwriting, and losses for risks that are excluded from reinsurancecoverage 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, 2017 and 2016: (Dollars in thousands) December 31,2017 December 31,2016 Reinsurance receivables, net $105,060 $143,774 Collateral securing reinsurance receivables (6,584) (13,865) Reinsurance receivables, net of collateral $98,476 $129,909 Allowance for uncollectible reinsurance receivables $8,040 $8,040 Prepaid reinsurance premiums 28,851 42,583 The reinsurance receivables above are net of a purchase accounting adjustment related to discounting acquired loss reserves to their present value andapplying a risk margin to the discounted reserves. This adjustment was $1.2 million and $2.0 million at December 31, 2017 and 2016, respectively.As of December 31, 2017, the Company had one aggregate unsecured reinsurance receivable that exceeded 3% of shareholders’ equity from thefollowing reinsurer. Unsecured reinsurance receivables include amounts receivable for paid and unpaid losses and loss adjustment expenses, lessamounts secured by collateral. (Dollars in thousands) ReinsuranceReceivables A.M. Best Ratings(As of December 31, 2017) Munich Re America Corporation $48,222 A+ 123Table of ContentsThe effect of reinsurance on premiums written and earned is as follows: (Dollars in thousands) Written Earned For the year ended December 31, 2017: Direct business $433,922 $440,109 Reinsurance assumed 82,412 77,811 Reinsurance ceded (1) (66,154) (79,886) Net premiums $450,180 $438,034 For the year ended December 31, 2016: Direct business $468,046 $466,750 Reinsurance assumed 97,799 98,267 Reinsurance ceded (1) (94,905) (96,552) Net premiums $470,940 $468,465 For the year ended December 31, 2015: Direct business $458,185 $452,441 Reinsurance assumed 132,048 144,554 Reinsurance ceded (1) (88,989) (92,852) Net premiums $501,244 $504,143 (1)Includes ceded written premiums of ($1.3) million, $35.3 million, and $55.8 million and ceded earned premiums of $13.5 million, $43.2 millionand $59.5 million to American Bankers Insurance Company for the years ended December 31, 2017, 2016, and 2015, respectively. 10.Income TaxesAs of December 31, 2017, the statutory income tax rates of the countries where the Company conducts or conducted business are 35% in the UnitedStates, 0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 27.08% in the Duchy of Luxembourg (for Luxembourg City), 0.25% to 2.5% inBarbados, and 25% on non-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income taxrate of each country is applied against the annual taxable income of each country to calculate the annual income tax expense. 124Table of ContentsThe Company’s income before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries, including the results of the quota share betweenGlobal Indemnity Reinsurance and the Insurance Operations, for the years ended December 31, 2017, 2016, and 2015 were as follows: Year Ended December 31, 2017:(Dollars in thousands) Non-U.S.Subsidiaries U.S.Subsidiaries Eliminations Total Revenues: Gross premiums written $212,386 $462,453 $(158,505) $516,334 Net premiums written $212,432 $237,748 $— $450,180 Net premiums earned $201,165 $236,869 $— $438,034 Net investment income 56,890 24,609 (42,176) 39,323 Net realized investment gains (losses) (641) 2,217 — 1,576 Other income 216 6,366 — 6,582 Total revenues 257,630 270,061 (42,176) 485,515 Losses and Expenses: Net losses and loss adjustment expenses 94,903 174,309 — 269,212 Acquisition costs and other underwriting expenses 89,153 94,580 — 183,733 Corporate and other operating expenses 17,399 8,315 — 25,714 Interest expense 16,740 42,342 (42,176) 16,906 Income (loss) before income taxes $39,435 $(49,485) $— $(10,050) Year Ended December 31, 2016:(Dollars in thousands) Non-U.S.Subsidiaries U.S.Subsidiaries Eliminations Total Revenues: Gross premiums written $201,726 $506,061 $(141,942) $565,845 Net premiums written $201,690 $269,250 $— $470,940 Net premiums earned $212,325 $256,140 $— $468,465 Net investment income 48,807 19,341 (34,165) 33,983 Net realized investment gains (losses) (89) 21,810 — 21,721 Other income (loss) (224) 10,569 — 10,345 Total revenues 260,819 307,860 (34,165) 534,514 Losses and Expenses: Net losses and loss adjustment expenses 95,812 168,191 — 264,003 Acquisition costs and other underwriting expenses 94,749 101,901 — 196,650 Corporate and other operating expenses 9,035 8,303 — 17,338 Interest expense 8,312 34,758 (34,165) 8,905 Income (loss) before income taxes $52,911 $(5,293) $— $47,618 125Table of ContentsYear 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 $— $501,244 Net premiums earned $283,448 $220,695 $— $504,143 Net investment income 44,534 18,011 (27,936) 34,609 Net realized investment losses (1,039) (2,335) — (3,374) Other income (loss) (93) 3,493 — 3,400 Total revenues 326,850 239,864 (27,936) 538,778 Losses and Expenses: Net losses and loss adjustment expenses 141,444 133,924 — 275,368 Acquisition costs and other underwriting expenses 122,999 78,304 — 201,303 Corporate and other operating expenses 5,928 18,520 — 24,448 Interest expense 4,492 28,357 (27,936) 4,913 Income (loss) before income taxes $51,987 $(19,241) $— $32,746 The following table summarizes the components of income tax expense (benefit): Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Current income tax expense (benefit): Foreign $392 $330 $263 U.S. Federal 127 147 (1,785) Total current income tax expense (benefit) 519 477 (1,522) Deferred income tax expense (benefit): U.S. tax rate change 17,524 — — U.S. Federal (18,542) (2,727) (7,201) Total deferred income tax (benefit) (1,018) (2,727) (7,201) Total income tax (benefit) $(499) $(2,250) $(8,723) The weighted average expected tax provision has been calculated using income (loss) before income taxes in each jurisdiction multiplied by thatjurisdiction’s applicable statutory tax rate. 126Table of ContentsThe following table summarizes the differences between the tax provision for financial statement purposes and the expected tax provision at theweighted average tax rate: Years Ended December 31, 2017 2016 2015 (Dollars in thousands) Amount % of Pre-Tax Income Amount % of Pre-Tax Income Amount % of Pre-Tax Income Expected tax provision at weighted average $(16,928) (168.4%) $(1,496) (3.1%) $(6,434) (19.6%) Adjustments: Tax exempt interest (213) (2.1) (394) (0.8) (441) (1.3) Dividend exclusion (571) (5.7) (617) (1.3) (784) (2.4) Tax rate change 17,524 174.4 — — — — Other (311) (3.2) 257 0.5 (1,064) (3.3) Effective income tax benefit $(499) (5.0%) $(2,250) (4.7%) $(8,723) (26.6%) The effective income tax benefit rate for 2017 was 5.0%, compared with an effective income tax benefit rate of 4.7% and 26.6% for 2016 and 2015,respectively. The increase in the effective income tax benefit rate in 2017 compared to 2016 is due to incurring a provisional tax expense of$17.5 million related to the reduction in the deferred tax asset as a result of the TCJA enacted on December 22, 2017 which lowered the U.S. tax ratefrom 35% to 21% offset by $18.4 million tax benefit due to an increase in losses incurred in the Company’s U.S. operations for 2017 compared to2016. The decrease in the effective income tax benefit rate in 2016 compared to 2015 is primarily due to capital gains in 2016.Financial results for the year ended December 31, 2017 reflect provisional amounts related to the December 22, 2017 enactment of the TCJA. Theseprovisional estimates are based on the Company’s initial analysis and current interpretation of the legislation. Given the complexity of the legislation,anticipated guidance from the U.S. Treasury, and the potential for additional guidance from the Securities and Exchange Commission or the FinancialAccounting Standards Board, these estimates may be adjusted during 2018. 127Table of ContentsThe tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at December 31, 2017 and 2016 are presentedbelow: (Dollars in thousands) 2017 2016 Deferred tax assets: Discounted unpaid losses and loss adjustment expenses $3,625 $7,015 Unearned premiums 5,318 8,802 Section 163(j) carryforward 7,906 8,075 Alternative minimum tax credit carryover — 10,957 Net operating loss carryforward 16,323 3,205 Partnership K1 basis differences 130 238 Capital gain on derivative instruments 1,673 4,033 Investment impairments 1,742 3,419 Stock options 1,740 2,820 Stat-to-GAAP reinsurance reserve 1,014 1,337 Intercompany transfers 317 808 Other 3,249 4,986 Total deferred tax assets 43,037 55,695 Deferred tax liabilities: Purchase accounting adjustment for American Reliable 7,723 6,095 Intangible assets 2,394 3,942 Unrealized gain on securities available-for-sale and investments in limitedpartnerships included in accumulated other comprehensive income 3,105 352 Investment basis differences 211 484 Deferred acquisition costs 1,921 2,941 Depreciation and amortization 285 119 Other 1,202 805 Total deferred tax liabilities 16,841 14,738 Total net deferred tax assets $26,196 $40,957 The deferred tax assets and deferred tax liabilities listed in the table above relate to temporary differences between the Company’s accounting and taxcarrying values and carryforwards for its companies in the United States. The net deferred tax asset at December 31, 2017 includes a $17.5 millionreduction as a result of the TCJA enacted on December 22, 2017. The new tax law reduces the Company’s U.S. corporate income tax rate from 35% to21% effective January 1, 2018. As a result, the Company reduced its net deferred tax assets at December 31, 2017 and recorded a provisional deferredtax expense of $17.5 million increasing the effective tax rate for the year ending December 31, 2017 by 174.4%.Management believes it is more likely than not that the remaining deferred tax assets will be completely utilized in future years. As a result, theCompany has not recorded a valuation allowance at December 31, 2017 and 2016.The Company has an alternative minimum tax (“AMT”) credit carryforward of $11.0 million as of December 31, 2017 and 2016. The TCJA repealedthe corporate AMT. The AMT credit carryforward of $11.0 million was reclassed to federal income taxes receivable at December 31, 2017 and will befully refunded by the end of 2021. The Company has a net operating loss (“NOL”) carryforward of $16.3 million as of December 31, 2017, whichbegins to expire in 2035 based on when the original NOL was generated. The Company’s NOL carryforward as of December 31, 2016 was $3.2 million.The Company has a Section 163(j) (“163(j)”) carryforward of 128Table of Contents$7.9 million and $8.1 million as of December 31, 2017 and 2016, respectively, which can be carried forward indefinitely. The 163(j) carryforward is fordisqualified 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. TheCompany is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2014.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 Companybelieves, although there can be no assurances, that it qualifies for treaty benefits under the Tax Convention with Luxembourg and would be subject toa 5% withholding tax if it were to pay a dividend. Determination of the unrecognized deferred tax liability related to these undistributed earnings isnot practicable because of the complexities with its hypothetical calculation. The Company did not pay any dividends from a U.S. subsidiary to aforeign affiliate during 2017, 2016, or 2015.The Company applies a more-likely-than-not recognition threshold for all tax uncertainties whereby it only recognizes those tax benefits that have agreater than 50% likelihood of being sustained upon examination by the taxing authorities. The Company had no unrecognized tax benefits during2017 or 2016.The Company classifies all interest and penalties related to uncertain tax positions as income tax expense. The Company did not incur any interest andpenalties related to uncertain tax positions during the years ended December 31, 2017, 2016 and 2015. As of December 31, 2017, the Company did notrecord any liabilities for tax-related interest and penalties on its consolidated balance sheets. 129Table of Contents11.Liability for Unpaid Losses and Loss Adjustment ExpensesConsolidated ActivityActivity in the liability for unpaid losses and loss adjustment expenses is summarized as follows: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Balance at beginning of period $651,042 $680,047 $675,472 Less: Ceded reinsurance receivables 130,439 108,130 123,201 Net balance at beginning of period 520,603 571,917 552,271 Purchased reserves, gross 19,333 2,007 89,489 Less: Purchased reserves ceded (29) (45) 12,800 Purchase reserves, net of third party reinsurance 19,362 2,052 76,689 Incurred losses and loss adjustment expenses related to: Current year 323,112 321,255 310,066 Prior years (53,900) (57,252) (34,698) Total incurred losses and loss adjustment expenses 269,212 264,003 275,368 Paid losses and loss adjustment expenses related to: Current year 156,325 177,006 164,058 Prior years 115,431 140,363 168,353 Total paid losses and loss adjustment expenses 271,756 317,369 332,411 Net balance at end of period 537,421 520,603 571,917 Plus: Ceded reinsurance receivables 97,243 130,439 108,130 Balance at end of period $634,664 $651,042 $680,047 When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, losstrends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserveestimates.During 2017, the Company reduced its prior accident year loss reserves by $53.9 million, which consisted of a $39.4 million decrease related toCommercial Lines, $6.6 million decrease related to Personal Lines, and a $7.9 million decrease related to Reinsurance Operations.The $39.4 million reduction of prior accident year loss reserves related to Commercial Lines primarily consisted of the following: • General Liability: A $26.9 million reduction in aggregate with $6.9 million of favorable development in the construction defect reservecategory and $20.0 million of favorable development in the other general liability reserve categories. The favorable development in theconstruction defect reserve category recognizes lower than anticipated claims frequency and severity which led to reductions primarily inthe 2005 through 2016 accident years. For the other general liability reserve categories, lower than expected claims severity was theprimary driver of the favorable development mainly in the 2005 through 2014 accident years. • Professional Liability: A $5.8 million decrease in aggregate primarily reflects lower than expected claims severity in the 2006 through2008 and 2011 through 2012 accident years. • Property: A $6.3 million reduction in aggregate with $4.0 million of favorable development in the property excluding catastrophe reservecategories and $2.3 million of favorable development in the 130Table of Contents property catastrophe reserve categories. The favorable development in the reserve categories excluding catastrophe experience reflectslower than expected claims severity in the 2011 through 2015 accident years. For the property catastrophe reserve categories, lower thananticipated claims severity was the driver of the favorable development in the 2011 through 2016 accident years. • Workers Compensation: A $0.5 million reduction primarily due to lower than expected case incurred emergence in the 2011 accidentyear.The $6.6 million reduction of prior accident year loss reserves related to Personal Lines primarily consisted of the following: • Property: A $6.1 million reduction in the property reserve categories. The decrease reflects lower than expected case incurred emergenceprimarily in the 2016 accident year and favorable development from the Butte wildfire subrogation recovery in the 2015 accident year. • General Liability: A $0.5 million reduction reflects lower than expected case incurred emergence in the 2016 accident year, primarily inthe agriculture reserve category, partially offset by adverse development in the 2015 accident year reflecting higher than anticipated caseincurred emergence mainly in the dwelling reserve category.The $7.9 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily from the property lines for accidentyears 2008 through 2016. Ultimate losses were lowered in these accident years based on review of the experience reported from cedants.During 2016, the Company reduced its prior accident year loss reserves by $57.3 million, which consisted of a $43.8 million decrease related toCommercial Lines and a $13.5 million decrease related to Reinsurance Operations.The $43.8 million reduction of prior accident year loss reserves related to Commercial Lines primarily consisted of the following: • Property: A $0.8 million increase in aggregate with a $0.5 million increase in the non-catastrophe segments and $0.3 million increase inthe catastrophe segments. The increases reflect higher than expected case incurred emergence, primarily in the 2009, 2012, and 2015accident years. The increases were partially offset by decreases in the 2008, 2011, and 2013 accident years due to better than expected caseincurred emergence in those accident years. • General Liability: A $43.8 million reduction in aggregate, within the casualty lines, with $9.4 million of favorable development in theconstruction defect reserve category and $34.4 million of favorable development in the other general liability reserve categories. For theconstruction defect reserve category, lower than expected frequency and severity led to favorable development in accident years 2005through 2015. Lower than expected claims severity was the driver of the favorable development in the other general liability reservecategories, primarily in the 2004 through 2014 accident years. • Marine: A $1.4 million decrease in accident years 2010 through 2012 was driven by less than expected case incurred emergence in theseyears which is primarily within the casualty lines.The $13.5 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily from the property lines for accidentyears 2010 through 2015. Ultimate losses were lowered in these accident years based on reviews of the experience reported from cedants.During 2015, the Company reduced its prior accident year loss reserves by $34.7 million, which consisted of a $25.2 million decrease related toCommercial Lines, a $0.4 million decrease related to Personal Lines, and a $9.1 million decrease related to Reinsurance Operations. 131Table of ContentsThe $25.2 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, within the casualty lines, with $5.9 million of favorable development in theconstruction defect reserve category and $14.5 million of favorable development in the other general liability reserve categories. In theconstruction defect reserve category, a reduction in both claims frequency and severity was observed across several accident years whichcontributed to the recognition of favorable development primarily in accident years 2008 through 2014. For general liability excludingconstruction defect, lower than expected claims severity was experienced across multiple accident years leading to the recognition offavorable 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 accidentyears 2006 through 2011 which is within the casualty lines. • Umbrella: A $1.6 million increase related to late case incurred emergence which contributed to the recognition of adverse developmentprimarily in accident years 1990, 1995, 2001, 2007, and 2013. There is a small portion that is related to accidents years prior to 1990.The $0.4 million reduction of prior accident year loss reserves related to Personal Lines primarily consisted of lower than expected case incurredemergence in the 2013 accident year.The $9.1 million reduction of prior accident year loss reserves related to Reinsurance Operations was primarily driven by $6.8 million of favorabledevelopment in property mainly due to accident years 2011 through 2014 and $2.8 million of favorable development in the marine product mainlydue to accident years 2010 and 2011, partially offset by adverse development of $1.0 million in workers compensation mainly due to accident year2010. Ultimate losses from quota share underwriting years 2013 and prior were booked to the amount reported from cedants and reserve releases onlegacy contracts due to better than anticipated case incurred emergence led to the recognition of favorable development.Prior to 2001, the Company underwrote multi-peril business insuring general contractors, developers, and sub-contractors primarily involved inresidential construction that has resulted in significant exposure to construction defect (“CD”) claims. The Company’s reserves for CD claims areestablished 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 theamounts currently recorded. As of December 31, 2017 and 2016, gross reserves for CD claims were $43.8 million and $54.5 million, respectively, andnet reserves for CD claims were $40.2 million and $48.6 million, respectively.The Company has exposure to asbestos and environmental (“A&E”) claims. The asbestos exposure primarily arises from the sale of product liabilityinsurance, and the environmental exposure arises from the sale of general liability and commercial multi-peril insurance. In establishing the liabilityfor unpaid losses and loss adjustment expenses related to A&E exposures, management considers facts currently known and the current state of the lawand coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has beendeveloped to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilitieshave been established to cover additional exposures on both known and unasserted claims. Estimates of the liabilities are reviewed and updatedregularly. Case law continues to evolve for such claims, and uncertainty exists about the outcome of coverage litigation and whether past claimexperience will be representative of future claim experience. Included in net unpaid losses and loss adjustment expenses as of December 31, 2017,2016, and 2015 were IBNR reserves of $26.9 million, $26.7 million, and $26.0 million, respectively, and case reserves of approximately $3.3 million,$3.2 million, and $4.5 million, respectively, for known A&E-related claims. 132Table of ContentsThe following table shows the Company’s gross reserves for A&E losses: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Gross reserve for A&E losses and loss adjustment expenses — beginning ofperiod $51,919 $53,824 $56,535 Plus: Incurred losses and loss adjustment expenses — case reserves 542 (669) 2,666 Plus: Incurred losses and loss adjustment expenses — IBNR 928 2,064 (2,663) Less: Payments 1,516 3,300 2,714 Gross reserves for A&E losses and loss adjustment expenses — end of period $51,873 $51,919 $53,824 The following table shows the Company’s net reserves for A&E losses: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Net reserve for A&E losses and loss adjustment expenses — beginning of period $29,890 $30,529 $31,185 Plus: Incurred losses and loss adjustment expenses — case reserves 769 (125) 395 Plus: Incurred losses and loss adjustment expenses — IBNR 198 631 (394) Less: Payments 733 1,145 657 Net reserves for A&E losses and loss adjustment expenses — end of period $30,124 $29,890 $30,529 Establishing reserves for A&E and other mass tort claims involves more judgment than other types of claims due to, among other things, inconsistentcourt decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, and judicial interpretations that often expand theories ofrecovery 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 asbestosmanufacturers. 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 foundin most comprehensive general liability policies.As of December 31, 2017, 2016, and 2015, the survival ratio on a gross basis for the Company’s open A&E claims was 20.7 years, 13.8 years, and 15.0years, respectively. As of December 31, 2017, 2016, and 2015, the survival ratio on a net basis for the Company’s open A&E claims was 35.6 years,19.3 years, and 16.8 years, respectively. The survival ratio, which is the ratio of gross or net reserves to the 3-year average of annual paid claims, is afinancial 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.Line of Business CategoriesThe following is information, presented by lines of business with similar characteristics including similar payout patterns, about incurred and paidclaims development as of December 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reportedliabilities included within the net incurred claims amounts. The years included represent the number of years for which claims incurred typicallyremain outstanding but need not exceed 10 years including the most recent report period presented. 133Table of ContentsThe information about incurred and paid claims development for the years ended December 31, 2008 to 2015, is presented as required supplementaryunaudited information.Commercial LinesProperty and Casualty MethodologiesCommercial Lines internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (“ALAE”) separately for propertyexcluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarial reserve reviews were completed withdata through December, 2017. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to developestimates of ultimate Loss & ALAE for most reserve categories. Additional actuarial methodologies were employed to develop estimates of ultimateLoss & ALAE for mass tort and constructions defect reserve categories due to the unique characteristics of the exposures involved. Management’sultimate selections were based on the internal actuarial review and a third party actuarial review completed during the 4th quarter of 2017. Caseincurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves. These methodologies are consistent with last year.Commercial Lines cumulative claim frequency has been calculated at the claim level and includes claims closed without payment.Commercial Lines — Property(Dollars in thousands) Incurred Claims and AllocatedClaims Adjustment Expenses,Net of Reinsurance For the YearsEnded December 31, As of December 31, 2017 AccidentYear 2015 2016 2017 IBNR (1) CumulativeNumber of ReportedClaims (unaudited) 2015 $63,574 $64,722 $62,575 $2,868 4,649 2016 61,990 61,014 5,097 4,104 2017 44,785 8,583 2,778 Total $168,374 (1)Incurred-but-not-reported liabilities plus expected development on reported claims 134Table of ContentsCommercial Lines — Property(Dollars in thousands) Cumulative Paid Claims and AllocatedClaims Adjustment Expenses, Net ofReinsurance For the Years EndedDecember 31, AccidentYear 2015 2016 2017 (unaudited) 2015 $41,942 $57,653 $58,926 2016 39,643 51,967 2017 28,541 Total 139,434 All outstanding liabilities before 2015, net of reinsurance 7,635 Liabilities for unpaid losses and loss adjustment expenses, net ofreinsurance $36,575 The following is required supplementary information about average historical claims duration as of December 31, 2017: Average Annual PercentagePayout of Incurred Claimsby Age, Net of Reinsurance(Unaudited) Year 1 2 3 Commercial Lines — Property 65.2% 22.7% 2.0% Commercial Lines — Casualty(Dollars in thousands) Incurred Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Years Ended December 31, As of December 31,2017 AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR (1) CumulativeNumber ofReportedClaims (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2008 $138,417 $170,855 $160,325 $149,564 $148,019 $146,142 $138,558 $134,514 $129,894 $126,924 $7,096 6,191 2009 93,748 96,956 104,518 104,803 104,392 96,206 94,016 91,297 88,384 7,444 3,896 2010 79,188 101,830 102,252 101,113 94,484 91,368 84,681 82,824 10,785 3,503 2011 115,441 117,602 117,288 115,193 108,720 96,361 84,269 5,701 3,741 2012 61,340 65,911 65,637 63,359 55,137 52,504 11,346 2,379 2013 63,807 68,089 67,702 66,301 64,877 11,435 2,519 2014 61,325 60,227 58,042 56,837 15,139 2,307 2015 57,262 56,620 57,775 17,359 2,010 2016 54,130 53,776 25,895 1,750 2017 54,338 37,994 1,283 Total $722,508 (1)Incurred-but-not-reported liabilities plus expected development on reported claims 135Table of ContentsCommercial Lines — Casualty(Dollars in thousands) Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of ReinsuranceFor the Years Ended December 31, AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2008 $7,844 $34,172 $65,700 $86,889 $100,369 $110,145 $114,546 $116,246 $117,797 $118,254 2009 5,564 19,154 37,653 53,738 65,721 71,108 75,181 77,771 79,896 2010 5,503 19,926 34,659 50,520 58,913 65,377 67,277 69,615 2011 5,451 21,325 41,282 56,562 64,722 72,087 74,839 2012 3,500 11,884 22,456 31,231 36,360 39,596 2013 6,400 17,881 29,510 38,438 46,272 2014 3,968 15,690 26,268 33,697 2015 3,336 14,584 25,147 2016 4,135 14,027 2017 4,914 Total 506,257 All outstanding liabilities before 2008, net of reinsurance 64,830 Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance $281,081 The following is required supplementary information about average historical claims duration as of December 31, 2017: Average Annual Percentage Payout of Incurred Claims by Age,Net of Reinsurance (Unaudited) Year 1 2 3 4 5 6 7 8 9 10 Commercial Lines — Casualty 7.2% 18.3% 20.3% 16.5% 11.0% 7.3% 3.4% 2.4% 1.8% 0.4% Personal LinesProperty and Casualty MethodologiesPersonal Lines internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (ALAE) separately for propertyexcluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarial reserve reviews were completed withdata through December, 2017. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to developestimates of ultimate Loss & ALAE. Management’s ultimate selections were based on the internal actuarial review and a third party actuarial reviewcompleted during the 4th quarter of 2017. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves.These methodologies are consistent with last year.Personal lines are primarily comprised of business acquired in the purchase of American Reliable, which occurred on January 1, 2015. The acquisitionincluded the purchase of the business of the legal entity as well as additional books of business written by other Assurant entities. In addition, cedingarrangements subsequent to the date of the acquisition are not consistent with years prior to the acquisition. As a result, it is not practical, nor would itbe consistent, to include information for years prior to 2015 in the development tables for Personal Lines.Personal Lines cumulative claim frequency has been calculated at the claim level and includes claims closed without payment. 136Table of ContentsPersonal Lines — Property(Dollars in thousands) Incurred Claims and Allocated ClaimsAdjustment Expenses, Net of ReinsuranceFor the Years Ended December 31, As of December 31, 2017 AccidentYear 2016 2017 IBNR (1) CumulativeNumber of ReportedClaims 2016 $146,571 $144,787 5,418 17,356 2017 148,016 15,743 16,384 Total $292,803 (1)Incurred-but-not-reported liabilities plus expected development on reported claimsPersonal Lines — Property(Dollars in thousands) Cumulative Paid Claimsand Allocated ClaimsAdjustment Expenses, Netof Reinsurance For the Years EndedDecember 31, AccidentYear 2016 2017 2016 $121,899 $138,289 2017 114,360 Total 252,649 All outstanding liabilities before 2016, net of reinsurance 4,206 Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance $44,360 The following is required supplementary information about average historical claims duration as of December 31, 2017. Average Annual Percentage PayoutofIncurred Claims by Age, Net ofReinsurance (Unaudited) Year 1 2 Personal Lines — Property 80.7% 11.3% 137Table of ContentsPersonal Lines — Casualty(Dollars in thousands) Incurred Claims and AllocatedClaims AdjustmentExpenses, Net of ReinsuranceFor the Years Ended December 31, As of December 31, 2017 AccidentYear 2015 2016 2017 IBNR (1) CumulativeNumber of ReportedClaims (unaudited) 2015 $18,930 $20,506 $21,850 $5,059 1,317 2016 21,476 21,073 11,345 1,370 2017 19,999 15,334 878 Total $62,922 (1)Incurred-but-not-reported liabilities plus expected development on reported claimsPersonal Lines — Casualty(Dollars in thousands) Cumulative Paid Claims andAllocated Claims AdjustmentExpenses, Net of Reinsurance For the Years Ended December 31, AccidentYear 2015 2016 2017 (unaudited) 2015 $3,439 $8,757 $12,926 2016 3,507 6,885 2017 2,132 Total 21,943 All outstanding liabilities before 2015, net of reinsurance 11,672 Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance $52,651 The following is required supplementary information about average historical claims duration as of December 31, 2017: Average Annual Percentage Payout ofIncurred Claims by Age, Net ofReinsurance (Unaudited) Year 1 2 3 Personal Lines — Casualty 14.3% 20.2% 19.1% Reinsurance LinesProperty & Casualty MethodologiesReinsurance Operations internal reserve reviews were completed for loss and allocated loss adjustment expenses (ALAE) combined for run off treatiesand the current book of business. The current book of business is constituted of professional liability portfolios and retrocessions from Bermuda basedcompanies for property 138Table of Contentscatastrophe, marine business, and mortgage insurance. The reserve reviews were completed based on the latest data reported from the cedants which istypically on a quarter lag. Paid loss, ALAE and Case reserves, shown in the reinsurance category tables below, which are originally based in a foreigncurrency, are remeasured in U.S. dollars based on the Foreign Exchange (FX) rate at the date the cedant’s report. Management’s ultimate selections werebased on a review of ultimates reported from the cedants, including loss emergence during the reporting period, and a third party actuarial reviewcompleted during the 4th quarter of 2017. Case incurred is subtracted from the management selected ultimates to obtain the booked IBNR reserves.These methodologies are consistent with last year.The Company does not have direct access to claim frequency information underlying certain reinsurance contracts. As a result, the Company does notbelieve providing claim frequency information is practicable.Reinsurance Lines — Property(Dollars in thousands) Incurred Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Years Ended December 31, As of December 31,2017 AccidentYear 2011 2012 2013 2014 2015 2016 2017 IBNR (1) CumulativeNumber ofReportedClaims (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2011 $30,963 $28,547 $26,916 $25,994 $24,994 $24,912 $24,786 $1,028 — 2012 10,388 10,578 9,279 8,579 8,497 8,397 539 — 2013 15,153 9,948 8,197 6,698 6,345 753 — 2014 21,787 18,861 14,139 13,590 1,264 — 2015 19,877 16,738 12,526 2,977 — 2016 23,646 22,485 10,433 — 2017 43,782 26,239 — Total $131,911 (1)Incurred-but-not-reported liabilities plus expected development on reported claims 139Table of ContentsReinsurance Lines — Property(Dollars in thousands) Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, AccidentYear 2011 2012 2013 2014 2015 2016 2017 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2011 $12,044 $19,274 $20,698 $22,060 $22,426 $22,771 $23,096 2012 1,127 5,481 7,221 7,648 7,527 7,584 2013 723 4,008 5,835 5,111 5,255 2014 2,243 9,035 10,460 11,182 2015 742 5,163 6,768 2016 2,071 5,704 2017 2,152 Total 61,741 All outstanding liabilities before 2011, net ofreinsurance 322 Liabilities for unpaid losses and loss adjustmentexpenses, net of reinsurance $70,492 The following is required supplementary information about average historical claims duration as of December 31, 2017: Average Annual Percentage Payout of Incurred Claims by Age,Net of Reinsurance (Unaudited) Year 1 2 3 4 5 6 7 Reinsurance Lines — Property 15.7% 39.0% 15.7% 1.1% 0.8% 1.0% 1.3% Reinsurance Lines — Casualty(Dollars in thousands) Incurred Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Years Ended December 31, As of December 31,2017 AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IBNR (1) CumulativeNumber ofReportedClaims (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2008 $8,906 $8,758 $8,988 $8,997 $10,167 $10,340 $10,340 $9,435 $9,835 $9,768 $291 — 2009 20,706 23,818 25,444 30,533 30,850 31,340 31,419 31,453 31,514 386 — 2010 41,831 53,279 57,916 62,628 61,062 61,792 60,701 60,573 2,015 — 2011 45,726 48,846 44,692 47,980 46,510 43,657 42,968 2,122 — 2012 15,865 15,624 17,123 17,579 17,360 17,348 1,113 — 2013 1,224 1,262 1,172 1,013 974 870 — 2014 1,988 2,095 2,060 1,957 1,954 — 2015 2,908 2,911 2,780 2,779 — 2016 3,627 3,627 3,627 — 2017 4,358 4,358 — Total $175,867 (1)Incurred-but-not-reported liabilities plus expected development on reported claims 140Table of ContentsReinsurance Lines — Casualty(Dollars in thousands) Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of ReinsuranceFor the Years Ended December 31, AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2008 $— $627 $1,955 $5,149 $5,648 $6,832 $8,713 $8,875 $8,919 $8,981 2009 1,986 9,759 11,064 12,597 13,652 15,104 30,141 31,019 31,128 2010 10,185 21,447 30,754 36,090 39,123 55,315 55,848 56,960 2011 7,968 20,072 28,495 36,020 38,907 39,815 40,079 2012 5,312 9,435 11,658 15,534 15,696 15,790 2013 123 50 62 65 65 2014 88 47 50 1 2015 107 128 1 2016 — — 2017 — Total 153,005 All outstanding liabilities before 2008, netof reinsurance 1,210 Liabilities for unpaid losses and lossadjustment expenses, net of reinsurance $24,072 The following is required supplementary information about average historical claims duration as of December 31, 2017: Average Annual Percentage Payout of Incurred Claims by Age,Net of Reinsurance (Unaudited) Year 1 2 3 4 5 6 7 8 9 10 Reinsurance Lines — Casualty 9.3% 10.3% 7.8% 12.0% 3.5% 9.2% 17.1% 2.1% 0.4% 0.6% 141Table of ContentsThe reconciliation of the net incurred and paid claims development tables to the liability for unpaid losses and loss adjustment expenses in theconsolidated balance sheets as of December 31, 2017 is as follows: Net outstanding liabilities Commercial Lines — Property $36,575 Commercial Lines — Casualty 281,081 Personal Lines — Property 44,360 Personal Lines — Casualty 52,651 Reinsurance Lines — Property 70,492 Reinsurance Lines — Casualty 24,072 Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance 509,231 Reinsurance recoverable on unpaid claims Commercial Lines — Property 8,508 Commercial Lines — Casualty 68,786 Personal Lines — Property 10,608 Personal Lines — Casualty 7,718 Reinsurance Lines — Property — Reinsurance Lines — Casualty 71 Total reinsurance recoverable on unpaid claims 95,691 Other outstanding liabilities Commercial Lines Ceded Allowance 8,040 Unallocated claims adjustment expenses 16,930 Purchase accounting adjustment (1,200) Loss Clearing 322 Personal Lines Fronted business ceded to Assurant 2,752 Unallocated claims adjustment expenses 2,190 Loss Clearing (25) Reinsurance Lines Unallocated claims adjustment expenses 987 Other (254) Total other outstanding liabilities 29,742 Total gross liability for unpaid losses and loss adjustment expenses $634,664 12.DebtThe Company’s outstanding debt consisted of the following at December 31, 2017 and 2016: December 31, (Dollars in thousands) 2017 2016 Margin Borrowing Facility $72,230 $66,646 7.75% Subordinated Notes due 2045 96,619 96,497 7.875% Subordinated Notes due 2047 125,864 — Total $294,713 $163,143 142Table of ContentsMargin Borrowing FacilityThe Company has available a margin borrowing facility. At December 31, 2017, the borrowing rate for this facility was tied to the Fed Funds Effectiverate and was approximately 1.6%. At December 31, 2016, the borrowing rate for this facility was tied to LIBOR and was approximately 1.6%. Thisfacility is due on demand. The borrowings are subject to maintenance margin, which is a minimum account balance that must be maintained. A declinein market conditions could require an additional deposit of collateral. As of December 31, 2017, approximately $88.0 million in securities weredeposited as collateral to support borrowings. The amount borrowed against the margin account may fluctuate as routine investment transactions, suchas dividends received, investment income received, maturities and pay-downs, impact cash balances. The margin facility contains customary events ofdefault, including, without limitation, insolvency, failure to make required payments, failure to comply with any representations or warranties, failureto adequately assure future performance, and failure of a guarantor to perform under its guarantee. The amount outstanding on the Company’s marginborrowing facility was $72.2 million and $66.6 million as of December 31, 2017 and 2016, respectively.The Company recorded interest expense related to the Margin Borrowing Facility of approximately $1.0 million, $1.0 million, and $1.9 million for theyears ended December 31, 2017, 2016, and 2015, respectively.7.75% Subordinated Notes due 2045On August 12, 2015, the Company issued $100.0 million in aggregate principal amount of its 2045 Subordinated Notes through an underwrittenpublic offering (the “2045 Notes”).The 2045 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 ofeach year, commencing November 15, 2015. The 2045 Notes mature on August 15, 2045. The Company has the right to redeem the 2045 Notes in $25increments, 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 theprincipal amount of the 2045 Notes being redeemed plus accrued and unpaid interest to, but not including, the date of redemption.The 2045 Notes are subordinated unsecured obligations and rank (i) senior to the Company’s existing and future capital stock, (ii) senior in right ofpayment to future junior subordinated debt, (iii) equally in right of payment with any unsecured, subordinated debt that the Company incurs in thefuture that ranks equally with the 2045 Notes, and (iv) subordinate in right of payment to any of the Company’s existing and future senior debt. Inaddition, the 2045 Notes are structurally subordinated to all existing and future indebtedness, liabilities and other obligations of the Company’ssubsidiaries.The 2045 Notes do not require the maintenance of any financial ratios or specified levels of net worth or liquidity, and do not contain provisions thatwould afford holders of the 2045 Notes protection in the event of a sudden and dramatic decline in the Company’s credit quality resulting from anyhighly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect holders. The2045 Notes do not restrict the Company in any way, now or in the future, from incurring additional indebtedness, including senior indebtedness thatwould rank senior in right of payment to the 2045 Notes. There is no right of acceleration of maturity of the 2045 Notes in the case of default in thepayment of principal, premium, if any, or interest on, the 2045 Notes or in the performance of any other obligation of the Company under the 2045Notes or if the Company defaults on any other debt securities. Holders may accelerate payment of indebtedness on the 2045 Notes only upon theCompany’s bankruptcy, insolvency or reorganization.The Company incurred $3.7 million in deferred issuance costs associated with the 2045 Notes, which is being amortized over the term of the 2045Notes. Interest expense, including amortization of deferred issuance costs, recognized on the 2045 Notes was $7.9 million, $7.9 million, and$3.0 million for the years ended December 31, 2017, 2016, and 2015, respectively. 143Table of Contents7.875% Subordinated Notes due 2047On March 23, 2017, the Company issued Subordinated Notes due in 2047 in the aggregate principal amount of $120.0 million through anunderwritten public offering (the “2047 Notes”). Pursuant to the underwriting agreement, the Company granted the underwriters a 30 day option topurchase up to an additional $18 million aggregate principal amount of the 2047 Notes solely to cover over-allotments, if any. On March 30, 2017, theunderwriters exercised their over-allotment option in the amount of $10 million principal amount of the 2047 Notes. As a result, the aggregateprincipal amount of the 2047 Notes increased to $130.0 million. The sale of the 2047 Notes pursuant to the over-allotment option closed on March 30,2017.The 2047 Notes bear interest at an annual rate equal to 7.875%, payable quarterly in arrears on January 15, April 15, July 15, and October 15 of eachyear, commencing July 15, 2017. The 2047 Notes mature on April 15, 2047. The Company has the right to redeem the 2047 Notes in $25 increments,in whole or in part, on and after April 15, 2022, or on any interest payment date thereafter, at a redemption price equal to 100% of the principal amountof the 2047 Notes being redeemed plus accrued and unpaid interest to, but not including, the date of redemption. If the Company redeems only aportion of the 2047 Notes on any date of redemption, the Company may subsequently redeem additional 2047 Notes.The 2047 Notes are subordinated unsecured obligations and rank (i) senior to the Company’s existing and future capital stock, (ii) senior in right ofpayment to future junior subordinated debt, (iii) equally in right of payment with any existing unsecured, subordinated debt that the Company hasissued or may issue in the future that ranks equally with the 2047 Notes, including the Company’s 2045 Notes and (iv) subordinate in right of paymentto any of the Company’s future senior debt. In addition, the 2047 Notes are structurally subordinated to all existing and future indebtedness, liabilitiesand other obligations of the Company’s subsidiaries including the Company’s margin borrowing facility.The 2047 Notes do not require the maintenance of any financial ratios or specified levels of net worth or liquidity, and do not contain provisions thatwould afford holders of the 2047 Notes protection in the event of a sudden and dramatic decline in the Company’s credit quality resulting from anyhighly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect holders. The2047 Notes do not restrict the Company in any way, now or in the future, from incurring additional indebtedness, including senior indebtedness thatwould rank senior in right of payment to the 2047 Notes. There is no right of acceleration of maturity of the 2047 Notes in the case of default in thepayment of principal, premium, if any, or interest on, the 2047 Notes or in the performance of any other obligation of the Company under the notes or ifthe Company defaults on any other debt securities. Holders may accelerate payment of indebtedness on the 2047 Notes only upon the Company’sbankruptcy, insolvency or reorganization.The Company incurred $4.2 million in deferred issuance costs associated with the 2047 Notes, which is being amortized over the term of the 2047Notes. Interest expense, including amortization of deferred issuance costs, recognized on the 2047 Notes was $8.0 million for the year endedDecember 31, 2017. 144Table of ContentsThe following table represents the amounts recorded for the subordinated notes as of December 31, 2017 and 2016: December 31, 2017 OutstandingPrincipal UnamortizedDebt IssuanceCosts NetCarryingAmount 7.75% Subordinated Notes due 2045 $100,000 $(3,381) $96,619 7.875% Subordinated Notes due 2047 130,000 (4,136) 125,864 $230,000 $(7,517) $222,483 December 31, 2016 OutstandingPrincipal UnamortizedDebt IssuanceCosts NetCarryingAmount 7.75% Subordinated Notes due 2045 $100,000 $(3,503) $96,497 13.Shareholders’ EquityOn November 7, 2016, Global Indemnity plc, an Irish public limited company, and Global Indemnity Limited, a Cayman Islands exempted company,completed the previously disclosed scheme of arrangement under Irish law (the “Scheme of Arrangement”) that effected a transaction (the“Redomestication”) that resulted in the shareholders of Global Indemnity plc becoming shareholders of Global Indemnity Limited, and GlobalIndemnity plc becoming a subsidiary of Global Indemnity Limited until it was liquidated in 2017. In accordance with the terms of the Scheme ofArrangement, the following steps occurred effectively simultaneously on November 7, 2016: 1.13,463,864 shares of Global Indemnity plc A ordinary shares, par value $0.0001 per share, which represent all of the existing A ordinaryshares excluding the treasury shares held by Global Indemnity plc and A shares held by Global Indemnity Limited, and 4,133,366 GlobalIndemnity plc B ordinary shares, par value $0.0001 per share, (together, the “Global Indemnity plc ordinary shares”) were cancelled. Thetreasury shares of Global Indemnity plc were not subject to the scheme. The carrying value of the Global Indemnity plc treasury shares,$103.2 million, were offset against the Additional Paid-in Capital account of Global Indemnity Limited, according to the Company’spolicy regarding the treatment of treasury shares; 2.the reserves created on the cancellation of the Global Indemnity plc ordinary shares were used to issue 17,597,230 Global Indemnity plcordinary shares to Global Indemnity Limited; and 3.in return for such issuance of new Global Indemnity plc ordinary shares to Global Indemnity Limited, Global Indemnity Limited issued13,463,864 A ordinary shares, par value $0.0001 per share, and 4,133,366 Global Indemnity Limited B ordinary shares, par value $0.0001per share (together the “Global Indemnity Limited ordinary shares”), to the former stockholders of Global Indemnity plc. Each shareholderreceived one Global Indemnity Limited A ordinary share for each Global Indemnity plc A ordinary share owned by such shareholder priorto the Scheme of Arrangement and one Global Indemnity Limited B ordinary share for each Global Indemnity plc B ordinary share ownedby such shareholder prior to the Scheme of Arrangement.Prior to the Redomestication, the Global Indemnity plc A ordinary shares were listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol“GBLI” and registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In connection with the Redomestication, GlobalIndemnity plc requested that Nasdaq file with the U.S. Securities and Exchange Commission (the “SEC”) an application to strike the Global Indemnityplc A ordinary shares from listing on Nasdaq and the Global Indemnity plc A ordinary shares from registration under the Exchange Act. 145Table of ContentsThe Global Indemnity Limited ordinary shares are deemed registered under the Exchange Act. The Global Indemnity Limited A ordinary shares begantrading on Nasdaq under the symbol “GBLI,” the same symbol under which the Global Indemnity plc ordinary shares previously traded, at the openingof Nasdaq on November 7, 2016.Dividend RestrictionThe ability of Global Indemnity Limited to pay dividends is subject to Cayman Island regulations. Under Cayman Islands law, dividends anddistributions may only be made from distributable reserves or from amounts standing to the credit of the Company’s share premium account, togetherwith any reserve established by the revaluation of the Company’s asset, subject to the ability of the Company to meet its obligations in the ordinarycourse as they fall due. Distributable reserves represents the accumulated realized profits and losses of Global Indemnity Limited on a standalone basis,which is $275.8 million as of December 31, 2017. Share premium represents the excess of the consideration paid upon the initial issuance of any shareover the par value. As of December 31, 2017, share premium was $434.7 million. Reserves established by the revaluation of the Company’s asset were$9.0 million as of December 31, 2017. As of December 31, 2017, the maximum dividends and distributions allowable under Cayman Island law is$719.6 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 topay dividends. Global Indemnity Reinsurance and the U.S. insurance subsidiaries are subject to significant regulatory restrictions limiting their abilityto declare and pay dividends. See Note 19 for additional information regarding dividend limitations imposed on Global Indemnity Reinsurance andthe U.S. insurance subsidiaries.Dividend ProgramDuring the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend program. Although subject to the absolute discretion of theBoard of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability ofdeclaring a quarterly dividend, the Company currently anticipates an initial dividend rate of $0.25 per share per quarter ($1.00 per share per year).Repurchases and Redemptions of the Company’s Ordinary SharesThe Company allows employees to surrender A ordinary shares as payment for the tax liability incurred upon the vesting of restricted stock that wasissued under the Company’s share incentive plan in effect at the time of issuance. During 2017, 2016, and 2015, the Company purchased an aggregateof 29,551, 28,099 and 11,895, respectively, of surrendered A ordinary shares from its employees for $1.2 million, $0.8 million and $0.3 million,respectively. All shares purchased from employees by the Company are held as treasury stock and recorded at cost until formally retired by thecompany.In 2015, the Company entered into a redemption agreement with certain affiliates of Fox Paine & Company to redeem 8,260,870 of its ordinary shares.In conjunction with the 2015 redemption, the Company acquired rights, expiring year end 2019, to redeem an additional 3,397,031 ordinary shares for$78.1 million, which amount was subject to an annual 3% increase. On December 29, 2017, Global Indemnity acquired 3,397,031 of its A ordinaryshares for approximately $83.0 million in the aggregate (approximately $24.44 per share) from former investors in vehicles managed by Fox Paine &Company, LLC. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2015 Annual Report on Form10-K for more information on the 2015 redemption. 146Table of ContentsThe following table provides information with respect to the A ordinary shares that were surrendered, repurchased, or redeemed in 2017: Period (1) Total Numberof SharesPurchased orRedeemed AveragePrice PaidPer Share Total Number of SharesPurchased as Part ofPublicly AnnouncedPlan or Program Approximate DollarValue of Shares that MayYet Be Purchased Underthe Plans or Programs A ordinary shares: January 1-31, 2017 13,656(2) $38.21 — — February 1-28, 2017 15,309(2) $40.18 — — May 1-31, 2017 586(2) $38.49 — — December 1-31, 2017 3,397,031 $24.44 Total 3,426,582 $24.57 — (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 or repurchased in 2017.The following table provides information with respect to the A ordinary shares that were surrendered or repurchased in 2016: Period (1) Total Numberof SharesPurchased AveragePrice PaidPer Share Total Number of SharesPurchased as Part ofPublicly AnnouncedPlan or Program Approximate DollarValue of Shares that MayYet Be Purchased Underthe Plans or Programs A ordinary shares: January 1-31, 2016 12,410(2) $29.02 — — February 1-29, 2016 15,093(2) $28.25 — — May 1-31, 2016 596(2) $30.56 — — Total 28,099 $28.64 — (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 or repurchased in 2016. 14.Related Party TransactionsFox Paine & CompanyAs of December 31, 2017, Fox Paine & Company beneficially owned shares having approximately 83% of the Company’s total outstanding votingpower. 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 votingshares of the Company beneficially held by Fox Paine & Company for so long as Fox Paine & Company holds an aggregate of 25% or more of thevoting 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. Starting in2014, this fee is adjusted annually to reflect the percentage change in the CPI-U. Payment of the annual management fee will be deferred until a changeof control or September, 2018, whichever occurs first, and is subject to an annual adjustment equal to the rate of return the Company earns on itsinvestment portfolio. In addition, Fox Paine may propose and negotiate transaction fees with the Company 147Table of Contentssubject to the provisions of the Company’s related party transaction policies including approval of the Company’s Audit Committee of the Board ofDirectors, for those services from time to time. Management fee expense of $2.2 million, $2.1 million, and $1.9 million was incurred during the yearsended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017 and 2016, unpaid management fees, which were included in otherliabilities on the consolidated balance sheets, were $6.8 million and $4.6 million, respectively. In addition, the Company paid an $11.0 millionadvisory fee to Fox Paine in connection with the redemption of 3,397,031 shares on December 29, 2017 as well as other services performed. See Note13 for additional information on the share redemption.During 2015, the Company reimbursed Fox Paine & Company $1.2 million for expenses related to the 2015 redemption of the Company’s ordinaryshares. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2015 Annual Report on Form 10-K formore information on the 2015 redemption.On September 17, 2017, the Company and Fox Paine entered into a confidentiality agreement whereby Fox Paine agrees to keep confidentialproprietary information, as defined in the confidentiality agreement, it receives regarding the Company from time to time, including proprietaryinformation it may receive from director or director nominees appointed by Fox Paine.In connection with the acquisition of American Reliable, the Company agreed to pay to Fox Paine & Company an investment banking fee of 3% of theamount paid plus the additional capital required to operate American Reliable on a standalone basis and a $1.5 million investment advisory fee, whichin the aggregate, totaled $6.5 million. This amount was included in corporate and other operating expenses on the Company’s ConsolidatedStatements of Operations during the year ended December 31, 2015. As payment for these fees, 267,702 A ordinary shares of Global Indemnity wereissued under the Global Indemnity plc Share Incentive Plan in May, 2015. These shares cannot be sold until the earlier of five years after January 1,2015 or a change of control. See Note 16 for additional information on the Company’s share incentive plans including the Global Indemnity plc ShareIncentive Plan which was replaced with the Global Indemnity Limited Share Incentive Plan.Cozen O’ConnorThe Company incurred $0.7 million for legal services rendered by Cozen O’Connor during the year ended December 31, 2015. Stephen A. Cozen, thechairman of Cozen O’Connor, was a member of the Company’s Board of Directors until he resigned on December 31, 2015.Crystal & CompanyDuring each of the years ended December 31, 2016 and 2015, the Company incurred $0.2 million in brokerage fees to Crystal & Company, aninsurance broker. James W. Crystal, the chairman and chief executive officer of Crystal & Company, was a member of the Company’s Board ofDirectors until he resigned on July 24, 2016.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 memberof the Hiscox Bermuda’s Board of Directors until May, 2014. The Company estimated that the following earned premium and incurred losses related tothese agreements have been assumed by Global Indemnity Reinsurance from Hiscox Bermuda: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Assumed earned premium $4 $27 $2,266 Assumed losses and loss adjustment expenses (130) (527) 509 148Table of ContentsNet payable balances due from Global Indemnity Reinsurance under this agreement are as follows: As of December 31, (Dollars in thousands) 2017 2016 Net payable balance $(10) $(107) 15.Commitments and ContingenciesLegal ProceedingsThe Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company maintains insurance andreinsurance coverage for such risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurancecoverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe thatthe 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, andtherefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsuranceindustry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business.CommitmentsIn 2014, the Company entered into a $50 million commitment to purchase an alternative investment vehicle which is comprised of Europeannon-performing loans. As of December 31, 2017, the Company has funded $35.8 million of this commitment leaving $14.2 million as unfunded.In 2016, the Company entered into a $40 million commitment with an investment manager that provides financing for middle market companies. As ofDecember 31, 2017, the Company has funded $30.0 million of this commitment leaving $10.0 million as unfunded.In 2017, the Company entered into a $50 million commitment to purchase an alternative investment vehicle comprised of stressed and distressed debtinstruments. As of December 31, 2017, the Company has funded $16.5 million of this commitment leaving $33.5 million as unfunded.Lease CommitmentsTotal rental expense under operating leases for the years ended December 31, 2017, 2016, and 2015 was $3.5 million, $3.7 million, and $3.5 million,respectively. Rent expense was net of sublease income of $0.02 million and $0.07 million for the years ended December 31, 2016 and 2015,respectively. There was no sublease income for the year ended December 31, 2017. At December 31, 2017, future minimum cash payments undernon-cancelable operating leases were as follows: (Dollars in thousands) 2018 $3,147 2019 2,192 2020 127 Total $5,466 Other CommitmentsThe Company is party to a Management Agreement, as amended, with Fox Paine & Company, whereby in connection with certain managementservices provided to it by Fox Paine & Company, the Company agreed to 149Table of Contentspay an annual management fee to Fox Paine & Company. See Note 14 above for additional information pertaining to this management agreement. 16.Share-Based Compensation PlansEffective January 1, 2017, the Company adopted new accounting guidance which changed several aspects of the accounting for share-based paymenttransactions. Under the new guidance, all excess tax benefits and tax deficiencies associated with share-based payment awards are required to berecognized as an income tax benefit or expense in net income with the corresponding cash flows recognized as an operating activity in theConsolidated Statement of Cash Flow as opposed to being reported separately as a financing activity. Excess tax benefits and deficiencies are nolonger recognized in additional paid-in-capital. The new guidance removes the requirement to delay recognition of any excess tax benefit when thereis no current taxes payable to which the benefit would be applied. The new guidance also allows an employer to repurchase more of an employee’sshares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur, ratherthan estimating forfeitures upon issuance of the award.Upon adoption of this new accounting guidance, the Company elected to retain its policy of accruing the compensation cost based on the number ofawards that are expected to vest. The adoption of this accounting guidance did not result in any cumulative adjustment or restatement. The provisionsof this new guidance were adopted on a prospective basis and did not have a material impact on the Company’s financial position, results of operationsor cash flows.The fair value method of accounting recognizes share-based compensation to employees and non-employee directors in the consolidated statements ofoperations using the grant-date fair value of the stock options and other equity-based compensation expensed over the requisite service and vestingperiod.For the purpose of determining the fair value of stock option awards, the Company uses the Black-Scholes option-pricing model. An estimation offorfeitures is required when recognizing compensation expense which is then adjusted over the requisite service period should actual forfeitures differfrom such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment to compensation in the period of change.Prior to January 1, 2017, the prescribed accounting guidance required tax benefits relating to excess stock-based compensation deductions to beprospectively presented in the consolidated statements of cash flows as financing cash inflows. The tax benefit resulting from stock-basedcompensation deductions in excess of amounts reported for financial reporting purposes was $0.1 million and $0.05 million for the years endedDecember 31, 2016 and 2015, respectively.Share Incentive PlanOn June 11, 2014, the Company’s Shareholders approved the Global Indemnity plc Share Incentive Plan (the “Plan”). The previous share incentiveplan, which became effective in 2003, expired per its terms on September 5, 2013. As a result of the redomestication, the Global Indemnity plc ShareIncentive Plan’s sponsorship and existing obligations with respect to awards granted and outstanding were assumed by the Company and the GlobalIndemnity plc Share Incentive Plan was replaced with the Global Indemnity Limited Share Incentive Plan (collectively, the “Plan”). The purpose of thePlan is to give the Company a competitive advantage in attracting and retaining officers, employees, consultants and non-employee directors byoffering stock options, restricted shares and other stock-based awards. Under the Plan, the Company may grant up to 2.0 million A ordinary sharespursuant to grants under the Plan. 150Table of ContentsOptionsAward activity for stock options granted under the Plan and the weighted average exercise price per share are summarized as follows: Time-BasedOptions Performance-Based Options TotalOptions WeightedAverageExercise PricePer Share Options outstanding at January 1, 2015 612,500 — 612,500 $25.38 Options issued — 200,000 200,000 $28.37 Options forfeited — — — — Options exercised — — — — Options expired (12,500) — (12,500) $37.70 Options purchased by the Company — — — — Options outstanding at December 31, 2015 600,000 200,000 800,000 $25.94 Options issued — — — — Options forfeited — (200,000) (200,000) $28.37 Options exercised — — — — Options expired — — — — Options purchased by the Company — — — — Options outstanding at December 31, 2016 600,000 — 600,000 $25.13 Options issued — — — — Options forfeited — — — — Options exercised — — — — Options expired — — — — Options purchased by the Company — — — — Options outstanding at December 31, 2017 600,000 — 600,000 25.13 Options exercisable at December 31, 2017 300,000 — 300,000 17.87 Of the options outstanding, there are 300,000 options that are not yet exercisable. Vesting of the options is dependent on meeting or exceedingunderwriting targets. 60,000 options are related to the 2015 accident year. These options are subject to remeasurement of 2015 accident year results onDecember 31, 2018. As of December 31, 2017, the written premium target was not met but the targeted 2015 accident year results were met. 90,000options are related to the 2016 accident year and are subject to remeasurement of accident year results on December 31, 2019. 150,000 options arerelated to the 2017 accident year and are subject to remeasurement of accident year results on December 31, 2020. As of December 31, 2017 thetargeted accident year results for 2016 and 2017 were not met.During the year ended December 31, 2015, the Company awarded 200,000 options with a strike price of $28.37 which were subsequently forfeitedduring the year ended December 31, 2016. There were no stock options issued in 2016 or 2017.The Company recorded ($0.4) million, $0.3 million, and $0.4 million of compensation expense for stock options outstanding under the Plan during theyears ended December 31, 2017, 2016, and 2015, respectively.The Company did not receive any proceeds from the exercise of options during 2017, 2016 or 2015 under the Plan.All options outstanding are fully amortized as of December 31, 2017. 151Table of ContentsOption intrinsic values, which are the differences between the fair value of $42.02 at December 31, 2017 and the strike price of the option, are asfollows: Numberof Shares WeightedAverageStrike Price Intrinsic Value Outstanding 600,000 25.13 10.1 million Exercisable 300,000 17.87(1) 7.2 million Exercised (1) — — — (1)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, 2017 include the following: Option Price Number of optionsexercisable $17.87 300,000 Options exercisable at December 31, 2017 300,000 There were no options granted under the Plan in 2017 or 2016. The weighted average fair value of options granted under the Plan was $8.69 in 2015using a Black-Scholes option-pricing model and the following weighted average assumptions. 2015 Dividend yield 0.0% Expected volatility 31.59% Risk-free interest rate 1.7% Expected option life 5.0 years The following tables summarize the range of exercise prices of options outstanding at December 31, 2017, 2016, and 2015: Ranges ofExercise Prices OutstandingatDecember 31,2017 Weighted Average PerShare Exercise Price Weighted AverageRemaining Life$17.87 — $19.99 300,000 $17.87 3.7 years$30.00 — $37.70 300,000 (1) $32.38 6.1 yearsTotal 600,000 (1)— the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer foradditional information. Ranges ofExercise Prices OutstandingatDecember 31,2016 WeightedAveragePerShareExercisePrice WeightedAverageRemainingLife$17.87 — $19.99 300,000 $17.87 4.7 years$30.00 — $37.70 300,000 (1) $32.38 7.1 yearsTotal 600,000 152Table of Contents(1)— the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer foradditional information. Ranges ofExercise Prices OutstandingatDecember 31,2015 WeightedAveragePerShareExercisePrice WeightedAverageRemainingLife$17.87 — $19.99 300,000 $17.87 5.7 years$20.00 — $29.99 200,000 $28.37 9.0 years$30.00 — $37.70 300,000 (1) $32.38 8.1 yearsTotal 800,000 (1)— the weighted average per share exercise price on these shares outstanding is variable. See note below under Chief Executive Officer foradditional information.Restricted SharesIn addition to stock option grants, the Plan also provides for the granting of restricted shares to employees and non-employee Directors. The Companyrecognized compensation expense for restricted stock of $4.1 million, $3.2 million and $3.5 million for 2017, 2016, and 2015, respectively. The totalunrecognized compensation expense for the non-vested restricted stock is $1.7 million at December 31, 2017, which will be recognized over aweighted average life of 1.5 years.The following table summarizes the restricted stock grants since the 2003 inception of the original share incentive plan. Restricted Stock Awards Year Employees Directors Total Inception through 2014 806,762 441,888 1,248,650 2015 138,507 36,321 174,828 2016 121,346 35,185 156,531 2017 22,503 27,121 49,624 1,089,118 540,515 1,629,633 The following table summarizes the non-vested restricted shares activity for the years ended December 31, 2017, 2016, and 2015: Number ofShares WeightedAveragePricePer Share Non-vested Restricted Shares at January 1, 2015 172,275 $23.76 Shares issued 174,828 $28.24 Shares vested (70,503) $25.31 Shares forfeited (16,695) $24.11 Non-vested Restricted Shares at December 31, 2015 259,905 $26.33 Shares issued 156,531 $29.44 Shares vested (111,205) $26.11 Shares forfeited (5,633) $27.25 Non-vested Restricted Shares at December 31, 2016 299,598 $28.02 Shares issued 49,624 $39.42 Shares vested (116,111) $29.75 Shares forfeited (20,299) $28.63 Non-vested Restricted Shares at December 31, 2017 212,812 $29.67 153Table of ContentsBased on the terms of the Restricted Share grants, all forfeited shares revert back to the Company.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 $28.37per 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 eachsubsequent 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 thirdanniversary of the grant and an additional 44,058 shares were granted to the Company’s Chief Executive Officer and other key employees which vest100% on January 1, 2018. The remaining 83,875 shares were granted to key employees and will vest as follows: • 16.5% vested on January 1, 2016, 16.5% vested on January 1, 2017, and 17.0% of the granted stock will vest on January 1, 2018. • Subject to Board approval, 50% of granted stock vests 100%, no later than March 15, 2018, following a re-measurement of 2014 results asof December 31, 2017.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-employeedirectors of the Company under the Plan.During 2016, the Company granted an aggregate of 121,346 A ordinary shares to key employees at a weighted average grant date fair value of $28.97per share under the Plan. Of the shares granted in 2016, 11,199 were granted to the Company’s Chief Executive Officer and vest 33 1/3% on eachsubsequent anniversary date of the grant for a period of three years subject to a true-up of bonus year underwriting results as of the third anniversary ofthe grant. 5,309 shares were granted to another key employee and were due to vest 100% on February 7, 2019. These shares were forfeited during 2017as the key employee is no longer employed by the company. 8,253 shares were granted to other key employees and vest 33% on the first and secondanniversary of the grant and vest 34% on the third anniversary of the grant contingent on meeting certain performance objectives and subject to Boardapproval. The remaining 96,585 shares were granted to key employees and will vest as follows: • 16.5% vested on January 1, 2017. 16.5% and 17.0% of the granted stock will vest on January 1, 2018 and January 1, 2019, respectively. • Subject to Board approval, 50% of granted stock vests 100%, no later than March 15, 2019, following a re-measurement of 2015 results asof December 31, 2018.During 2016, the Company granted 35,185 A ordinary shares, at a weighted average grant date fair value of $31.05 per share, to non-employeedirectors of the Company under the Plan.During 2017, the Company granted an aggregate of 22,503 A ordinary shares to key employees at a weighted average grant date fair value of $38.21per share under the Plan. These shares will vest as follows: • 16.5%, 16.5%, and 17.0% of the granted stock vest on January 1, 2018, January 1, 2019, and January 1, 2020, respectively. • Subject to Board approval, 50% of granted stock vests 100%, no later than March 15, 2020, following a re-measurement of 2016 results asof December 31, 2019.During 2017, the Company granted 27,121 A ordinary shares, at a weighted average grant date fair value of $40.42 per share, to non-employeedirectors of the Company under the Plan.All of the shares granted to non-employee directors in 2017, 2016, and 2015 were fully vested but subject to certain restrictions.Chief Executive OfficerEffective September 19, 2011, Cynthia Y. Valko was hired as the Company’s Chief Executive Officer. 154Table of ContentsMs. Valko’s terms of employment included two equity components including the granting of 300,000 stock options with a strike price equal to theclosing 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 optionsvested 33 1/3% on December 31, 2012, 2013, and 2014. The restricted shares vest 33 1/3% on each anniversary of the subject bonus year. All equitycomponents 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 which vested as follows: 20% vested on December 31, 2015,30% vested on December 31, 2016, and the remaining 50% vested on December 31, 2017 were based on achieving underwriting income, premiumvolume, and underwriting profitability targets, subject to an accident year true up on the 3rd anniversary of each such year. Vesting of the stockoptions is subject to continued employment. The exercise price applicable to the Stock Options is $25.00 subject to adjustment based on theCompany’s average year-end tangible book value per share, the average interest rate of certain Treasury bonds and the time period elapsed betweenJanuary 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. 17.401(k) PlanThe Company maintains a 401(k) defined contribution plan that covers all eligible U.S. employees. Under this plan, the Company matches 100% ofthe first 6% contributed by an employee. Vesting on contributions made by the Company is immediate. Total expenses for the plan were $1.9 million,$1.9 million, and $2.0 million for the years ended December 31, 2017, 2016, and 2015, respectively. 18.Earnings Per ShareEarnings per share have been computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during theperiod.The following table sets forth the computation of basic and diluted earnings per share. Years Ended December 31, (Dollars in thousands, except share and per sharedata) 2017 2016 2015 Net income (loss) $(9,551) $49,868 $41,469 Basic earnings per share: Weighted average shares outstanding — basic 17,308,663 17,246,717 24,253,657 Net income (loss) per share $(0.55) $2.89 $1.71 Diluted earnings per share: Weighted average shares outstanding — diluted (1) 17,308,663 17,547,061 24,505,851 Net income (loss) per share $(0.55) $2.84 $1.69 (1)For the year ended December 31, 2017, “weighted average shares outstanding — basic” was used to calculate “diluted earnings per share” due toa net loss for the period. 155Table of ContentsA reconciliation of weighted average shares for basic earnings per share to weighted average shares for diluted earnings per share is as follows: Years Ended December 31, 2017 2016 2015 Weighted average shares for basic earnings per share 17,308,663 17,246,717 24,253,657 Non-vested restricted stock — 187,526 148,669 Options — 112,818 103,525 Weighted average shares for diluted earnings per share 17,308,663 17,547,061 24,505,851 If the Company had not incurred a loss in the year ended December 31, 2017, 17,680,209 weighted average shares would have been used to computethe diluted loss per share calculation. In addition to the basic shares, weighted average shares for the diluted calculation would have included 157,441shares of non-vested restricted stock and 214,105 share equivalents for options.The weighted average shares outstanding used to determine dilutive earnings per share for the years ended December 31, 2016 and 2015 do notinclude 300,000 and 500,000 options, respectively, which were deemed to be anti-dilutive. The year ended December 31, 2017 did not have anyoptions that were deemed to be anti-dilutive. 19.Statutory Financial InformationGAAP differs in certain respects from Statutory Accounting Principles (“SAP”) as prescribed or permitted by the various U.S. state insurancedepartments. 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 debtsecurities at estimated fair value. • Under SAP, policy acquisition costs, such as commissions, premium taxes, fees and other costs of underwriting policies are charged tocurrent operations as incurred, while under GAAP such costs are deferred and amortized on a pro rata basis over the period covered by thepolicy. • 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 deferredtax 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 theultimate liability and related receivable settlement, while under GAAP such costs are accrued when the liability is probable and reasonablyestimable 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 certainaging criteria, whereas under GAAP, an allowance for uncollectible reinsurance is established based on management’s best estimate of thecollectability of reinsurance receivables. 156Table of Contents • Under SAP, the tax impact of the Tax Cuts and Jobs Act enacted on December 22, 2017 is recorded through surplus, whereas under GAAP,the tax impact is recorded in the Consolidated Statements of Operations.The National Association of Insurance Commissioners (“NAIC”) issues model laws and regulations, many of which have been adopted by stateinsurance regulators, relating to: (a) risk-based capital (“RBC”) standards; (b) codification of insurance accounting principles; (c) investmentrestrictions; 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 regulationsunder which payment of a dividend from statutory surplus is restricted and may require prior approval of regulatory authorities. Applying the currentregulatory restrictions as of December 31, 2017, the maximum amount of distributions that could be paid in 2018 by the United National insurancecompanies and the Penn-America insurance companies under applicable laws and regulations without regulatory approval is approximately$21.0 million and $6.3 million, respectively. The Penn-America insurance companies limitation includes $2.1 million that would be distributed toUnited National Insurance Company or its subsidiary Penn Independent Corporation based on the December 31, 2017 ownership percentages.American Reliable is unable to pay a distribution in 2018 without regulatory approval. During 2017, the United National Insurance Company, thePenn-America Insurance Company, and American Reliable declared and paid dividends of $17.8 million, $7.9 million, and $3.3 million, respectively.In addition, United National Insurance Company paid a $35.0 million dividend, which was previously declared in 2015, to its parent company,American Insurance Services, Inc. during the year ended December 31, 2017.The NAIC’s RBC model provides a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain inrelation to its insurance and investment risks, as well as its reinsurance exposures, to assess the potential need for regulatory attention. The modelprovides 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)less than or equal to 200%, but greater than 150% of its ACLRBC (the “Company Action Level”), the company must submit acomprehensive plan to the regulatory authority proposing corrective actions aimed at improving its capital position; (b)less than or equal to 150%, but greater than 100% of its ACLRBC (the “Regulatory Action Level”), the regulatory authority will perform aspecial examination of the company and issue an order specifying the corrective actions that must be followed; (c)less than or equal to 100%, but greater than 70% of its ACLRBC (the “Authorized Control Level”), the regulatory authority may take anyaction 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 itscontrol.Based on the standards currently adopted, the Company reported in its 2017 statutory filings that the capital and surplus of the U.S. insurancecompanies 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 determinedin accordance with SAP: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Statutory capital and surplus, as of end of period $274,586 $323,144 $318,101 Statutory net income (loss) ($19,019) 35,618 48,633 157Table of ContentsGlobal 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 incomestatement, a statement of capital and surplus and notes thereto. The statutory financial statements are not prepared in accordance with GAAP or SAPand are distinct from the financial statements prepared for presentation to Global Indemnity Reinsurance’s shareholders and under the BermudaCompanies Act 1981 (the “Companies Act”), which financial statements will be prepared in accordance with GAAP.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 arecharged to current operations as incurred, while under GAAP such costs are deferred and amortized on a pro rata basis over the periodcovered by the policy. • Under the Insurance Act, prepaid expenses and intangible assets are charged to current operations as incurred, while under GAAP such costsare 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 reinsurancetransactions, 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, orwould 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 aggregateof its liabilities and its issued share capital and share premium accounts. Global Indemnity Reinsurance is also prohibited, without the approval of theBMA, from reducing by 15% or more its total statutory capital or 25% or more of its total statutory capital and surplus as set out in its previous year’sstatutory financial statements, and any application for such approval must include such information as the BMA may require. Based upon the totalstatutory capital plus the statutory surplus as set out in its 2017 statutory financial statements that will be filed in 2018, Global Indemnity Reinsurancecould pay a dividend of up to $227.1 million without requesting BMA approval. Global Indemnity Reinsurance is dependent on receivingdistributions from its subsidiaries in order to pay the full dividend in cash. In 2017, Global Indemnity Reinsurance declared a dividend of$120.0 million to its parent, Global Indemnity. Of this amount, $100.0 million was paid to Global Indemnity in December, 2017. As of December 31,2017, accrued dividends were $20.0 million.The following is selected information for Global Indemnity Reinsurance, net of intercompany eliminations, where applicable, as determined inaccordance with the Bermuda Insurance Act 1978: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Statutory capital and surplus, as of end of period $908,433 $838,923 $713,842 Statutory net income 29,647 32,768 864 20.Segment InformationThe Company manages its business through three business segments. Commercial Lines offers specialty property and casualty products designed forproduct lines such as Small Business Binding Authority, Property Brokerage, and Programs. Personal Lines offers specialty personal lines andagricultural coverage. Reinsurance Operations provides reinsurance solutions through brokers and primary writers including insurance and reinsurancecompanies.All three segments follow the same accounting policies used for the Company’s consolidated financial statements. For further disclosure regarding theCompany’s accounting policies, please see Note 3. 158Table of ContentsDuring the 1st quarter of 2017, the Company re-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions ofbusiness will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportablesegments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included aspart of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs writtenby American Reliable Insurance Company, which was previously included within the Personal Lines segment, is now aggregated within theCommercial Lines segment. Accordingly, the segment results for 2016 and 2015 have been revised to reflect these changes.On September 30, 2016, Diamond State Insurance Company sold all the outstanding shares of capital stock of one of its wholly owned subsidiaries,United National Specialty Insurance Company, to an unrelated party. Diamond State Insurance Company received a one-time payment of$18.7 million and recognized a pretax gain of $6.9 million which is reflected in other income in 2016. This transaction did not have an impact on theCompany’s ongoing business operations. Subsequent to the sale, any business previously written by United National Specialty Insurance Company isbeing written by other companies within the Company’s U.S. Insurance Operations.The following are tabulations of business segment information for the years ended December 31, 2017, 2016, and 2015. Corporate information isincluded to reconcile segment data to the consolidated financial statements. 2017:(Dollars in thousands) CommercialLines (1) PersonalLines (1) ReinsuranceOperations (2) Total Revenues: Gross premiums written $212,670 $249,777(6) $53,887 $516,334 Net premiums written $186,448 $209,799 $53,933 $450,180 Net premiums earned $178,798 $215,983 $43,253 $438,034 Other income 78 6,288 216 6,582 Total revenues 178,876 222,271 43,469 444,616 Losses and Expenses: Net losses and loss adjustment expenses 62,834 165,798 40,580 269,212 Acquisition costs and other underwriting expenses 75,990(3) 93,113(4) 14,630 183,733 Income (loss) from segments $40,052 $(36,640) $(11,741) (8,329) Unallocated Items: Net investment income 39,323 Net realized investment gains 1,576 Corporate and other operating expenses (25,714) Interest expense (16,906) Loss before income taxes (10,050) Income tax benefit 499 Net loss $(9,551) Total assets $905,184 $467,525 $628,960(5) $2,001,669 (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 $714 relating to cessions from Commercial Lines to Reinsurance Operations.(4)Includes federal excise tax of $862 relating to cessions from Personal Lines to Reinsurance Operations.(5)Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries 159Table of Contents(6)Includes ($1,338) of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota sharereinsurance agreement. 2016:(Dollars in thousands) CommercialLines (1) PersonalLines (1) ReinsuranceOperations (2) Total Revenues: Gross premiums written $203,061 $302,947(6) $59,837 $565,845 Net premiums written $182,956 $228,183 $59,801 $470,940 Net premiums earned $189,342 $237,555 $41,568 $468,465 Other income (loss) 6,857 3,712 (224) 10,345 Total revenues 196,199 241,267 41,344 478,810 Losses and Expenses: Net losses and loss adjustment expenses 75,401 174,528 14,074 264,003 Acquisition costs and other underwriting expenses 81,477(3) 99,109(4) 16,064 196,650 Income (loss) from segments $39,321 $(32,370) $11,206 18,157 Unallocated Items: Net investment income 33,983 Net realized investment gains 21,721 Corporate and other operating expenses (17,338) Interest expense (8,905) Income before income taxes 47,618 Income tax benefit 2,250 Net income $49,868 Total assets $790,564 $470,508 $711,874(5) $1,972,946 (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 $756 relating to cessions from Commercial Lines to Reinsurance Operations.(4)Includes federal excise tax of $948 relating to cessions from Personal Lines to Reinsurance Operations.(5)Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries 160Table of Contents(6)Includes $35,334 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota sharereinsurance agreement. 2015:(Dollars in thousands) CommercialLines (1) PersonalLines (1) ReinsuranceOperations (2) Total Revenues: Gross premiums written $213,353 $327,147(6) $49,733 $590,233 Net premiums written $198,404 $253,157 $49,683 $501,244 Net premiums earned $198,404 $253,948 $51,791 $504,143 Other income (loss) — 3,493 (93) 3,400 Total revenues 198,404 257,441 51,698 507,543 Losses and Expenses: Net losses and loss adjustment expenses 98,471 163,045 13,852 275,368 Acquisition costs and other underwriting expenses 84,623(3) 97,687(4) 18,993 201,303 Income (loss) from segments $15,310 $(3,291) $18,853 30,872 Unallocated Items: Net investment income 34,609 Net realized investment losses (3,374) Corporate and other operating expenses (24,448) Interest expense (4,913) Income before income taxes 32,746 Income tax benefit 8,723 Net income $41,469 Total assets $714,688 $524,912 $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 $1,047 relating to cessions from Commercial Lines to Reinsurance Operations.(4)Includes federal excise tax of $1,270 relating to cessions from Personal Lines to Reinsurance Operations.(5)Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries(6)Includes $55,829 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota sharereinsurance agreement. 21.Supplemental Cash Flow InformationTaxes and Interest PaidThe Company paid the following net federal income taxes and interest for 2017, 2016, and 2015: Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Federal income taxes paid $133 $195 $104 Federal income taxes recovered 19 4,889 2 Interest paid 14,504 8,771 3,926 161Table of ContentsNon-Cash ActivitiesOn January 1, 2015, Global Indemnity Group, Inc. acquired 100% of the voting equity interest of American Reliable. In conjunction with theacquisition, fair value of assets acquired and liabilities assumed by the Company were as follows: (Dollars in thousands) Fair value of assets acquired (including goodwill) $383,668 Liabilities assumed 283,871 22.New Accounting PronouncementsThe following are new accounting guidance which have not yet been adopted.In May, 2017, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance which clarifies whether changes to the termsor conditions of a share-based payment award require an entity to apply modification accounting. This guidance is effective for all entities for annualperiods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. Although the Company isstill evaluating the impact of this new guidance, the Company does not anticipate it will have a material impact on its financial condition, results ofoperations, or cash flows.In March, 2017, the FASB issued new accounting guidance which amends the amortization period for certain purchased callable debt securities held ata premium. Under current generally accepted accounting principles, entities generally amortize the premium as an adjustment of yield over thecontractual life of the instruments. Under the new guidance, the amortization period would be shortened to the earliest call date. This guidance iseffective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption ispermitted. The Company is still evaluating the impact of this guidance on its financial condition, results of operations, and cash flows.In January, 2017, the FASB issued updated guidance that simplifies how an entity is required to test goodwill for impairment by eliminating therequirement to calculate the implied fair value of goodwill (i.e. Step 2 of the current goodwill impairment test). Under the new amendments, an entitymay still first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to benecessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to berecognized, if any. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceedsits fair value, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective for public business entities’ annual orinterim goodwill impairment testing in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwillimpairment tests performed on testing dates after January 1, 2017. Although the Company is still evaluating the impact of this new guidance, theCompany does not anticipate it will have a material impact on its financial condition, results of operations, or cash flows.In October, 2016, the FASB issued new accounting guidance regarding intra-entity transfers of assets other than inventory. Under current GAAP, thetax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recoveredthrough use. This is an exception to the principle in ASC 740, Income Taxes, that generally requires comprehensive recognition of current and deferredincome taxes. The new guidance eliminates the exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity wouldrecognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of thattransaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of thetransfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from onemember of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. Upon adoption on January 1, 2018,there will be a cumulative 162Table of Contentsadjustment to retained earnings which the Company does not expect to be material to its overall financial condition.In August, 2016, the FASB issued new accounting guidance regarding the classification of certain cash receipts and cash payments within thestatements of cash flows. The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity inpractice. This guidance is effective for public business entities for fiscal periods beginning after December 15, 2017, and interim periods within thosefiscal years. Early adoption is permitted. Although the Company is still evaluating the impact of this new guidance, the Company does not anticipate itwill have a material impact on its financial condition, results of operations, or cash flows.In June, 2016, the FASB issued new accounting guidance addressing the measurement of credit losses on financial instruments. For assets held atamortized cost basis, the new guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expectedcredit losses and requires consideration of a broader range of information for credit loss estimates. For available for sale debt securities, credit lossesshould be measured similar to current GAAP; however, the new guidance requires that credit losses be presented as an allowance rather than as a write-down and allows for the reversal of credit losses in the current period net income. This guidance is effective for public business entities for fiscal yearsbeginning after December 15, 2019, including interim periods within those fiscal years. Early application of this new guidance is permitted as of thefiscal years beginning after December 15, 2018 including interim periods within those fiscal years. This guidance will be applied using a modified-retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which theguidance is effective. The Company is still evaluating the impact of this guidance on its financial condition, results of operations, and cash flows.In February, 2016, the FASB issued new accounting guidance regarding leases. The new guidance increases transparency and comparability amongorganizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Thisguidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.Early adoption is permitted. Upon adoption, the Company expects to report higher assets and liabilities as a result of recognizing right-of-use assetsand corresponding lease liabilities on the Consolidated Balance Sheets. The Company expects the new guidance to have minimal impact on theConsolidated Statement of Operations or Consolidated Statement of Cash Flows.In January, 2016, the FASB issued new accounting guidance surrounding the accounting for financial instruments. The new guidance addresses certainaspects of recognition, measurement, presentation, and disclosure of financial instruments. In particular, the guidance requires equity investments,except for those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair valuewith the changes in fair value recognized in net income. It also simplifies the impairment assessment of equity investments without readilydeterminable fair values by requiring a qualitative assessment to identify impairment. This guidance is effective for public business entities for fiscalyears beginning after December 15, 2017, including interim periods within those fiscal years. Early application of this new guidance is permitted as ofthe beginning of the fiscal year of adoption. Upon adoption on January 1, 2018, the Company estimates that a cumulative effect adjustment, net of tax,of approximately $10.0 million will be reclassified from accumulated other comprehensive income and increase retained earnings. However, there willbe no net impact to overall equity.In May, 2014, the FASB issued new accounting guidance regarding the recognition of revenue from customers arising from the transfer of goods andservices. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customersin an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Long and short durationinsurance contracts, which comprise the majority of the Company’s revenues, are excluded from this 163Table of Contentsaccounting guidance. While insurance contracts are not within the scope of this guidance, the Company reviewed the requirement of the new guidanceto determine whether its revenue recognition policy for fee income will be impacted by this updated guidance. Based on this review, the Companydoes not believe its accounting policies will be impacted by this new revenue recognition guidance. This guidance is effective for public businessentities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application ispermitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. 23.Summary of Quarterly Financial Information (Unaudited)An unaudited summary of the Company’s 2017 and 2016 quarterly performance is as follows: Year Ended December 31, 2017 (Dollars in thousands, except per share data) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Net premiums earned $113,126 $107,073 $108,619 $109,216 Net investment income 8,644 8,840 10,134 11,705 Net realized investment gains (losses) 775 (662) (963) 2,426 Net losses and loss adjustment expenses 62,561 57,700 82,395 66,556 Acquisition costs and other underwriting expenses 46,551 43,457 45,002 48,723 Income (loss) before income taxes 9,280 7,753 (16,779) (10,304) Net income (loss) 12,282 10,089 (8,924) (22,998) Per share data — Diluted: Net income (loss) $0.70 $0.57 $(0.51) $(1.33) Year Ended December 31, 2016 (Dollars in thousands, except per share data) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Net premiums earned $121,636 $117,804 $119,553 $109,472 Net investment income 9,746 6,562 8,795 8,880 Net realized investment gains (losses) (7,493) (3,492) 1,928 30,778 Net losses and loss adjustment expenses 64,784 78,111 72,162 48,946 Acquisition costs and other underwriting expenses 52,090 48,542 48,129 47,889 Income (loss) before income taxes 1,953 (11,468) 10,598 46,535 Net income (loss) 7,125 (5,165) 9,535 38,373 Per share data — Diluted: Net income (loss) $0.41 $( 0.30) $0.54 $2.18 24.Subsequent eventsOn March 4, 2018, the Company’s Board of Directors approved a dividend payment of $0.25 per ordinary share to be paid on March 29, 2018 to allshareholders of record as of the close of business on March 21, 2018.On March 8, 2018, the Company settled its final reserve calculation which resulted in $41.5 million being due to Global Indemnity Group, Inc. inaccordance with the Stock Purchase Agreement between Global Indemnity Group, Inc. and American Bankers Insurance Group, Inc. for the purchase ofAmerican Reliable. The settlement is comprised of (i) receipt of $38.8 million for loss and loss adjustment expenses paid on or after January 1, 2015 orpayable as of December 31, 2017 with respect to losses incurred prior to January 1, 2015, (ii) receipt of $6.2 million for accrued interest and(iii) payment of $3.5 million for the difference between the agreed upon purchase price and actual settlement on January 1, 2015. These amounts areincluded in other assets on the consolidated balance sheets as of December 31, 2017. 164Table of ContentsItem 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone Item 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports underthe Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’srules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with theparticipation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of disclosurecontrols and procedures as of December 31, 2017. Based upon that evaluation and subject to the foregoing, the Chief Executive Officer and ChiefFinancial Officer concluded that, as of December 31, 2017, the design and operation of the Company’s disclosure controls and procedures wereeffective to accomplish their objectives at the reasonable assurance level.Management’s Report on Internal Control over Financial ReportingManagement of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’sinternal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and thepreparation 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 ofthe Company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withU.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations ofthe Company’s management and Directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that couldhave a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.Management has assessed the Company’s internal control over financial reporting as of December 31, 2017. The standard measures adopted bymanagement in making its evaluation are the measures in the Internal Control Integrated Framework published by the Committee of SponsoringOrganizations 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 31,2017, and that there were no material weaknesses in the Company’s internal control over financial reporting as of that date. 165Table of ContentsErnst & Young, LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statementscontained in this Form 10-K, has issued its report on the effectiveness of the Company’s internal control over financial reporting. See “Report ofIndependent Registered Public Accounting Firm” on page 167.Changes in Internal Control over Financial ReportingThere have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended December 31, 2017that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. 166Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Global Indemnity LimitedOpinion on Internal Control over Financial ReportingWe have audited Global Indemnity Limited’s internal control over financial reporting as of December 31, 2017, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (theCOSO criteria). In our opinion, Global Indemnity Limited (the Company) maintained, in all material respects, effective internal control over financialreporting as of December 31, 2017, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensiveincome, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the financialstatement schedules listed in the Index at Item 15 and our report dated March 9, 2018 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenessof internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable 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, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal 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 arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPPhiladelphia, PAMarch 9, 2018 167Table of ContentsItem 9B.OTHER INFORMATIONCEO Employment Agreement.On March 6, 2018 Global Indemnity entered into a Chief Executive Agreement (the “Employment Agreement”) with Cynthia Y. Valko, the ChiefExecutive Officer (“CEO”). The Employment Agreement provides for an employment term of three years, from January 1, 2018 through December 31,2020.Under the Employment Agreement, Ms. Valko is eligible to receive a cash Return on Equity Bonus of up to $600,000 for each fiscal year of theEmployment Agreement that Ms. Valko served as the CEO (the “ROE Bonus”). Ms. Valko is eligible to receive a preliminary ROE Bonus (the“Preliminary ROE Bonus”) for each such fiscal year if Global Indemnity’s return on equity percentage for such fiscal year exceeds 85% of the targetedreturn on equity percentage (as established by the Company’s Compensation Committee) for such fiscal year. If Ms. Valko is still employed by theCompany and in good standing through the date of payment she will receive 50% of the Preliminary ROE Bonus, payable no later than April 1 of thecalendar year immediately following the year to which such Preliminary ROE Bonus relates. Global Indemnity will retain the remaining 50% unpaidbalance of the Preliminary ROE Bonus, which will be paid to Ms. Valko within 90 days after the end of the third full calendar year following a BonusYear (as defined in the Employment Agreement), regardless of Ms. Valko’s then-current employment status with the Company, but subject toadjustment based on an actuarial assessment of incurred but not reported underwriting losses and loss adjustment expenses and actual underwritinglosses and loss adjustment expenses.Additionally, under the Employment Agreement, Ms. Valko is eligible to receive an annual cash Performance Incentive Bonus of up to $200,000,based on an assessment of her performance during the Bonus Year (as defined by the Employment Agreement) by the Company’s CompensationCommittee, in its sole discretion, based upon the assessment of the Company’s Chairman of the Board of Directors, in his sole discretion.Under the Employment Agreement, Ms. Valko is restricted from selling any A Ordinary Shares of Global Indemnity unless Ms. Valko retains vestedGlobal Indemnity stock options and shares having an aggregate value of at least equal to the lesser of (i) $5,000,000 or (ii) $5,000,000 multiplied by afraction, the numerator of which is the volume weighted trading price of Global Indemnity’s shares for the 30-day period ending on the relevantmeasurement date and the denominator of which is $50, and Ms. Valko retains at least 75% of the Global Indemnity options and restricted sharesgranted to her. Ms. Valko must provide Global Indemnity’s Chairman with advance notice, and receive approval of, any proposed sale.In addition, Ms. Valko will be granted 300,000 options (“Tranche 3 Options”) to buy Global Indemnity A Ordinary Shares with an exercise price of$50.00 per share. Tranche 3 Options vest 1/3 on December 31 of 2018, 2019 and 2020, if Ms. Valko remains employed and in good standing as of suchdate. Tranche 3 Options expire on the earlier of December 31, 2027 and 90 calendar days after Ms. Valko is neither employed by Global Indemnity nora member of the Board of Directors. In 2014, Ms. Valko was granted 300,000 options to buy Global A Ordinary Shares (“Tranche 2 Options”). TheTranche 2 Options will vest on each December 31 of 2018, 2019 and 2020 in an amount based on Ms. Valko’s attainment of the ROE Bonus criteriadescribed above.In the event of Ms. Valko’s termination by the Company (other than for a Cause Event, as defined in the Employment Agreement), before theexpiration of the term, she will receive one month of then-current Base Salary for every completed 12 months of employment prior to the date oftermination.The foregoing description of the Employment Agreement is qualified by reference to the full text of the Chief Executive Agreement, which is filed asExhibit 10.41 to this Annual Report on Form 10-K and incorporated herein by reference. 168Table of ContentsPART III Item 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCEThe information required by this Item is incorporated by reference to, and will be contained in, the Company’s definitive proxy statement relating tothe 2018 Annual Meeting of Shareholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017 (“2018 ProxyStatement”). Item 11.EXECUTIVE COMPENSATIONThe information required by this Item is incorporated by reference to, and will be contained in, the Company’s 2018 Proxy Statement. Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDERMATTERSThe information required by this Item is incorporated by reference to, and will be contained in, the Company’s 2018 Proxy Statement. Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this Item is incorporated by reference to, and will be contained in, the Company’s 2018 Proxy Statement. Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this Item is incorporated by reference to, and will be contained in, the Company’s 2018 Proxy Statement. 169Table of ContentsPART IV Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULESThe agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than withrespect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, anyrepresentations and warranties made by the Company in these agreements or other documents were made solely within the specific context of therelevant 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 90 are filed as part of this report.(2) The Financial Statement Schedules listed in the accompanying index on page 90 are filed as part of this report. ExhibitNo. Description2.1 American Reliable SPA dated as of October 16, 2014 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report onForm 8-K dated October 21, 2014 (File No. 001-34809)).3.1 Certificate of Incorporation of Global Indemnity Limited (incorporated by reference to Exhibit 3.1 of the Company’s Current Reporton Form 8-K12B dated November 7, 2016 (File No. 001-34809)).3.2 Certificate of Incorporation of Change on Name of Global Indemnity Limited (incorporated by reference to Exhibit 3.2 of theCompany’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).3.3 Amended and Restated Memorandum and Articles of Association of Global Indemnity Limited (incorporated by reference to Exhibit3.3 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).4.1 Specimen Share Certificate (evidencing the common shares of Global Indemnity Limited) (incorporated by reference to Exhibit 4.1of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).4.2 Indenture, dated as of August 12, 2015, by and between the Company and Wells Fargo Bank, National Association, as trustee(incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated August 12, 2015) (FileNo. 001-34809)).4.3 First Supplemental Indenture, dated November 7, 2016, among Global Indemnity Limited, Global Indemnity plc and Wells FargoBank, National Association, as Trustee, to the Indenture dated as of August 12, 2015 (incorporated by reference to Exhibit 4.2 of theCompany’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).4.4 Officers’ Certificate, dated August 12, 2015 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-Kdated August 12, 2015 (File No. 001-34809)).4.5 Form of 7.75% Subordinated Notes due 2045 (included in Exhibit 4.2) (incorporated by reference to Exhibit 4.3 of the Company’sCurrent Report on Form 8-K dated August 12, 2015 (File No. 001-34809)).4.6 Second Supplemental Indenture, dated as of March 23, 2017, among Global Indemnity Limited, Wells Fargo Bank, NationalAssociation, and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form8-K dated March 23, 2017 (File No. 001-34809)). 170Table of Contents 4.7 Form of 7.875% Subordinated Notes due 2047 (included in Exhibit 4.6) (incorporated by reference to Exhibit 4.4 of the Company’sCurrent Report on Form 8-K dated March 23, 2017 (File No. 001-34809)).10.1* Management Agreement, dated as of September 5, 2003, by and among United National Group, Ltd., Fox Paine & Company, LLC andThe AMC Group, L.P. with related Indemnity Letter (incorporated by reference to Exhibit 10.3 of Amendment No. 1 to the Company’sRegistration Statement on Form S-1 (Registration No. 333-108857) filed on October 28, 2003) (File No. 000-50511)).10.2* Amendment No. 1 to the Management Agreement, dated as of May 25, 2006, by and among United America Indemnity, Ltd., FoxPaine & Company, LLC and Wind River Holdings, L.P., formerly The AMC Group, L.P. (incorporated by reference to Exhibit 10.3 ofthe Company’s Current Report on Form 8-K filed on June 1, 2006) (File No. 000-50511)).10.3* 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 byreference to Exhibit 10.26 of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2010 (FileNo. 000-34809)).10.4* 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 GlobalIndemnity (Cayman) Ltd. under the Letter Agreement, dated March 15, 2011 (incorporated by reference to Exhibit 10.27 of theCompany’s annual report on Form 10-K for the fiscal year ended December 31, 2010 (File No. 000-34809)).10.5* Amendment No. 3 to the Management Agreement, dated as of April 10, 2011, by and among Global Indemnity (Cayman) Ltd. and FoxPaine & Company, LLC (incorporated by reference to Exhibit 10.5 of the Company’s annual report on Form 10-K for the fiscal yearended December 31, 2012 (File No. 001-34809)).10.6* Amended and Restated Management Agreement, dated as of October 31, 2013, by and among Global Indemnity (Cayman) Ltd. andFox Paine & Company, LLC (incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the quarterended September 30, 2013 (File No. 001-34809)).10.7* Confirmation Letter, dated as of November 7, 2016, between Global Indemnity Limited, Global Indemnity plc, Global Indemnity(Cayman) Limited and Fox Paine & Company, LLC (incorporated by reference to Exhibit 10.3 of the Company’s Current Report onForm 8-K12B dated November 7, 2016 (File No. 001-34809)).10.8* Reaffirmation Agreements, dated as of October 31, 2013, provided by each of United America Indemnity, Ltd., Global IndemnityReinsurance Company, Ltd., and Global Indemnity Group, Inc. reaffirming the March 15, 2011 Guaranty Agreements (incorporated byreference 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)).10.9* Reaffirmation Agreement, dated as of November 7, 2016, by Global Indemnity Group, Inc. (incorporated by reference to Exhibit 10.4of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).10.10* Reaffirmation Agreement, dated as of November 7, 2016, by Global Indemnity Reinsurance Company, Ltd. (incorporated by referenceto Exhibit 10.5 of the Company’s Current Report on Form 8K-12B dated November 7, 2016 (File No. 001-34809)). 171Table of Contents10.11* Amendment No. 1 and the Global Indemnity plc Share Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’sCurrent Report on Form 8-K dated May 28, 2015 (File No. 001-34809)).10.12* Global Indemnity Limited Share Incentive Plan, as amended and restated and effective as of November 7, 2016 (incorporated byreference to Exhibit 10.15 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).10.13* Global Indemnity plc Annual Incentive Award Program, amended and restated effective July 2, 2010 (incorporated by reference toExhibit 10.4 of the Company’s Current Report on Form 8-K12B dated July 2, 2010 (File No. 001-34809)).10.14* Deed Poll of Assumption for United America Indemnity, Ltd. Annual Incentive Award Program by Global Indemnity plc, dated July 2,2010 (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K12B dated July 2, 2010 (FileNo. 001-34809)).10.15* Global Indemnity Limited Annual Incentive Awards Program, as amended and restated and effective as of November 7, 2016(incorporated by reference to Exhibit 10.16 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (FileNo. 001-34809)).10.16* Amended and Restated Shareholders Agreement, dated July 2, 2010, by and among Global Indemnity plc (as successor to UnitedAmerica Indemnity, Ltd.) and the signatories thereto (incorporated by reference to Exhibit 10.6 of the Company’s Current Report onForm 8-K12B dated July 2, 2010 (File No. 001-34809)).10.17* Assignment and Assumption Agreement relating to the Amended and Restated Shareholders Agreement, dated July 2, 2010(incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K12B dated July 2, 2010 (File No. 001-34809)).10.18* Amendment to the Amended and Restated Shareholders Agreement, dated as of October 31, 2013, by and among Global Indemnity plcand the signatories thereto (incorporated by reference to Exhibit 10.3 of the Company’s quarterly report on Form 10-Q for the fiscalquarter ended September 30, 2013 (File No. 001-34809)).10.19* Assignment and Assumption Agreement, dated as of November 7, 2016, between Global Indemnity Limited and Global Indemnity plc(incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (FileNo. 001-34809)).10.20* Indemnification Agreement between United America Indemnity, Ltd. and Fox Paine Capital Fund II International L.P., dated July 2,2010 (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K12b dated July 2, 2010 (FileNo. 001-34809)).10.21* Assignment and Assumption Agreement, dated as of November 7, 2016, between Global Indemnity Limited, Global Indemnity plc andFox Paine Capital Fund II International L.P. (incorporated by reference to Exhibit 10.13 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (File No. 001-34809)).10.22* Form of Indemnification Agreement between United America Indemnity, Ltd. and certain directors and officers of Global Indemnityplc, dated July 2, 2010 (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on form 8-K12B dated July 2, 2010(File No. 001-34809)).10.23* Form of Assignment and Assumption Agreement, dated as of , 2016, between Global Indemnity Limited, Global Indemnity plc, UnitedAmerica Indemnity, Ltd. and certain directors and officers of who may become a party thereto (incorporated by reference to Exhibit10.14 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).10.24* Employment Agreement, as amended, for William J. Devlin, Jr., dated October 24, 2005 (incorporated by reference to exhibit 10.14 ofthe 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)). 172Table of Contents10.25* Amendment to Executive Employment Agreement with William J. Devlin, Jr., dated November 7, 2016 (incorporated by reference toExhibit 10.8 of the Company’s Current Report on Form 8-K12B (File No. 001-34809)).10.26* Amendment to the Executive Employment Agreement with William J. Devlin, Jr., dated August 8, 2017 ((incorporated by reference toExhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (File No. 001-34809)).10.27* Executive Employment Agreement, dated as of June 8, 2009, between Penn-America Insurance Company and Matthew B. Scott(incorporated 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)).10.28* Amendment to Executive Employment Agreement with Matthew B. Scott, dated November 7, 2016 (incorporated by reference toExhibit 10.11 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).10.29* Executive Employment Agreement, dated as of December 8, 2009, between United America Indemnity, Ltd. and Thomas M.McGeehan (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2009 (File No. 000-50511)).10.30* Amendment to Executive Employment Agreement with Thomas M. McGeehan, dated November 7, 2016 (incorporated by reference toexhibit 10.10 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).10.31* Executive Employment Agreement with Cynthia Y. Valko, dated November 7, 2016 (incorporated by reference to exhibit 10.7 of theCompany’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).10.32* Executive Employment Term Sheet with Stephen Green, dated February 18, 2015 (incorporated by reference to exhibit 10.20 of theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (File No. 001-34809)).10.33* Amendment to the Executive Employment Term Sheet with Stephen Green, dated November 7, 2016 (incorporated by reference toExhibit 10.9 of the Company’s Current Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)).10.34* Amendment to the Executive Employment Agreement with Stephen Green, dated August 8, 2017 (incorporated by reference to Exhibit10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (File No. 001-34809)).10.35 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) (FileNo. 001-34809)).10.36 Amended and Restated Additional Redemption Agreement, dated as of November 7, 2016, between Global Indemnity Limited, GlobalIndemnity plc and other parties listed therein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form8-K12B dated November 7, 2016 (File No. 001-34809)).10.37 Assignment and Assumption Agreement, dated as of November 7, 2016, among Global Indemnity Limited, Global Indemnity plc,Global Indemnity Group, Inc., American Bankers Insurance Group, Inc. and Assurant, Inc. (incorporated by reference to Exhibit 10.6 ofthe Company’s Current Report on Form 8K-12B dated November 7, 2016 (File No. 001-34809)).10.38 Deed Poll, dated as of November 7, 2016, by Global Indemnity Limited (incorporated by reference to Exhibit 10.12 of the Company’sCurrent Report on Form 8-K12B dated November 7, 2016 (File No. 001-34809)). 173Table of Contents 10.39 Institutional Services Customer Agreement dated as of December 12, 2016 (incorporated by reference to Exhibit 10.1 of theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-34809)). 10.40 Confidentiality Agreement between Fox Paine & Company, LLC and Global Indemnity Limited, dated September 17, 2017(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,2017 (File No. 001-34809)). 10.41*+ Cynthia Valko Chief Executive Agreement. 21.1+ List of Subsidiaries. 23.1+ Consent of Ernst and Young LLP. 31.1+ Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2+ Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1+ 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. 32.2+ 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 2002.101.1+ The following financial information from Global Indemnity’s Annual Report on Form 10-K for the Year Ended December 31, 2017formatted in XBRL: (i) Consolidated Balance Sheets for the years ended December 31, 2017 and 2016; (ii) Consolidated Statementsof Operations for the years ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income forthe years ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the yearsended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016and 2015; (vi) Notes to Consolidated Financial Statements; and (vii) Financial Statement Schedules. +Filed or furnished herewith.*Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. Item 16.Form 10-K SummaryNone. 174Table of ContentsSIGNATURESPursuant to the requirements of the Section 13 or 15 (d) of the Securities Exchange Act of 1934, Global Indemnity has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.GLOBAL INDEMNITY LIMITED By: /s/ Cynthia Y. ValkoName: Cynthia Y. ValkoTitle: Chief Executive OfficerDate: March 9, 2018Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of theregistrant and in the capacities indicated below on March 9, 2018. SIGNATURE TITLE/s/ Saul A. FoxSaul A. Fox Chairman and Director/s/ Cynthia Y. ValkoCynthia Y. Valko Chief Executive Officer (Principal Executive Officer) and Director/s/ Thomas M. McGeehanThomas M. McGeehan Chief Financial Officer (Principal Financial and Accounting Officer)/s/ Seth J. GerschSeth J. Gersch Director/s/ John H. HowesJohn H. Howes Director/s/ Bruce LedermanBruce Lederman Director/s/ Raphael de BalmannRaphael de Balmann Director/s/ Joseph W. BrownJoseph W. Brown Director/s/ David J. W. BruceDavid J. W. Bruce Director/s/ Jason B. HurwitzJason B. Hurwitz Director/s/ Arik RashkesArik Rashkes Director 175Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE I — SUMMARY OF INVESTMENTS — OTHER THAN INVESTMENTSIN RELATED PARTIES(In thousands) As of December 31, 2017 Cost* Value AmountIncluded in theBalance Sheet Type of Investment: Fixed maturities: United States government and government agencies and authorities $105,311 $104,680 $104,680 States, municipalities, and political subdivisions 94,947 95,114 95,114 Mortgage-backed and asset-backed securities 494,825 492,846 492,846 Public utilities 23,467 23,504 23,504 All other corporate bonds 524,594 525,293 525,293 Total fixed maturities 1,243,144 1,241,437 1,241,437 Equity securities: Common stocks: Public utilities 9,444 9,748 9,748 Industrial and miscellaneous 115,471 130,481 130,481 Total equity securities 124,915 140,229 140,229 Other long-term investments 77,820 77,820 77,820 Total investments $1,445,879 $1,459,486 $1,459,486 *Original cost of equity securities; original cost of fixed maturities adjusted for amortization of premiums and accretion of discounts; original cost forother long-term investments adjusted for income or loss earned on investments in accordance with equity method of accounting. All amounts areshown net of impairment losses. S-1Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE II — Condensed Financial Information of Registrant(Parent Only)Balance Sheets(Dollars in thousands, except share data) Years Ended December 31, 2017 2016 ASSETS Fixed maturities $13,118 $3,770 Cash and cash equivalents 11,089 91 Intercompany note receivable (1) — 750,397 Equity in unconsolidated subsidiaries (1) 1,207,590 292,195 Receivable for securities (1) — 1 Due from affiliates 4,618 — Other assets 20,681 59 Total assets $1,257,096 $1,046,513 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Debt $222,483 $96,497 Intercompany notes payable (1) 290,498 141,998 Interest payable 3,152 990 Due to affiliates (1) 12,465 8,759 Other liabilities 10,104 318 Total liabilities 538,702 248,562 Commitments and contingencies — — Shareholders’ equity: Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A ordinary shares issued:10,102,927 and 13,436,548, respectively; A ordinary shares outstanding: 10,073,376 and 13,436,548,respectively; B ordinary shares issued and outstanding: 4,133,366 and 4,133,366, respectively 2 2 Preferred shares, $0.0001 par value, 100,000,000 shares authorized, none issued and outstanding — — Additional paid-in capital 434,730 430,283 Accumulated other comprehensive income, net of tax 8,983 (618) Retained earnings 275,838 368,284 A ordinary shares in treasury, at cost: 29,551 and 0 shares, respectively (1,159) — Total shareholders’ equity 718,394 797,951 Total liabilities and shareholders’ equity $1,257,096 $1,046,513 (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Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE II — Condensed Financial Information of Registrant (continued)(Parent Only)Statement of Operations and Comprehensive Income(Dollars in thousands) Years EndedDecember 31, 2017 2016 Revenues: Net investment income $361 $28 Net realized investment losses (368) — Total revenues (7) 28 Expenses: Intercompany interest expense (1) 2,477 198 Interest expense 15,872 1,172 Other expenses 16,801 661 Loss before equity in earnings of unconsolidated subsidiaries (35,157) (2,003) Equity in earnings of unconsolidated subsidiaries (1) 25,606 51,871 Net income (9,551) 49,868 Other comprehensive income (loss), net of tax: Unrealized holding gains (losses) 43 (17) Equity in other comprehensive loss of unconsolidated subsidiaries (1) 9,558 (4,679) Other comprehensive loss, net of tax 9,601 (4,696) Comprehensive income, net of tax $50 $45,172 (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Table of ContentsGLOBAL INDEMNITY PLCSCHEDULE II — Condensed Financial Information of Registrant (continued)(Parent Only)Statements of Operations and Comprehensive Income(Dollars in thousands) Year EndedDecember 31, 2015 Revenues: Total revenues $— Expenses: Intercompany interest expense (1) 1,296 Other expenses 8,203 Loss before equity in earnings of unconsolidated subsidiaries (9,499) Equity in earnings of unconsolidated subsidiaries (1) 50,968 Net income 41,469 Other comprehensive income (loss), net of tax: Equity in other comprehensive loss of unconsolidated subsidiaries (1) (19,306) Other comprehensive loss, net of tax (19,306) Comprehensive income, net of tax $22,163 (1)This item has been eliminated in the Company’s Consolidated Financial Statements.See Notes to Consolidated Financial Statements included in Item 8. S-4Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE II — Condensed Financial Information of Registrant — (continued)(Parent Only)Statements of Cash Flows(Dollars in thousands) Years EndedDecember 31, 2017 2016 Net cash provided by (used in) operating activities $(24,927) $1 Cash flows from investing activities: Proceeds from disposition of subsidiaries — 456 Dividend received from subsidiary 100,000 — Capital contribution to a subsidiary (96,000) (450) Proceeds from sale of fixed maturities 12,389 84 Proceeds from maturity of fixed maturities 10,000 — Purchase of fixed maturities (32,044) — Net cash provided by (used in) investing activities (5,655) 90 Cash flows from financing activities: Redemption of ordinary shares (83,015) — Proceeds from issuance of subordinated notes 130,000 — Debt issuance cost (4,246) — Purchase of A ordinary shares (1,159) — Net cash provided by financing activities 41,580 — Net change in cash and equivalents 10,998 91 Cash and cash equivalents at beginning of period 91 — Cash and cash equivalents at end of period $11,089 $91 See Notes to Consolidated Financial Statements included in Item 8. S-5Table of ContentsGLOBAL INDEMNITY PLCSCHEDULE II — Condensed Financial Information of Registrant — (continued)(Parent Only)Statement of Cash Flows(Dollars in thousands) Year EndedDecember 31, 2015 Net cash provided by operating activities $95,891 Cash flows from financing activities: Proceeds from issuance of subordinated notes 100,000 Debt issuance cost (3,659) Purchases of A ordinary shares (333) Tax benefit on share-based compensation expense 10 Redemption of ordinary shares (189,770) Net cash used for financing activities (93,752) Net change in cash and equivalents 2,139 Cash and cash equivalents at beginning of period 46 Cash and cash equivalents at end of period $2,185 See Notes to Consolidated Financial Statements included in Item 8. S-6Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION(Dollars in thousands) Segment Deferred PolicyAcquisition Costs FuturePolicy Benefits,Losses, Claims AndLoss Expenses UnearnedPremiums Other Policyand BenefitsPayable At December 31, 2017: Commercial Lines $21,222 $419,042 $102,191 $— Personal Lines 27,563 120,255 137,704 — Reinsurance Operations 12,862 95,367 45,502 — At December 31, 2016: Commercial Lines $19,755 $458,645 $94,698 $— Personal Lines 28,381 127,350 157,464 — Reinsurance Operations 9,765 65,047 34,822 — At December 31, 2015: Commercial Lines $20,784 $524,607 $100,027 $— Personal Lines 31,900 94,359 169,669 — Reinsurance Operations 3,833 61,081 16,589 — Segment PremiumRevenue Benefits, Claims,Losses AndSettlementExpenses Amortization ofDeferred PolicyAcquisition Costs NetWrittenPremium For the year ended December 31, 2017: Commercial Lines $178,798 $62,834 $42,008 $186,448 Personal Lines 215,983 165,798 56,616 209,799 Reinsurance Operations 43,253 40,580 10,340 53,933 Total $438,034 $269,212 $108,964 $450,180 For the year ended December 31, 2016: Commercial Lines $189,342 $75,401 $42,361 $182,956 Personal Lines 237,555 174,528 61,416 228,183 Reinsurance Operations 41,568 14,074 10,540 59,801 Total $468,465 $264,003 $114,317 $470,940 For the year ended December 31, 2015: Commercial Lines $198,404 $98,471 $43,821 $198,404 Personal Lines 253,948 163,045 31,291 253,157 Reinsurance Operations 51,791 13,852 11,058 49,683 Total $504,143 $275,368 $86,170 $501,244 Unallocated Corporate Items NetInvestmentIncome Corporateand OtherOperatingExpenses For the year ended December 31, 2017 $39,323 $25,714 For the year ended December 31, 2016 33,983 17,338 For the year ended December 31, 2015 34,609 24,448 S-7Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE IV — REINSURANCEEARNED PREMIUMS(Dollars in thousands) DirectAmount Ceded to OtherCompanies Assumed fromOther Companies Net Amount Percentageof AmountAssumed to Net For the year ended December 31, 2017: Property & Liability Insurance $440,109 $79,886 $77,811 $438,034 17.8% For the year ended December 31, 2016: Property & Liability Insurance $466,750 $96,552 $98,267 $468,465 21.0% For the year ended December 31, 2015: Property & Liability Insurance $452,441 $92,852 $144,554 $504,143 28.7% S-8Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE V—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES(Dollars in thousands) Description Balance atBeginning ofPeriod Charged(Credited) to Costsand Expenses Charged(Credited)to OtherAccounts OtherDeductions Balance atEnd of Period For the year ended December 31, 2017: Investment asset valuation reserves: Mortgage loans $— $— $— $— $— Real estate — — — — — Allowance for doubtful accounts: Premiums, accounts and notes receivable $1,928 $251 $— $— $2,179 Deferred tax asset valuation allowance — — — — — Reinsurance receivables 8,040 — — — 8,040 For the year ended December 31, 2016: Investment asset valuation reserves: Mortgage loans $— $— $— $— $— Real estate — — — — — Allowance for doubtful accounts: Premiums, accounts and notes receivable $1,646 $282 $— $— $1,928 Deferred tax asset valuation allowance — — — — — Reinsurance receivables 9,675 (1,635) — — 8,040 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 $— $— $1,646 Deferred tax asset valuation allowance — — — — — Reinsurance receivables 9,350 325 — — 9,675 S-9Table of ContentsGLOBAL INDEMNITY LIMITEDSCHEDULE VI — SUPPLEMENTARY INFORMATION FOR PROPERTY CASUALTY UNDERWRITERS(Dollars in thousands) DeferredPolicyAcquisitionCosts Reserves forUnpaid Claimsand ClaimAdjustmentExpenses Discount IfAny Deducted UnearnedPremiums Consolidated Property & Casualty Entities: As of December 31, 2017 $61,647 $634,664 $1,200 $285,397 As of December 31, 2016 57,901 651,042 2,000 286,984 As of December 31, 2015 56,517 680,047 3,000 286,285 EarnedPremiums NetInvestmentIncome Claims and Claim AdjustmentExpense Incurred Related To Amortization OfDeferred PolicyAcquisition Costs Paid Claimsand ClaimAdjustmentExpenses PremiumsWritten Current Year Prior Year Consolidated Property & Casualty Entities: For the year ended December 31, 2017 $438,034 $39,323 $323,112 $(53,900) $108,964 $271,756 $450,180 For the year ended December 31, 2016 468,465 33,983 321,255 (57,252) 114,317 317,369 470,940 For the year ended December 31, 2015 504,143 34,609 310,066 (34,698) 86,170 332,417 501,244 Note: All of the Company’s insurance subsidiaries are 100% owned and consolidated. S-10FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 9 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 Limited on NASDAQ under the ticker symbol “GBLI” Annual General Meeting The 2018 Annual Meeting is scheduled for 1:00 p.m., Bermuda Time, on Wednesday, June 13, 2018, at Seon Place 141 Front Street Hamilton, HM 19 Bermuda FNL 2017 GLB Indemnity AR For Posting.qxp_Layout 1 5/1/18 9:00 AM Page 10 Registered Office 27 Hospital Road George Town Grand Cayman KY1-9008 Cayman Islands www.GlobalIndemnity.ky info@GlobalIndemnity.ky 

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