The Average Loss method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively. In addition, this method can more directly account for changes in coverage that impact the number and size of claims. However, this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes. Projecting the ultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the Company, the impact of
See Note 7 of the notes to the consolidated financial statements in Item 8 of Part II of this report for more details concerning the Company’s goodwill and intangible assets.
The catastrophe loss ratio decreased 1.8 points from 11.0% in 2014 to 9.2% in 2015. Catastrophe losses were $11.0 million and $14.0 million for the years ended December 31, 2015 and 2014, respectively.
Acquisition costs and other underwriting expenses were $83.2 million for 2015, compared with $89.0 million for 2014, a decrease of $5.8 million or 6.5%. This decrease is primarily due to certain costs which were allocated solely to Commercial Lines in 2014 now being allocated to both Commercial Lines and Personal Lines. In addition, commission expense is slightly lower due to a reduction in net premiums earned as noted above.
The factors described above resulted in income from the Company’s Commercial Lines of $19.2 million for 2015, compared with income of $5.2 million for 2014, an improvement of $14.0 million.
Net premiums earned were $51.8 million for 2015, compared with $57.4 million for 2014, a decrease of $5.6 million or 9.7%. The decrease is primarily due to a decline in gross premiums written as noted above. Property net premiums earned for 2015 and 2014 were $49.5 million and $55.3 million, respectively. Casualty net premiums earned for 2015 and 2014 were $2.3 million and $2.0 million, respectively.
Net investment income, which is gross investment income less investment expenses, was $34.6 million for 2015, compared with $28.8 million for 2014, an increase of $5.8 million or 20.1%.
Net premiums earned were $57.4 million for 2014, compared with $52.4 million for 2013, an increase of $4.9 million or 9.4%. The increase is primarily due to premiums resulting from new treaties written during 2013. Property net premiums earned for 2014 and 2013 were $55.3 million and $48.8 million, respectively. Casualty net premiums earned for 2014 and 2013 were $2.1 million and $3.6 million, respectively.
Acquisition costs and other underwriting expenses were $20.6 million for 2014, compared with $18.3 million for 2013, an increase of $2.3 million or 12.8%. The increase is primarily due to higher commission expense as a result of growth in premiums earned in 2014 as well as increased profit commission charges due to a reduction of prior accident year loss reserves for property. These increases were offset by a reduction in current accident year contingent commissions as a result of higher losses on one of the property catastrophe contracts.
Global Indemnity Reinsurance is prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital as set out in its previous year’s statutory financial statements, and any application for such approval must include such information as the BMA may require. Based upon the total statutory capital plus the statutory surplus as set out in its 2015 statutory financial statements that will be filed in 2016, the Company believes Global Indemnity Reinsurance could pay a dividend of up to $234.8 million without requesting BMA approval. Global Indemnity Reinsurance did not declare or pay any dividends during 2015. For 2016, the Company believes that Global Indemnity Reinsurance, including distributions it could receive from its subsidiaries, should have sufficient liquidity and solvency to pay dividends.
In August, 2015, Global Indemnity plc advanced an interest free loan to Global Indemnity (Cayman) Limited in the amount of $96.9 million which was repaid during the 4th quarter of 2015.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Global Indemnity plc and subsidiaries at December 31, 2015, and the consolidated results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
The Consolidated Statement of Cash Flows for the year ended December 31, 2013 that was included in the Form 10-K for the annual period ended December 31, 2013 classified $3.0 million as “Other assets and liabilities, net” within the “Cash flows from operating activities” section. These amounts were properly reclassified to the line item “Amortization and depreciation” in the Consolidated Statement of Cash Flows for the year ended December 31, 2013 as included in this Form 10-K for the annual period ended December 31, 2015 (“the December 31, 2015 10K”). These reclassifications do not impact “Net cash flows used for operating activities” nor does it impact any other financial metric or disclosure within the December 31, 2015 10K. The Company does not believe that these adjustments are material to the current or to any prior years’ consolidated financial statements.
The carrying amounts reported in the balance sheet represent the outstanding balances, net of deferred issuance cost. See note 11 for details.
Certain cash balances, cash equivalents, equity securities, and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral pursuant to borrowing arrangements, or were held in trust pursuant to intercompany reinsurance agreements. The fair values were as follows as of December 31, 2015 and 2014:
Reviewing periodic reports provided by the Investment Manager that provide information regarding rating changes and securities placed on watch. This procedure allows the Company to understand why a particular security’s market value may have changed or should potentially change.
The Company has an alternative minimum tax (“AMT”) credit carryforward of $10.9 million and $10.5 million as of December 31, 2015 and 2014, respectively, which can be carried forward indefinitely. As of December 31, 2015, the Company has a net operating loss (“NOL”) carryforward of $1.9 million which will expire in 2035. The Company had no NOL carryforward as of December 31, 2014. The Company has a Section 163(j) (“163(j)”) carryforward of $3.1 million as of December 31, 2015 which can be carried forward indefinitely. The Company had no 163(j) carryforward as of December 31, 2014. The 163(j) carryforward is for disqualified interest paid or accrued to a related entity that is not subject to U.S. tax.
The Company has exposure to asbestos and environmental (“A&E”) claims. The asbestos exposure primarily arises from the sale of product liability insurance, and the environmental exposure arises from the sale of general liability and commercial multi-peril insurance. In establishing the liability for unpaid losses and loss adjustment expenses related to A&E exposures, management considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilities have been established to cover additional exposures on both known and unasserted claims. Estimates of the liabilities are reviewed and updated regularly. Case law continues to evolve for such claims, and uncertainty exists about the outcome of coverage litigation and
The subordinated notes do not require the maintenance of any financial ratios or specified levels of net worth or liquidity, and do not contain provisions that would afford holders of the subordinated notes protection in the event of a sudden and dramatic decline in the Company’s credit quality resulting from any highly leveraged
There were no B ordinary shares that were surrendered, repurchased, or redeemed in 2014.
During the year ended December 31, 2015, the Company received a distribution of $0.8 million from Fox Paine Capital Fund II. There were no distributions received from Fox Paine Capital Fund II during 2014 and 2013.
The Company recorded $0.4 million, $0.3 million, and $1.2 million of compensation expense for stock options outstanding under the Plan in each of the years ended December 31, 2015, 2014, and 2013, respectively.
All three segments follow the same accounting policies used for the Company’s consolidated financial statements. For further disclosure regarding the Company’s accounting policies, please see Note 2.