The following table sets forth selected consolidated historical financial data for the Company and should be read together with the consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report. No cash dividends were declared on common stock in any year presented in the table.
(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.
On March 23, 2017, the Company issued Subordinated Notes due in 2047 in the aggregate principal amount of $130.0 million through an underwritten public offering. See Note 12 of the notes to the consolidated financial statements in Item 8 of Part II of this report for additional information 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 distressed debt instruments. As of December 31, 2017, the Company has funded $16.5 million of this commitment leaving $33.5 million as unfunded.
Effective September 16, 2017, David J.W. Bruce, Jason B. Hurwitz, and Arik Rashkes were appointed to the Company’s Board of Directors.
During the fourth quarter of 2017, Global Indemnity announced the adoption of a dividend program. Although subject to the absolute discretion of the Board of Directors and factors, conditions, and prospects as such may exist from time to time when the Board of Directors considers the advisability of declaring 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. insurance subsidiaries.
As a result of the enactment of the TCJA, effective January 1, 2018, premiums being ceded under the quota share arrangement may potentially be subject to a 10% BEAT tax. As a result, Global Indemnity 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.
The Company’s Commercial Lines segment distribute property and casualty insurance products through a group of approximately 120 professional general agencies that have limited quoting and binding authority, as well as a number of wholesale insurance brokers who in turn sell the Company’s insurance products to insureds through retail insurance brokers. Commercial Lines operates predominantly in the excess and surplus lines marketplace. The Company manages its Commercial Lines segment via product classification. These product classifications are: 1) Penn-America, which includes property and general liability products for small commercial businesses
The Company’s Personal Lines segment, via American Reliable, offers specialty personal lines and agricultural coverage through a group of approximately 275 agents, primarily comprised of wholesale general agents, with specific binding authority in the admitted marketplace.
In developing loss and loss adjustment expense (“loss” or “losses”) reserve estimates for the U.S. Insurance Operations, the Company’s actuaries perform detailed reserve analyses each quarter. To perform the analysis, the data is organized at a “reserve category” level. A reserve category can be a line of business such as commercial automobile liability, or it can be a particular type of claim such as construction defect. The reserves within a reserve category level are characterized as long-tail or short-tail. For long-tail business, it will generally be several years between the time the business is written and the time when all claims are settled. The Company’s long-tail exposures include general liability, professional liability, products liability, commercial automobile liability, and excess and umbrella. Short-tail exposures include property, commercial automobile physical damage, and equine mortality. To manage its insurance operations, the Company differentiates by product classifications, which are Penn-America, United National, Diamond State, 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 and short-tail exposures. Every reserve category is analyzed by the Company’s actuaries each quarter. Management is responsible for the final determination of loss reserve selections.
Management’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 and is based upon known facts, the Company’s actuarial analyses, current law, and the Company’s judgment. This resulted in carried gross and net reserves of $634.7 million and $537.4 million, respectively, as of December 31, 2017. A breakout of the Company’s gross and net reserves, excluding the effects of the Company’s intercompany pooling arrangements and intercompany stop loss and quota share reinsurance agreements, as of December 31, 2017 is as follows:
If the actual levels of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s best estimate. For most of its reserve categories, the Company believes that frequency can be predicted with greater accuracy than severity. Therefore, the Company believes management’s best estimate is more likely influenced by changes in severity than frequency. The following table, which the Company believes reflects a reasonable range of variability around its best estimate based on historical loss experience and management’s judgment, reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on the Company’s current accident year net loss estimate of $323.1 million for claims occurring during the year ended December 31, 2017:
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.
The Company regularly reviews the collectability of its reinsurance receivables, and includes adjustments resulting from this review in earnings in the period in which the adjustment arises. A.M. Best ratings, financial history, available collateral, and payment history with the reinsurers are several of the factors that the Company considers when judging collectability. Changes in loss reserves can also affect the valuation of reinsurance
receivables if the change is related to loss reserves that are ceded to reinsurers. Certain amounts may be uncollectible if the Company’s reinsurers dispute a loss or if the reinsurer is unable to pay. If its reinsurers do not pay, the Company remains legally obligated to pay the loss.
For an analysis of the Company’s securities with gross unrealized losses as of December 31, 2017 and 2016, and for other than temporary impairment losses that the Company recorded for the years ended December 31, 2017, 2016, and 2015, please see Note 5 of the notes to the consolidated financial statements in Item 8 of Part II of this report.
The Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of goodwill for impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the carrying amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. The amount of the impairment loss would be equal to the excess carrying value of the goodwill over the implied fair value of the reporting unit goodwill. Based on the qualitative assessment performed, there was no impairment of goodwill as of December 31, 2017.
Impairment of intangible assets with indefinite useful lives is tested at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of intangible assets for impairment using both qualitative and quantitative factors. Impairment of indefinite lived intangible assets is recognized only if the carrying amount of the intangible assets exceeds the fair value of said assets. The amount of the impairment loss would be equal to the excess carrying value of the 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 definite lived intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the difference between the carrying amount and the estimated fair value of the asset. As of December 31, 2017, there were no triggering events that occurred during the year that would result in an impairment of definite lived intangible assets.
At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. A valuation allowance would be based on all available information including the Company’s assessment of uncertain tax positions and projections of future taxable income from each tax-paying component in each jurisdiction, principally derived from business plans and available tax planning strategies. There are no valuation allowances as of December 31, 2017 and 2016. The deferred tax asset balance is analyzed regularly by management. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of
During the 1st quarter of 2017, the Company re-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions of business will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportable segments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included as part of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs written by American Reliable Insurance Company, which was previously included within the Personal Lines segment, is now aggregated within the Commercial Lines segment. Accordingly, the segment results for the years ended December 31, 2016 and 2015 have been revised to reflect these changes.
The following table summarizes the Company’s results for the years ended December 31, 2017, 2016, and 2015:
(3) Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of ($1.3) million, $35.3 million, and $55.8 million during the years ended December 31, 2017, 2016, and 2015, respectively.
Gross premiums written decreased by 4.1% for year ended December 31, 2016 as compared to 2015. Gross premiums written include business written by 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% to insurance entities owned by Assurant, gross premiums written decreased by 0.7% for the year ended December 31, 2016 as compared to 2015. The decline is mainly due to targeted reductions in catastrophe exposed business within the Company’s U.S. Insurance Operations offset by an increase in gross 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.
(1) Excludes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of ($1.3) million and $35.3 million during the years ended December 31, 2017 and 2016, respectively.
reinsurance. In addition, net premiums earned also decreased due to incurring a reinstatement premium of
$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 and 2015, respectively. Casualty net premiums earned were $34.4 million and $30.3 million for the years ended December 31, 2016 and 2015, respectively.
(1) Includes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement 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.
The current accident year non-catastrophe loss ratio for 2017 increased by 8.7 point compared to 2016 mainly due to higher claims frequency and severity compared to last year. The current accident year non-catastrophe loss ratio for 2016 improved by 4.2 point compared to 2015 mainly due to lower case incurred emergence resulting from a decrease in reported claim frequency.
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, an increase 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 reserve development on prior accident years. There were no changes to net prior accident year losses during the year ended December 31, 2015. Please see Note 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.
Other 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 is comprised of the net gain on the asset sale of the Company’s wholly owned subsidiary, United National Specialty Insurance Company.
The current accident year casualty loss ratio for 2017 improved by 0.8 points compared to 2016 driven primarily by lower reported claims frequency as compared 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 to the decrease in reported claim frequency which reflects the milder winter weather experienced during 2016. Also, underwriting actions and rate increases over the past several years have contributed to the improvement experienced to date.
the Company’s Commercial Lines may be obscured by prior accident year adjustments. These non-GAAP measures or ratios should not be considered as a substitute for its most directly comparable GAAP measure or ratio and does not reflect the overall underwriting profitability of the Company.
The 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 its most directly comparable GAAP ratio. The Company believes this non-GAAP ratio is useful to investors when evaluating the Company’s underwriting performance as trends in the Company’s Reinsurance Operations may be obscured by prior accident year adjustments. This non-GAAP ratio should not be considered as a substitute for its most directly comparable GAAP ratio and does not reflect the overall underwriting profitability of the Company.
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. Other income (loss) is comprised of foreign exchange gains and losses.
The Company’s investments are managed distinctly according to assets supporting future insurance obligations and assets in excess of those supporting future insurance obligations. Assets supporting insurance obligations are referred to as the Insurance Obligations Portfolio. The Insurance Obligations Portfolio consists of cash and high-quality fixed income investments. Assets in excess of insurance obligations are referred to as the Surplus Portfolio. The Surplus Portfolio targets higher returns and is comprised of cash, fixed income, common stocks, and alternative investments.
Since the Company began managing its investments as two portfolios during the 2nd quarter of 2017, year to date
Gross investment income for 2017 increased by 7.9% compared to 2016. The increase was primarily due to an increase in yield and a larger fixed maturities portfolio resulting from $130.0 million in borrowings offset by a reduction in the investment portfolio of $83.0 million for the redemption in December, 2017. Gross investment income for 2016 increased by 3.3% compared to 2015. The increase was primarily due to the increase in income related to the Company’s limited liability investments during 2016 partially offset by a reduction in the size of the investment portfolio due to redeeming $190.0 million of A ordinary shares during the fourth quarter of 2015.
The components of net realized investment gains (losses) for the years ended December 31, 2017, 2016, and 2015 were as follows:
Interest expense was $16.9 million, $8.9 million, and $4.9 million during the years ended December 31, 2017, 2016, and 2015, respectively. The increase 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 compared to 2015 is primarily due to the Company’s $100 million debt offering in August 2015 offset by a reduction in interest expense on margin borrowing facility due to decreased borrowings.
The 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 ended December 31, 2016. The decrease in the income tax benefit is primarily 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 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 tax benefit 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 Company during the year ended December 31, 2016.
Global Indemnity is a holding company. Its principal asset is its ownership of the shares of its direct and indirect subsidiaries, including those of its U.S. insurance companies: United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company, Penn-Patriot Insurance Company, and American Reliable Insurance Company; and its Reinsurance Operations: Global Indemnity Reinsurance.
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 its consolidated investment portfolio during December, 2017 to provide funding for the redemption and other obligations.
As of December 31, 2017, the Company also had future funding commitments of $57.7 million related to investments. The timing of commitments related to investments is uncertain.
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 Global Indemnity’s U.S. insurance companies in 2017 and the maximum amount of distributions that U.S. insurance companies could pay as dividends in 2018.
the fact that the Company collect premiums, net of commission, in advance of losses paid;
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:
Effective 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.
Global Indemnity Reinsurance is an unauthorized reinsurer. As a result, any losses and unearned premiums that are ceded to Global Indemnity Reinsurance by the U.S. insurance companies must be collateralized. To satisfy this requirement, Global Indemnity Reinsurance has set up custodial trust accounts on behalf of the U.S. insurance companies.
On January 18, 2006, U.A.I. (Luxembourg) Investment S.à.r.l. loaned $6.0 million to United America Indemnity, Ltd. The loan was used to pay operating expenses that arise in the normal course of business. The loan is a demand loan and bears interest at 4.38%. Due to the liquidation of United America Indemnity, Ltd. in 2016, this loan was assumed by Global Indemnity Limited. At December 31, 2017, there was $1.0 million outstanding on this loan with accrued interest of $1.9 million. Global Indemnity Limited is dependent on its subsidiaries to pay its dividends and operating expenses.
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 amount of $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 at a 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 loans bears interest at 5.78%, 8.06%, and 8.15%, respectively, and matures in 2024, 2045, and 2047, respectively. Interest on these agreements is paid annually. At December 31, 2017, accrued interest on these notes and loans was $19.6 million. Other than its investment portfolio, Global Indemnity Group, Inc. has no income producing operations. The ability of Global Indemnity Group, Inc. to generate cash to repay the notes and loan is dependent on dividends that it receives from its subsidiaries or using other assets it holds.
In November, 2011, U.A.I. (Luxembourg) Investment S.à.r.l. issued a $100.0 million demand line of credit to Global Indemnity (Cayman) Ltd. which bears interest at 1.2%. The proceeds of the line were loaned from Global Indemnity (Cayman) Ltd. to Global Indemnity plc, bearing interest at 1.2%, to fund purchases of the Company’s A ordinary shares as part of the $100.0 million share repurchase program announced in September, 2011. In August, 2012, the demand line of credit was increased to $125.0 million to fund additional purchases under the Company’s $25.0 million share repurchase authorization. In September, 2015, U.A.I. (Luxembourg) Investment S.à.r.l. increased the demand line of credit that it previously issued to Global Indemnity (Cayman) Limited from $125.0 million to $225.0 million. In 2016, the amounts owed by Global Indemnity plc were assigned to Global Indemnity Limited. On May 5, 2017, Global Indemnity (Cayman) Limited was merged into Global Indemnity Limited. As a result, the loan between Global 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 six month London Interbank Offered Rate (“LIBOR”) plus 3.5%. The proceeds of the loan were used to fund trust accounts in the normal course of business. Effective October 31, 2013, American Insurance Service, Inc. (“AIS”) assigned all of its rights, obligations, duties, and liabilities under the note to Global Indemnity Group, Inc. As of December 31, 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.
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) IV S.à.r.l. was the ultimate recipient of this capital contribution in the amount of $93.5 million.
The Company has commitments in the form of operating leases, commitments to fund limited liability investments, subordinated notes, and unpaid losses and loss expense obligations. As of December 31, 2017, contractual obligations related to Global Indemnity’s commitments, including any principal and interest payments, were as follows:
(1) The Company leases office space and equipment as part of its normal operations. The amounts shown above represent future commitments under such operating leases.
(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 in Item 8 of Part II of this report for additional information on the 2047 Subordinated Notes.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 9, 2018, expressed an unqualified opinion thereon.
During the 1st quarter of 2017, the Company re-evaluated its Commercial Lines and Personal Lines segments and determined that certain portions of business will be managed, operated and reported by including them in the other segment. As a result, the composition of the Company’s reportable segments changed slightly. Premium that is written through a wholly owned agency that mainly sells to individuals, which was previously included as part of the Commercial Lines segment, is now included within the Personal Lines segment. In addition, one of the small commercial programs written by American Reliable Insurance Company (“American Reliable”), which was previously included within the Personal Lines segment, is now aggregated within the Commercial Lines segment. Accordingly, the segment results for 2016 and 2015 have been revised to reflect these changes. See Note 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 of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
For investments in limited liability companies and limited partnerships where the ownership interest is less than 3%, the Company carries these investments at fair value, and the change in the difference between cost and the fair value of the partnership interests, net of the effect of deferred income taxes, is reflected in accumulated other comprehensive income in shareholders’ equity and, accordingly, has no effect on net income other than for impairments deemed to be other than temporary. The Company uses the equity method to account for an investments in limited liability companies and limited partnerships where its ownership interest exceeds 3%. The equity method of accounting for an investment in a limited liability company or limited partnership requires that its cost basis be updated to account for the income or loss earned on the investment. The income or loss associated with the limited liability companies or limited partnerships is reflected in the consolidated statements of operations, and the adjusted cost basis approximates fair value.
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.
made. The allowance for uncollectible reinsurance was $8.0 million as of December 31, 2017 and 2016.
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 Commercial Lines Segment. Based on the Company’s analysis, the Company expensed acquisition cost as incurred for the remainder of 2017, 2016 and 2015 for the commercial automobile lines in the Commercial Lines Segment. As the charges were a reduction of unamortized deferred acquisition costs in each respective period, no premium deficiency reserve existed as of December 31, 2017 or 2016.
In addition, other income is comprised of fee income on policies issued, commission income, accrued interest on the anticipated indemnification of unpaid loss and loss adjustment expense reserve, and foreign exchange gains and losses.
On January 1, 2015, Global Indemnity Group, Inc., a subsidiary of the Company, acquired 100% of the voting equity interest of American Reliable from American Bankers Insurance Group, Inc. by paying $113.7 million in cash and assuming $283.9 million of customary insurance related liabilities, obligations, and mandates. Per the American Reliable Share Purchase Agreement (“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 SPA, on the third calendar year following the calendar year of the closing, if loss and loss adjustment expenses for accident years 2014 and prior are lower than recorded unpaid loss and loss adjustment expenses as of December 31, 2014, Global Indemnity Group, Inc. will pay the variance to American Bankers Group, Inc. Conversely, if loss and loss adjustment expenses for accident years 2014 and prior exceed recorded unpaid loss and loss adjustment expenses as of December 31, 2014, American Bankers Group, Inc. will pay the variance to Global Indemnity Group, Inc. In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., any variance paid related to the loss indemnification will be subject to interest of 5% compounded semi-annually. The Company’s 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 acquisition on January 1, 2015.
An identification and valuation of intangible assets was performed that resulted in the recognition of intangible assets of $32.0 million with values assigned as follows:
During the year ended December 31, 2015, the Company paid approximately $1.6 million in employee compensation related costs, which were related to periods prior to the Acquisition. These costs were accrued by American Reliable and were included in the fair value of net assets acquired by Global Indemnity Group, Inc. on January 1, 2015.
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% of shareholders’ equity at December 31, 2017 and 2016.
The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at December 31, 2017, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The following table contains an analysis of the Company’s securities with gross unrealized losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2017:
Subject to the risks and uncertainties in evaluating the potential impairment of a security’s value, the impairment evaluation conducted by the Company as of December 31, 2017 concluded the unrealized losses discussed above are not other than temporary impairments. The impairment evaluation process is discussed in the “Investment” section of Note 3 (“Summary of Significant Accounting Policies”).
position 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. The primary assumption that drives the security and loan level modeling is the Home Price Index (“HPI”) projection. These forecasts incorporate not just national macro-economic trends, but also regional impacts to arrive at the most granular and accurate projections. These assumptions are incorporated into the model as a basis to generate delinquency probabilities, default curves, loss severity curves, and voluntary prepayment curves at the loan level within each deal. The model utilizes HPI-adjusted current LTV, payment history, loan terms, loan modification history, and borrower characteristics as inputs 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 this amount, $0.022 million have been in an unrealized loss position for twelve months or greater and are rated AA or better. The weighted average credit enhancement for the Company’s asset backed portfolio is 23.4. This represents the percentage of pool losses that can occur before an asset backed security will incur its first dollar of principal losses. Every ABS transaction is analyzed on a stand-alone basis. This analysis involves a thorough review of the collateral, prepayment, and structural risk in each transaction. Additionally, the analysis includes an in-depth credit analysis of the originator and servicer of the collateral. The analysis projects an expected loss for a deal given a set of assumptions specific to the asset type. These assumptions are used to calculate at what level of losses the deal will incur its first dollar of principal loss. The major assumptions used to calculate this ratio are loss severities, recovery lags, and no advances on principal and interest.
Corporate bonds - As of December 31, 2017, gross unrealized losses related to corporate bonds were $1.391 million. Of this amount, $0.637 million have been in an unrealized loss position for twelve months or greater and are rated investment grade or better. The analysis for this asset class includes maintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default.
position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default.
Common stock - As of December 31, 2017, gross unrealized losses related to common stock were $3.260 million. All unrealized losses have been in an unrealized loss position for less than twelve months. To determine if an other than temporary impairment of an equity security has occurred, the Company considers, among other things, the severity and duration of the decline in fair value of the equity security. The Company also examines other factors to determine if the equity security could recover its value in a reasonable period of time.
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.
The reclassifications out of accumulated other comprehensive income for the years ended December 31, 2017 and 2016 were as follows:
(1) Includes $3.6 million, $4.8 million, and $5.4 million of periodic net interest settlements related to the derivatives for the years ended December 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 ended December 31, 2017, 2016, and 2015 were as follows:
(1) Investment expense for the year ended December 31, 2016 includes $1.5 million in upfront fees necessary to enter into a new investment. See Note 15 for additional information on the Company’s $40 million commitment related to this investment.
A summary of the Company’s insurance enhanced municipal bonds that are backed by financial guarantors, including the pre-refunded bonds that are escrowed in U.S. government obligations, as of December 31, 2017, is as follows:
In addition to the tax-free municipal bonds, the Company held $32.3 million of insurance enhanced bonds, which represented approximately 2.1% of the 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. The financial guarantors of the Company’s $32.3 million of insurance enhanced asset-backed, commercial-mortgage-backed, and taxable municipal securities include Municipal Bond Insurance Association ($6.4 million), Assured Guaranty Corporation ($15.5 million), and Federal Home Loan Mortgage Corporation ($10.4 million).
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 middle market companies, was $33.8 million and $33.2 million at December 31, 2017 and 2016, respectively. The Company’s maximum exposure to loss from this VIE, which factors in future funding commitments, was $43.8 million and $42.3 million at December 31, 2017 and 2016, respectively. During the 2nd quarter of 2017, the Company invested in a new limited partnership that also invests in distressed securities and assets and is considered a VIE. The Company’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 from this VIE, which factors in future funding commitments, was $51.3 million at December 31, 2017. The Company’s investment in VIEs is included in other invested assets on the consolidated balance sheet with changes in fair value recorded in the consolidated statements of operations.
The following table summarizes information on the location and the gross amount of the derivatives’ fair value on the consolidated balance sheets as of December 31, 2017 and 2016:
The following table presents information about the Company’s invested assets and derivative instruments measured at fair value on a recurring basis as of December 31, 2017 and 2016, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
(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 a practical expedient.
(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 debt issuance 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 issuance cost of $4.1 million.
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2017, 2016, and 2015.
Other invested assets consist of limited liability partnerships whose fair value is based on net asset value per share practical expedient. The following table provides the fair value and future funding commitments related to these investments at December 31, 2017 and 2016.
(1) This limited partnership invests in real estate assets through a combination of direct or indirect investments in partnerships, limited liability companies, mortgage loans, and lines of credit. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company continues to hold an investment in this limited partnership and has written the fair value down to zero.
Corporate and agency bonds are evaluated by utilizing terms and conditions sourced from commercial vendors. Bonds with similar characteristics are grouped into specific sectors. Both asset classes use standard inputs and utilize bid price or spread, quotes, benchmark yields, discount rates, market data feeds, and financial statements.
As 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, 2017 and 2016. The goodwill represents the excess purchase price over the Company’s best estimate of the fair value of the assets acquired. Impairment testing performed in 2017 and 2016 did not result in impairment of the goodwill acquired.
The following table presents details of the Company’s intangible assets as of December 31, 2017:
As 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 of competitors and the overall property and casualty insurance market for indicators of impairment of its definite lived intangible assets. There was no impairment of these assets in 2017 or 2016.
(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 million and $59.5 million to American Bankers Insurance Company for the years ended December 31, 2017, 2016, and 2015, respectively.
The Company’s income before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries, including the results of the quota share between Global Indemnity Reinsurance and the Insurance Operations, for the years ended December 31, 2017, 2016, and 2015 were as follows:
Management believes it is more likely than not that the remaining deferred tax assets will be completely utilized in future years. As a result, the Company has not recorded a valuation allowance at December 31, 2017 and 2016.
The Company and some of its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2014.
During 2017, the Company reduced its prior accident year loss reserves by $53.9 million, which consisted of a $39.4 million decrease related to Commercial Lines, $6.6 million decrease related to Personal Lines, and a $7.9 million decrease related to Reinsurance Operations.
Property: A $6.3 million reduction in aggregate with $4.0 million of favorable development in the property excluding catastrophe reserve categories and $2.3 million of favorable development in the
Workers Compensation: A $0.5 million reduction primarily due to lower than expected case incurred emergence in the 2011 accident year.
During 2016, the Company reduced its prior accident year loss reserves by $57.3 million, which consisted of a $43.8 million decrease related to Commercial Lines and a $13.5 million decrease related to Reinsurance Operations.
During 2015, the Company reduced its prior accident year loss reserves by $34.7 million, which consisted of a $25.2 million decrease related to Commercial Lines, a $0.4 million decrease related to Personal Lines, and a $9.1 million decrease related to Reinsurance Operations.
The $0.4 million reduction of prior accident year loss reserves related to Personal Lines primarily consisted of lower than expected case incurred emergence in the 2013 accident year.
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 15.0 years, 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 a financial measure that indicates how long the current amount of gross or net reserves are expected to last based on the current rate of paid claims.
The information about incurred and paid claims development for the years ended December 31, 2008 to 2015, is presented as required supplementary unaudited information.
Personal Lines internal actuarial reserve reviews were completed for loss and allocated loss adjustment expenses (ALAE) separately for property excluding catastrophe experience, property catastrophes, and casualty reserve categories. The internal actuarial reserve reviews were completed with data through December, 2017. Actuarial methodologies, such as the Loss Development and Bornhuetter-Ferguson methods, were employed to develop estimates of ultimate Loss & ALAE. Management’s ultimate selections were based on the internal actuarial review and a third party actuarial review completed 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 acquisition included the purchase of the business of the legal entity as well as additional books of business written by other Assurant entities. In addition, ceding arrangements 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 it be consistent, to include information for years prior to 2015 in the development tables for Personal Lines.
catastrophe, marine business, and mortgage insurance. The reserve reviews were completed based on the latest data reported from the cedants which is typically on a quarter lag. Paid loss, ALAE and Case reserves, shown in the reinsurance category tables below, which are originally based in a foreign currency, are remeasured in U.S. dollars based on the Foreign Exchange (FX) rate at the date the cedant’s report. Management’s ultimate selections were based on a review of ultimates reported from the cedants, including loss emergence during the reporting period, and a third party actuarial review completed 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 reconciliation of the net incurred and paid claims development tables to the liability for unpaid losses and loss adjustment expenses in the consolidated balance sheets as of December 31, 2017 is as follows:
The Company’s outstanding debt consisted of the following at December 31, 2017 and 2016:
The Company recorded interest expense related to the Margin Borrowing Facility of approximately $1.0 million, $1.0 million, and $1.9 million for the years ended December 31, 2017, 2016, and 2015, respectively.
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 of each year, commencing November 15, 2015. The 2045 Notes mature on August 15, 2045. The Company has the right to redeem the 2045 Notes in $25 increments, in whole or in part, on and after August 15, 2020, or on any interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the 2045 Notes being redeemed plus accrued and unpaid interest to, but not including, the date of redemption.
3. in return for such issuance of new Global Indemnity plc ordinary shares to Global Indemnity Limited, Global Indemnity Limited issued 13,463,864 A ordinary shares, par value $0.0001 per share, and 4,133,366 Global Indemnity Limited B ordinary shares, par value $0.0001 per share (together the “Global Indemnity Limited ordinary shares”), to the former stockholders of Global Indemnity plc. Each shareholder received one Global Indemnity Limited A ordinary share for each Global Indemnity plc A ordinary share owned by such shareholder prior to the Scheme of Arrangement and one Global Indemnity Limited B ordinary share for each Global Indemnity plc B ordinary share owned by such shareholder prior to the Scheme of Arrangement.
The Global Indemnity Limited ordinary shares are deemed registered under the Exchange Act. The Global Indemnity Limited A ordinary shares began trading on Nasdaq under the symbol “GBLI,” the same symbol under which the Global Indemnity plc ordinary shares previously traded, at the opening of Nasdaq on November 7, 2016.
The ability of Global Indemnity Limited to pay dividends is subject to Cayman Island regulations. Under Cayman Islands law, dividends and distributions may only be made from distributable reserves or from amounts standing to the credit of the Company’s share premium account, together with any reserve established by the revaluation of the Company’s asset, subject to the ability of the Company to meet its obligations in the ordinary course 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 share over 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.
(2) Surrendered by employees as payment of taxes withheld on the vesting of restricted stock.
The Company relies on Fox Paine & Company to provide management services and other services related to the operations of the Company. Starting in 2014, this fee is adjusted annually to reflect the percentage change in the CPI-U. Payment of the annual management fee will be deferred until a change of control or September, 2018, whichever occurs first, and is subject to an annual adjustment equal to the rate of return the Company earns on its investment portfolio. In addition, Fox Paine may propose and negotiate transaction fees with the Company
subject to the provisions of the Company’s related party transaction policies including approval of the Company’s Audit Committee of the Board of Directors, 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 years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017 and 2016, unpaid management fees, which were included in other liabilities on the consolidated balance sheets, were $6.8 million and $4.6 million, respectively. In addition, the Company paid an $11.0 million advisory 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 Note 13 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 ordinary shares. 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 for more information on the 2015 redemption.
In connection with the acquisition of American Reliable, the Company agreed to pay to Fox Paine & Company an investment banking fee of 3% of the amount paid plus the additional capital required to operate American Reliable on a standalone basis and a $1.5 million investment advisory fee, which in the aggregate, totaled $6.5 million. This amount was included in corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the year ended December 31, 2015. As payment for these fees, 267,702 A ordinary shares of Global Indemnity were issued under the Global Indemnity plc Share Incentive Plan in May, 2015. These shares 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 Share Incentive Plan which was replaced with the Global Indemnity Limited Share Incentive Plan.
Net payable balances due from Global Indemnity Reinsurance under this agreement are as follows:
In 2016, the Company entered into a $40 million commitment with an investment manager that provides financing for middle market companies. As of December 31, 2017, the Company has funded $30.0 million of this commitment leaving $10.0 million as unfunded.
pay an annual management fee to Fox Paine & Company. See Note 14 above for additional information pertaining to this management agreement.
On June 11, 2014, the Company’s Shareholders approved the Global Indemnity plc Share Incentive Plan (the “Plan”). The previous share incentive plan, which became effective in 2003, expired per its terms on September 5, 2013. As a result of the redomestication, the Global Indemnity plc Share Incentive Plan’s sponsorship and existing obligations with respect to awards granted and outstanding were assumed by the Company and the Global Indemnity plc Share Incentive Plan was replaced with the Global Indemnity Limited Share Incentive Plan (collectively, the “Plan”). The purpose of the Plan is to give the Company a competitive advantage in attracting and retaining officers, employees, consultants and non-employee directors by offering stock options, restricted shares and other stock-based awards. Under the Plan, the Company may grant up to 2.0 million A ordinary shares pursuant to grants under the Plan.
During the year ended December 31, 2015, the Company awarded 200,000 options with a strike price of $28.37 which were subsequently forfeited during 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 the years 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.
In addition to stock option grants, the Plan also provides for the granting of restricted shares to employees and non-employee Directors. The Company recognized compensation expense for restricted stock of $4.1 million, $3.2 million and $3.5 million for 2017, 2016, and 2015, respectively. The total unrecognized compensation expense for the non-vested restricted stock is $1.7 million at December 31, 2017, which will be recognized over a weighted average life of 1.5 years.
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 $28.97 per 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 each subsequent 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 of the 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 2017 as 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 second anniversary of the grant and vest 34% on the third anniversary of the grant contingent on meeting certain performance objectives and subject to Board approval. 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.
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, premium volume, and underwriting profitability targets, subject to an accident year true up on the 3rd anniversary of each such year. Vesting of the stock options is subject to continued employment. The exercise price applicable to the Stock Options is $25.00 subject to adjustment based on the Company’s average year-end tangible book value per share, the average interest rate of certain Treasury bonds and the time period elapsed between January 1, 2014 and the date the stock options are exercised. The stock options were granted under and are subject to the terms of the Plan, as amended, subject to shareholder approval of such plan to the extent required to affect such grant under the plan.
The following table sets forth the computation of basic and diluted earnings per share.
The weighted average shares outstanding used to determine dilutive earnings per share for the years ended December 31, 2016 and 2015 do not include 300,000 and 500,000 options, respectively, which were deemed to be anti-dilutive. The year ended December 31, 2017 did not have any options that were deemed to be anti-dilutive.
Under SAP, certain premium receivables are non-admitted and are charged against surplus based upon aging criteria.
The NAIC’s RBC model provides a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks, as well as its reinsurance exposures, to assess the potential need for regulatory attention. The model provides four levels of regulatory attention, varying with the ratio of an insurance company’s total adjusted capital to its authorized control level RBC (“ACLRBC”). If a company’s total adjusted capital is:
The following are tabulations of business segment information for the years ended December 31, 2017, 2016, and 2015. Corporate information is included to reconcile segment data to the consolidated financial statements.
(3) Includes federal excise tax of $714 relating to cessions from Commercial Lines to Reinsurance Operations.
(6) Includes ($1,338) of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement.
(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.
(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.
The Company paid the following net federal income taxes and interest for 2017, 2016, and 2015:
On January 1, 2015, Global Indemnity Group, Inc. acquired 100% of the voting equity interest of American Reliable. In conjunction with the acquisition, fair value of assets acquired and liabilities assumed by the Company were as follows:
The following are new accounting guidance which have not yet been adopted.
In August, 2016, the FASB issued new accounting guidance regarding the classification of certain cash receipts and cash payments within the statements of cash flows. The new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective for public business entities for fiscal periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Although the Company is still evaluating the impact of this new guidance, the Company does not anticipate it will have a material impact on its financial condition, results of operations, or cash flows.
accounting guidance. While insurance contracts are not within the scope of this guidance, the Company reviewed the requirement of the new guidance to determine whether its revenue recognition policy for fee income will be impacted by this updated guidance. Based on this review, the Company does not believe its accounting policies will be impacted by this new revenue recognition guidance. This guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.
An unaudited summary of the Company’s 2017 and 2016 quarterly performance is as follows: