Global Indemnity Group, LLC - FORM 10-Q

Attached files

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EX-32.2 - EX-32.2 - Global Indemnity Group, LLC	d238541dex322.htm
EX-32.1 - EX-32.1 - Global Indemnity Group, LLC	d238541dex321.htm
EX-31.2 - EX-31.2 - Global Indemnity Group, LLC	d238541dex312.htm
EX-31.1 - EX-31.1 - Global Indemnity Group, LLC	d238541dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2016

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

001-34809

Commission File Number

GLOBAL INDEMNITY PLC

(Exact name of registrant as specified in its charter)

Ireland

98-0664891

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

25/28 NORTH WALL QUAY

DUBLIN 1

IRELAND

(Address of principal executive office, including zip code)

353 (0) 49 4891407

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐; Accelerated filer ☒; Non-accelerated filer ☐; Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2016, the registrant had outstanding 13,429,780 A Ordinary Shares and 4,133,366 B Ordinary Shares.

TABLE OF CONTENTS


		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets As of September 30, 2016 (Unaudited) and December 31, 2015		2

	Consolidated Statements of Operations Quarters and Nine Months Ended September 30, 2016 (Unaudited) and September 30, 2015 (Unaudited)		3

	Consolidated Statements of Comprehensive Income Quarters and Nine Months Ended September 30, 2016 (Unaudited) and September 30, 2015 (Unaudited)		4

	Consolidated Statements of Changes in Shareholders’ Equity Nine Months Ended September 30, 2016 (Unaudited) and Year Ended December 31, 2015		5

	Consolidated Statements of Cash Flows Nine Months Ended September 30, 2016 (Unaudited) and September 30, 2015 (Unaudited)		6

	Notes to Consolidated Financial Statements (Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		52

Item 4.	Controls and Procedures		53

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		53

Item 1A.	Risk Factors		53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		53

Item 3.	Defaults Upon Senior Securities		53

Item 4.	Mine Safety Disclosures		54

Item 5.	Other Information		54

Item 6.	Exhibits		54

Signature			55

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GLOBAL INDEMNITY PLC

Consolidated Balance Sheets

(In thousands, except share amounts)


	(Unaudited) September 30, 2016			December 31, 2015
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost: $1,297,465 and $1,308,333)	$	1,310,957		$	1,306,149
Equity securities:
Available for sale, at fair value (cost: $102,899 and $100,157)		122,779			110,315
Other invested assets		32,635			32,592

Total investments		1,466,371			1,449,056
Cash and cash equivalents		63,779			67,037
Premiums receivable, net		86,469			89,245
Reinsurance receivables, net		108,452			115,594
Funds held by ceding insurers		19,356			16,037
Federal income taxes receivable		4,656			4,828
Deferred federal income taxes		39,337			34,687
Deferred acquisition costs		55,141			56,517
Intangible assets		23,211			23,607
Goodwill		6,521			6,521
Prepaid reinsurance premiums		38,401			44,363
Receivable for securities sold		—			172
Other assets		70,121			49,630

Total assets	$	1,981,815		$	1,957,294

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses	$	664,382		$	680,047
Unearned premiums		278,561			286,285
Ceded balances payable		11,718			4,589
Payable for securities purchased		1,921			—
Contingent commissions		9,392			11,069
Debt		173,162			172,034
Other liabilities		60,236			53,344

Total liabilities		1,199,372		$	1,207,368

Commitments and contingencies (Note 9)		—			—
Shareholders’ equity:
Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A ordinary shares issued: 16,568,674 and 16,424,546, respectively; A ordinary shares outstanding: 13,429,780 and 13,313,751, respectively; B ordinary shares issued and outstanding: 4,133,366 and 4,133,366, respectively		3			3
Additional paid-in capital		532,498			529,872
Accumulated other comprehensive income, net of taxes		23,279			4,078
Retained earnings		329,911			318,416
A ordinary shares in treasury, at cost: 3,138,894 and 3,110,795 shares, respectively		(103,248	)		(102,443	)

Total shareholders’ equity		782,443			749,926

Total liabilities and shareholders’ equity	$	1,981,815		$	1,957,294

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

Consolidated Statements of Operations

(In thousands, except shares and per share data)


	(Unaudited) Quarters Ended September 30,						(Unaudited) Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Gross premiums written	$	133,569		$	150,148		$	429,254		$	459,532

Net premiums written	$	115,051		$	122,497		$	357,233		$	394,606

Net premiums earned	$	119,553		$	124,707		$	358,993		$	380,921
Net investment income		8,795			8,852			25,103			26,234
Net realized investment gains (losses):
Other than temporary impairment losses on investments		(2,214	)		(4,641	)		(4,481	)		(6,879	)
Other net realized investment gains (losses)		4,142			(6,137	)		(4,576	)		(337	)

Total net realized investment gains (losses)		1,928			(10,778	)		(9,057	)		(7,216	)
Other income		7,852			1,279			9,603			2,408

Total revenues		138,128			124,060			384,642			402,347
Losses and Expenses:
Net losses and loss adjustment expenses		72,162			77,691			215,057			226,870
Acquisition costs and other underwriting expenses		48,129			50,934			148,761			150,118
Corporate and other operating expenses		5,006			3,567			13,064			19,441
Interest expense		2,233			1,595			6,677			2,635

Income (loss) before income taxes		10,598			(9,727	)		1,083			3,283
Income tax expense (benefit)		1,063			(5,981	)		(10,412	)		(10,882	)

Net income (loss)	$	9,535		$	(3,746	)	$	11,495		$	14,165

Per share data:
Net income (loss) (1)
Basic	$	0.55		$	(0.15	)	$	0.67		$	0.56

Diluted	$	0.54		$	(0.15	)	$	0.66		$	0.55

Weighted-average number of shares outstanding
Basic		17,254,843			25,463,994			17,241,040			25,452,991

Diluted		17,540,060			25,463,994			17,515,854			25,684,931

(1)	For the quarter ended September 30, 2015, “diluted” loss per share is the same as “basic” loss per share due to a net loss for the period.

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

Consolidated Statements of Comprehensive Income

(In thousands)


	(Unaudited) Quarters Ended September 30,						(Unaudited) Nine Months Ended September 30,
	2016			2015			2016			2015
Net income (loss)	$	9,535		$	(3,746	)	$	11,495		$	14,165

Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses)		2,076			(9,078	)		22,081			(9,808	)
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)		(3	)		(1	)		(4	)		(1	)
Reclassification adjustment for (gains) losses included in net income (loss)		(781	)		2,199			(2,474	)		(517	)
Unrealized foreign currency translation gains (losses)		(89	)		23			(402	)		187

Other comprehensive income (loss), net of tax		1,203			(6,857	)		19,201			(10,139	)

Comprehensive income (loss), net of tax	$	10,738		$	(10,603	)	$	30,696		$	4,026

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except share amounts)


	(Unaudited) Nine Months Ended September 30, 2016			Year Ended December 31, 2015
Number of A ordinary shares issued:
Number at beginning of period		16,424,546			16,331,577
Ordinary shares issued under share incentive plans		115,712			121,812
Ordinary shares issued to directors		28,416			36,321
B ordinary shares converted to A ordinary shares		—			7,928,004
Ordinary shares redeemed		—			(8,260,870	)
Ordinary shares issued in connection with American Reliable acquisition		—			267,702

Number at end of period		16,568,674			16,424,546

Number of B ordinary shares issued:
Number at beginning and end of period		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

Par value of A ordinary shares:
Balance at beginning and end of period	$	2		$	2

Par value of B ordinary shares:
Balance at beginning and end of period	$	1		$	1

Additional paid-in capital:
Balance at beginning of period	$	529,872		$	519,590
Share compensation plans		2,499			10,272
Tax benefit on share-based compensation expense		127			10

Balance at end of period	$	532,498		$	529,872

Accumulated other comprehensive income, net of deferred income tax:
Balance at beginning of period	$	4,078		$	23,384
Other comprehensive income (loss):
Change in unrealized holding gains (losses)		19,607			(19,436	)
Change in other than temporary impairment losses recognized in other comprehensive income		(4	)		(10	)
Unrealized foreign currency translation gains (losses)		(402	)		140

Other comprehensive income (loss)		19,201			(19,306	)

Balance at end of period	$	23,279		$	4,078

Retained earnings:
Balance at beginning of period	$	318,416		$	466,717
Ordinary shares redeemed		—			(189,770	)
Net income		11,495			41,469

Balance at end of period	$	329,911		$	318,416

Number of treasury shares:
Number at beginning of period		3,110,795			3,064,815
A ordinary shares purchased		28,099			11,895
Elimination of shares indirectly owned by subsidiary		—			34,085

Number at end of period		3,138,894			3,110,795

Treasury shares, at cost:
Balance at beginning of period	$	(102,443	)	$	(101,404	)
A ordinary shares purchased, at cost		(805	)		(333	)
Elimination of shares indirectly owned by subsidiary		—			(706	)

Balance at end of period	$	(103,248	)	$	(102,443	)

Total shareholders’ equity	$	782,443		$	749,926

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

Consolidated Statements of Cash Flows

(In thousands)


	(Unaudited) Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income	$	11,495		$	14,165
Adjustments to reconcile net income to net cash used for operating activities:
Amortization of the value of business acquired		—			22,823
Amortization and depreciation		4,757			3,761
Amortization of debt issuance costs		92			16
Restricted stock and stock option expense		2,499			9,671
Deferred federal income taxes		(10,847	)		(8,984	)
Amortization of bond premium and discount, net		7,398			10,557
Net realized investment losses		9,057			7,216
Gain on disposition of subsidiary		(6,872	)		—
Equity in the earnings of equity method limited liability investments		(3,749	)		(1,448	)
Changes in:
Premiums receivable, net		2,776			18,971
Reinsurance receivables, net		7,142			5,373
Funds held by ceding insurers		(3,319	)		661
Unpaid losses and loss adjustment expenses		(15,665	)		(35,452	)
Unearned premiums		(7,724	)		4,608
Ceded balances payable		7,129			(11,909	)
Other assets and liabilities, net		(19,348	)		(13,199	)
Contingent commissions		(1,677	)		(2,909	)
Federal income tax receivable/payable		172			(2,048	)
Deferred acquisition costs, net		1,376			(32,160	)
Prepaid reinsurance premiums		5,962			9,081

Net cash used for operating activities		(9,346	)		(1,206	)

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		279,659			290,580
Proceeds from sale of equity securities		34,976			34,161
Proceeds from sale of preferred stock		—			1,540
Proceeds from maturity of fixed maturities		61,437			146,870
Proceeds from limited partnership distribution		6,350			4,287
Proceeds from disposition of subsidiary, net of cash and cash equivalents disposed of $1,269		16,937			—
Amounts paid in connection with derivatives		(11,527	)		(7,072	)
Purchases of fixed maturities		(344,514	)		(485,153	)
Purchases of equity securities		(34,945	)		(32,434	)
Purchases of other invested assets		(2,643	)		(2,250	)

Net cash provided by (used for) investing activities		5,730			(28,111	)

Cash flows from financing activities:
Net borrowings under margin borrowing facilities		1,050			21,114
Proceeds from issuance of subordinated notes		—			100,000
Debt issuance cost		(14	)		(3,659	)
Tax benefit on share-based compensation expense		127			58
Purchase of A ordinary shares		(805	)		(333	)

Net cash provided by financing activities		358			117,180

Net change in cash and cash equivalents		(3,258	)		87,863
Cash and cash equivalents at beginning of period		67,037			58,823

Cash and cash equivalents at end of period	$	63,779		$	146,686

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

1.	Principles of Consolidation and Basis of Presentation

Global Indemnity plc (“Global Indemnity” or “the Company”) was incorporated on March 9, 2010 and is domiciled in Ireland. Global Indemnity replaced the Company’s predecessor, United America Indemnity, Ltd., as the ultimate parent company as a result of a re-domestication transaction in July, 2010. The Company’s A ordinary shares are publicly traded on the NASDAQ Global Select Market under the trading symbol “GBLI.”

The Company manages its business through three business segments: Commercial Lines, Personal Lines, and Reinsurance Operations. The Company’s Commercial Lines, managed in Bala Cynwyd, Pennsylvania, offers specialty property and casualty insurance products in the excess and surplus lines marketplace. The Company manages its Commercial Lines by differentiating them into three product classifications: Penn-America, which markets property and general liability products to small commercial businesses through a select network of wholesale general agents with specific binding authority; United National, which markets insurance products for targeted insured segments, including specialty products, such as property, general liability, and professional lines through program administrators with specific binding authority; and Diamond State, which markets property, casualty, and professional lines products, which are developed by the Company’s underwriting department by individuals with expertise in those lines of business, through wholesale brokers and also markets through program administrators having specific binding authority. These product classifications comprise the Company’s Commercial Lines business segment and are not considered individual business segments because each product has similar economic characteristics, distribution, and coverage. The Company’s Personal Lines segment, via the American Reliable Insurance Company (“American Reliable”) product classification, offers specialty personal lines and agricultural coverage through general and specialty agents with specific binding authority on an admitted basis and is managed in Scottsdale, Arizona. Collectively, the Company’s U.S. insurance subsidiaries are licensed in all 50 states and the District of Columbia. The Company’s Reinsurance Operations consist solely of the operations of its Bermuda-based wholly-owned subsidiary, Global Indemnity Reinsurance Company, Ltd. (“Global Indemnity Reinsurance”). Global Indemnity Reinsurance is a treaty reinsurer of specialty property and casualty insurance and reinsurance companies. The Company’s Reinsurance Operations segment provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies. The Commercial Lines and Personal Lines segments comprise the Company’s U.S. Insurance Operations (‘Insurance Operations”). See Note 12 for additional information regarding segments.

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 (loss). This transaction will not have an impact on the Company’s ongoing business operations. Going forward, any business previously written by United National Specialty Insurance Company has been and will be written by other companies within the Company’s U.S. Insurance Operations.

The interim consolidated financial statements are unaudited, but have been prepared in conformity with United States of America generally accepted accounting principles (“GAAP”), which differs in certain respects from those principles followed in reports to insurance regulatory authorities. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The unaudited consolidated financial statements include all adjustments that are, in the opinion of management, of a normal recurring nature and are necessary for a fair statement of results for the interim periods. Results of operations for the quarters and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results of a full year. The accompanying notes to the unaudited consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s 2015 Annual Report on Form 10-K.

The consolidated financial statements include the accounts of Global Indemnity and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

GLOBAL INDEMNITY PLC

2.	Investments

The amortized cost and estimated fair value of investments were as follows as of September 30, 2016 and December 31, 2015:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Other than temporary impairments recognized in AOCI (1)
As of September 30, 2016
Fixed maturities:
U.S. treasury and agency obligations	$	79,290	$	1,549	$	—		$	80,839	$	—
Obligations of states and political subdivisions		167,430		3,315		(49	)		170,696		—
Mortgage-backed securities		104,222		2,765		(38	)		106,949		—
Asset-backed securities		250,766		1,731		(297	)		252,200		(6	)
Commercial mortgage-backed securities		175,469		372		(1,188	)		174,653		—
Corporate bonds and debt		391,277		5,073		(695	)		395,655		—
Foreign corporate bonds		129,011		982		(28	)		129,965		—

Total fixed maturities		1,297,465		15,787		(2,295	)		1,310,957		(6	)
Common stock		102,899		22,225		(2,345	)		122,779		—
Other invested assets		32,635		—		—			32,635		—

Total	$	1,432,999	$	38,012	$	(4,640	)	$	1,466,371	$	(6	)

(1)

Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”).


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Other than temporary impairments recognized in AOCI (1)
As of December 31, 2015
Fixed maturities:
U.S. treasury and agency obligations	$	106,303	$	1,140	$	(321	)	$	107,122	$	—
Obligations of states and political subdivisions		203,121		2,576		(457	)		205,240		—
Mortgage-backed securities		157,753		2,113		(743	)		159,123		—
Asset-backed securities		261,008		435		(1,421	)		260,022		(9	)
Commercial mortgage-backed securities		142,742		—		(2,352	)		140,390		—
Corporate bonds		334,720		685		(3,294	)		332,111		—
Foreign corporate bonds		102,686		194		(739	)		102,141		—

Total fixed maturities		1,308,333		7,143		(9,327	)		1,306,149		(9	)
Common stock		100,157		16,118		(5,960	)		110,315		—
Other invested assets		32,592		—		—			32,592		—

Total	$	1,441,082	$	23,261	$	(15,287	)	$	1,449,056	$	(9	)

(1)

Represents the total amount of other than temporary impairment losses relating to factors other than credit losses recognized in accumulated other comprehensive income (“AOCI”).

Excluding U.S. treasuries and agency bonds, the Company did not hold any debt or equity investments in a single issuer that was in excess of 4% and 5% of shareholders’ equity at September 30, 2016 and December 31, 2015, respectively.

GLOBAL INDEMNITY PLC

The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at September 30, 2016, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(Dollars in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	81,811	$	82,130
Due after one year through five years		633,977		642,829
Due after five years through ten years		47,779		48,727
Due after ten years through fifteen years		—		—
Due after fifteen years		3,441		3,469
Mortgage-backed securities		104,222		106,949
Asset-backed securities		250,766		252,200
Commercial mortgage-backed securities		175,469		174,653

Total	$	1,297,465	$	1,310,957

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 September 30, 2016:


	Less than 12 months					12 months or longer (1)					Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities:
Obligations of states and political subdivisions	$	17,372	$	(44	)	$	677	$	(5	)	$	18,049	$	(49	)
Mortgage-backed securities		3,123		(27	)		309		(11	)		3,432		(38	)
Asset-backed securities		52,109		(185	)		19,260		(112	)		71,369		(297	)
Commercial mortgage-backed securities		82,291		(571	)		57,970		(617	)		140,261		(1,188	)
Corporate bonds and debt		43,156		(626	)		6,507		(69	)		49,663		(695	)
Foreign corporate bonds		19,869		(28	)		—		—			19,869		(28	)

Total fixed maturities		218,520		(1,481	)		84,723		(814	)		303,243		(2,295	)
Common stock		24,387		(2,079	)		2,027		(266	)		26,414		(2,345	)

Total	$	242,907	$	(3,560	)	$	86,750	$	(1,080	)	$	329,657	$	(4,640	)

(1)

Fixed maturities in a gross unrealized loss position for twelve months or longer are primarily comprised of non-credit losses on investment grade securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery. The Company has analyzed these securities and has determined that they are not other than temporarily impaired.


	Less than 12 months					12 months or longer (1)					Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. treasury and agency obligations	$	79,496	$	(321	)	$	—	$	—		$	79,496	$	(321	)
Obligations of states and political subdivisions		49,708		(373	)		7,732		(84	)		57,440		(457	)
Mortgage-backed securities		63,759		(743	)		—		—			63,759		(743	)
Asset-backed securities		203,381		(1,404	)		4,843		(17	)		208,224		(1,421	)
Commercial mortgage-backed securities		118,813		(2,005	)		21,577		(347	)		140,390		(2,352	)
Corporate bonds		211,364		(3,269	)		2,120		(25	)		213,484		(3,294	)
Foreign corporate bonds		63,860		(697	)		5,129		(42	)		68,989		(739	)

Total fixed maturities		790,381		(8,812	)		41,401		(515	)		831,782		(9,327	)
Common stock		36,798		(5,960	)		—		—			36,798		(5,960	)

Total	$	827,179	$	(14,772	)	$	41,401	$	(515	)	$	868,580	$	(15,287	)

(1)

The Company regularly performs various analytical valuation procedures with respect to its investments, including reviewing

GLOBAL INDEMNITY PLC

each fixed maturity security in an unrealized loss position to assess whether the security has a credit loss. Specifically, the Company considers credit rating, market price, and issuer specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which the Company determines that a credit loss is likely are subjected to further analysis through discounted cash flow testing to estimate the credit loss to be recognized in earnings, if any. The specific methodologies and significant assumptions used by asset class are discussed below. Upon identification of such securities and periodically thereafter, a detailed review is performed to determine whether the decline is considered other than temporary. This review includes an analysis of several factors, including but not limited to, the credit ratings and cash flows of the securities and the magnitude and length of time that the fair value of such 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 before recovery 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 sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met the Company must recognize an other than temporary impairment with the entire unrealized loss being recorded through earnings. For debt securities in an unrealized loss position not meeting these conditions, the Company assesses whether the impairment of a security is other than temporary. If the impairment is deemed to be other than temporary, the Company must separate the other than temporary impairment into two components: the amount representing the credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit losses is recorded in other comprehensive income, net of taxes.

For equity securities, management carefully reviews all securities with unrealized losses to determine if a security should be impaired and further focuses on securities that have either:

(1)

persisted with unrealized losses for more than twelve consecutive months or

(2)

the value of the investment has been 20% or more below cost for six continuous months or more.

The amount of any write-down, including those that are deemed to be other than temporary, is included in earnings as a realized loss in the period in which the impairment arose.

The following is a description, by asset type, of the methodology and significant inputs that the Company used to measure the amount of credit loss recognized in earnings, if any:

Obligations of states and political subdivisions – As of September 30, 2016, gross unrealized losses related to obligations of states and political subdivisions were $0.049 million. Of this amount, $0.005 million have been in an unrealized loss position for twelve months or greater and are rated A. All factors that influence performance of the municipal bond market are considered in evaluating these securities. The aforementioned factors include investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. The analysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform extensive in-house fundamental analysis on each issuer, regardless of their rating by the major agencies.

Mortgage-backed securities (“MBS”) – As of September 30, 2016, gross unrealized losses related to mortgage-backed

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securities were $0.038 million. Of this amount, $0.011 million have been in an unrealized loss position for twelve months or greater and are rated investment grade. Mortgage-backed securities are modeled to project principal losses under downside, base, and upside scenarios for the economy and home prices. The primary assumption that drives the security and loan level modeling is the Home Price Index (“HPI”) projection. The model first projects HPI at the national level, then at the zip-code level based on the historical relationship between the individual zip code HPI and the national HPI. The model utilizes loan level data and borrower characteristics including FICO score, geographic location, original and current loan size, loan age, mortgage rate and type (fixed rate / interest-only / adjustable rate mortgage), issuer / originator, residential type (owner occupied / investor property), dwelling type (single family / multi-family), loan purpose, level of documentation, and delinquency status as inputs. The model also includes the explicit treatment of silent second liens, utilization of loan modification history, and the application of roll rate adjustments.

Asset-backed securities (“ABS”) - As of September 30, 2016, gross unrealized losses related to asset backed securities were $0.297 million. Of this amount, $0.112 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 23.3. 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.

Commercial mortgage-backed securities (“CMBS”) - As of September 30, 2016, gross unrealized losses related to the CMBS portfolio were $1.188 million. Of this amount, $0.617 million have been in an unrealized loss position for twelve months or greater and are rated A+ or better. The weighted average credit enhancement for the Company’s CMBS portfolio is 29.4. This represents the percentage of pool losses that can occur before a mortgage-backed security will incur its first dollar of principal loss. For the Company’s CMBS portfolio, a loan level analysis is utilized where every underlying CMBS loan is re-underwritten based on a set of assumptions reflecting expectations for the future path of the economy. In the analysis, the focus is centered on stressing the significant variables that influence commercial loan defaults and collateral losses in CMBS deals. These variables include: (1) a projected drop in occupancies; (2) capitalization rates that vary by property type and are forecasted to return to more normalized levels as the capital markets repair and capital begins to flow again; and (3) property value stress testing using projected property performance and projected capitalization rates. Term risk is triggered if the projected debt service coverage rate falls below 1x. Balloon risk is triggered if a property’s projected performance does not satisfy new tighter mortgage standards.

Corporate bonds and debt - As of September 30, 2016, gross unrealized losses related to corporate bonds was $0.695 million. Of this amount, $0.069 million have been in an unrealized loss position for twelve months or greater and are rated investment grade. The analysis for this sector includes maintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default.

Foreign bonds – As of September 30, 2016, gross unrealized losses related to foreign bonds were $0.028 million. All unrealized losses have been in an unrealized loss position for less than twelve months. For this sector, detailed financial models are maintained that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default.

Common stock – As of September 30, 2016, gross unrealized losses related to common stock were $2.345 million. Of this amount, $0.266 million have been in an unrealized loss position for twelve months or greater. To determine if an other than

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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 Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for the quarters and nine months ended September 30, 2016 and 2015:


	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Fixed maturities:
OTTI losses, gross	$	(108	)	$	—		$	(201	)	$	(23	)
Portion of loss recognized in other comprehensive income (pre-tax)		—			—			—			—

Net impairment losses on fixed maturities recognized in earnings		(108	)		—			(201	)		(23	)
Equity securities		(2,106	)		(4,641	)		(4,280	)		(6,856	)

Total	$	(2,214	)	$	(4,641	)	$	(4,481	)	$	(6,879	)

The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company for the quarters and nine months ended September 30, 2016 and 2015 for which a portion of the OTTI loss was recognized in other comprehensive income.


	Quarters Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Balance at beginning of period	$	31	$	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 not will be required to sell before recovery		—		—		—		—
Reductions reflecting increases in expected cash flows to be collected		—		—		—		—
Reductions for securities sold during the period		—		—		—		(19	)

Balance at end of period	$	31	$	31	$	31	$	31

Accumulated Other Comprehensive Income, Net of Tax

Accumulated other comprehensive income, net of tax, as of September 30, 2016 and December 31, 2015 was as follows:


(Dollars in thousands)	September 30, 2016			December 31, 2015
Net unrealized gains (losses) from:
Fixed maturities	$	13,492		$	(2,184	)
Common stock		19,880			10,158
Deferred taxes		(10,093	)		(3,896	)

Accumulated other comprehensive income, net of tax	$	23,279		$	4,078

GLOBAL INDEMNITY PLC

The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the quarters and nine months ended September 30, 2016 and 2015:


Quarter Ended September 30, 2016 (Dollars in thousands)	Unrealized Gains and Losses on Available for Sale Securities, Net of Tax			Foreign Currency Items, Net of Tax			Accumulated Other Comprehensive Income, Net of Tax
Beginning balance	$	22,511		$	(435	)	$	22,076
Other comprehensive income (loss) before reclassification		2,073			(89	)		1,984
Amounts reclassified from accumulated other comprehensive (loss)		(781	)		—			(781	)

Other comprehensive income (loss)		1,292			(89	)		1,203

Ending balance	$	23,803		$	(524	)	$	23,279


Quarter Ended September 30, 2015 (Dollars in thousands)	Unrealized Gains and Losses on Available for Sale Securities, Net of Tax			Foreign Currency Items, Net of Tax			Accumulated Other Comprehensive Income, Net of Tax
Beginning balance	$	20,201		$	(99	)	$	20,102
Other comprehensive (loss) before reclassification		(9,009	)		(47	)		(9,056	)
Amounts reclassified from accumulated other comprehensive income		2,129			70			2,199

Other comprehensive income (loss)		(6,880	)		23			(6,857	)

Ending balance	$	13,321		$	(76	)	$	13,245


Nine Months Ended September 30, 2016 (Dollars in thousands)	Unrealized Gains and Losses on Available for Sale Securities, Net of Tax			Foreign Currency Items, Net of Tax			Accumulated Other Comprehensive Income, Net of Tax
Beginning balance	$	4,200		$	(122	)	$	4,078
Other comprehensive income (loss) before reclassification		22,075			(400	)		21,675
Amounts reclassified from accumulated other comprehensive (loss)		(2,472	)		(2	)		(2,474	)

Other comprehensive income (loss)		19,603			(402	)		19,201

Ending balance	$	23,803		$	(524	)	$	23,279

GLOBAL INDEMNITY PLC


Nine Months Ended September 30, 2015 (Dollars in thousands)	Unrealized Gains and Losses on Available for Sale Securities, Net of Tax			Foreign Currency Items, Net of Tax			Accumulated Other Comprehensive Income, Net of Tax
Beginning balance	$	23,647		$	(263	)	$	23,384
Other comprehensive (loss) before reclassification		(9,413	)		(209	)		(9,622	)
Amounts reclassified from accumulated other comprehensive income (loss)		(913	)		396			(517	)

Other comprehensive income (loss)		(10,326	)		187			(10,139	)

Ending balance	$	13,321		$	(76	)	$	13,245

The reclassifications out of accumulated other comprehensive income for the quarters and nine months ended September 30, 2016 and 2015 were as follows:


(Dollars in thousands)		Amounts Reclassified from Accumulated Other Comprehensive Income
		Quarters Ended September 30,
Details about Accumulated Other Comprehensive Income Components	Affected Line Item in the Consolidated Statements of Operations	2016			2015
Unrealized gains and losses on available for sale securities	Other net realized investment (gains)	$	(3,384	)	$	(2,042	)
	Other than temporary impairment losses on investments		2,214			4,641

	Total before tax		(1,170	)		2,599
	Income tax expense (benefit)		389			(470	)

	Unrealized gains on available for sale securities, net of tax	$	(781	)	$	2,129

Foreign currency items	Other net realized investment losses	$	—		$	108
	Income tax (benefit)		—			(38	)

	Foreign currency items, net of tax	$	—		$	70

Total reclassifications	Total reclassifications, net of tax	$	(781	)	$	2,199

GLOBAL INDEMNITY PLC


(Dollars in thousands)		Amounts Reclassified from Accumulated Other Comprehensive Income
		Nine Months Ended September 30,
Details about Accumulated Other Comprehensive Income Components	Affected Line Item in the Consolidated Statements of Operations	2016			2015
Unrealized gains and losses on available for sale securities	Other net realized investment (gains)	$	(8,214	)	$	(9,168	)
	Other than temporary impairment losses on investments		4,481			6,879

	Total before tax		(3,733	)		(2,289	)
	Income tax expense		1,261			1,376

	Unrealized gains and losses on available for sale securities, net of tax	$	(2,472	)	$	(913	)

Foreign currency items	Other net realized investment (gains) losses	$	(4	)	$	609
	Income tax expense (benefit)		2			(213	)

	Foreign currency items, net of tax	$	(2	)	$	396

Total reclassifications	Total reclassifications, net of tax	$	(2,474	)	$	(517	)

Net Realized Investment Gains (Losses)

The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 2016 and 2015 were as follows:


	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Fixed maturities:
Gross realized gains	$	434		$	110		$	1,252		$	1,589
Gross realized losses		(147	)		(1,451	)		(291	)		(1,692	)

Net realized gains		287			(1,341	)		961			(103	)

Common stock:
Gross realized gains		3,345			3,494			8,068			9,418
Gross realized losses		(2,462	)		(4,860	)		(5,292	)		(7,731	)

Net realized gains		883			(1,366	)		2,776			1,687

Preferred stock:
Gross realized gains		—			—			—			96
Gross realized losses		—			—			—			—

Net realized gains		—			—			—			96

Derivatives:
Gross realized gains		1,955			—			—			—
Gross realized losses		(1,197	)		(8,071	)		(12,794	)		(8,896	)

Net realized gains (losses)		758			(8,071	)		(12,794	)		(8,896	)

Total net realized investment gains (losses)	$	1,928		$	(10,778	)	$	(9,057	)	$	(7,216	)

GLOBAL INDEMNITY PLC

The proceeds from sales of available-for-sale securities resulting in net realized investment gains for the nine months ended September 30, 2016 and 2015 were as follows:


	Nine Months Ended September 30,
(Dollars in thousands)	2016		2015
Fixed maturities	$	279,659	$	290,580
Equity securities	$	34,976	$	34,161
Preferred stock	$	—	$	1,540

Net Investment Income

The sources of net investment income for the quarters and nine months ended September 30, 2016 and 2015 were as follows:


	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Fixed maturities	$	8,131		$	8,673		$	22,729		$	24,709
Equity securities		698			703			2,647			2,419
Cash and cash equivalents		44			32			111			59
Other invested assets		909			193			3,806			1,535

Total investment income		9,782			9,601			29,293			28,722
Investment expense (1)		(987	)		(749	)		(4,190	)		(2,488	)

Net investment income	$	8,795		$	8,852		$	25,103		$	26,234

(1)

Investment expense for the nine months ended September 30, 2016 includes $1.5 million in upfront fees necessary to enter into a new investment. See Note 9 for additional information on the Company’s $40 million commitment related to this new investment.

The Company’s total investment return on a pre-tax basis for the quarters and nine months ended September 30, 2016 and 2015 were as follows:


	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Net investment income	$	8,795		$	8,852		$	25,103		$	26,234

Net realized investment gains (losses)		1,928			(10,778	)		(9,057	)		(7,216	)
Change in unrealized holding gains and (losses)		2,061			(10,420	)		25,398			(15,575	)

Net realized and unrealized investment returns		3,989			(21,198	)		16,341			(22,791	)

Total investment return	$	12,784		$	(12,346	)	$	41,444		$	3,443

Total investment return % (1)		0.8	%		(0.7	%)		2.7	%		0.2	%

Average investment portfolio (2)	$	1,530,599		$	1,800,993		$	1,522,247		$	1,788,777

(1)

Not annualized.

(2)

Average of total cash and invested assets, net of receivable/payable for securities purchased and sold, as of the beginning and end of the period.

Insurance Enhanced Asset Backed and Credit Securities

As of September 30, 2016, the Company held insurance enhanced asset backed and credit securities with a market value of approximately $33.1 million. Approximately $13.7 million of these securities were tax free municipal bonds, which represented approximately 0.9% of the Company’s total cash and invested assets, net of payable/receivable for securities purchased and sold. These securities had an average rating of “A+.” Approximately $5.4 million of these bonds are pre-refunded with U.S. treasury securities, of which $0.5 million are backed by financial guarantors, meaning that funds have been set aside in escrow to satisfy the future interest and principal obligations of the bond. Of the remaining $8.3 million of tax free insurance enhanced municipal bonds, $0.5 million would have carried a lower credit rating had they not been insured. The following table provides a breakdown of the ratings for these municipal bonds with and without insurance.

GLOBAL INDEMNITY PLC


(Dollars in thousands)	Ratings with		Ratings without
Rating	Insurance		Insurance
AA	$	509	$	—
A		—		509

Total	$	509	$	509

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 September 30, 2016, is as follows:


(Dollars in thousands) Financial Guarantor	Total		Pre-refunded Securities		Government Guaranteed Securities		Exposure Net of Pre-refunded & Government Guaranteed Securities
Ambac Financial Group	$	1,512	$	455	$	—	$	1,057
Assured Guaranty Corporation		3,500		—		—		3,500
Municipal Bond Insurance Association		3,229		—		—		3,229
Gov’t National Housing Association		498		—		498		—

Total backed by financial guarantors		8,739		455		498		7,786
Other credit enhanced municipal bonds		4,923		4,923		—		—

Total	$	13,662	$	5,378	$	498	$	7,786

In addition to the tax-free municipal bonds, the Company held $19.4 million of insurance enhanced bonds that are comprised of $18.3 million of taxable municipal bonds and $1.1 million of asset-backed securities, which represented approximately 1.3% of the Company’s total invested assets, net of receivable/payable for securities purchased and sold. The financial guarantors of the Company’s $19.4 million of insurance enhanced asset-backed and taxable municipal securities include Municipal Bond Insurance Association ($3.8 million), Ambac Financial Group ($0.9 million), Assured Guaranty Corporation ($14.6 million), and Financial Guaranty Insurance Group ($0.1 million).

The Company had no direct investments in the entities that have provided financial guarantees or other credit support to any security held by the Company at September 30, 2016.

Bonds Held on Deposit

Certain cash balances, cash equivalents, equity securities, and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral pursuant to borrowing arrangements, or were held in trust pursuant to intercompany reinsurance agreements. The fair values were as follows as of September 30, 2016 and December 31, 2015:


	Estimated Fair Value
(Dollars in thousands)	September 30, 2016		December 31, 2015
On deposit with governmental authorities	$	26,203	$	38,815
Intercompany trusts held for the benefit of U.S. policyholders		601,052		643,216
Held in trust pursuant to third party requirements		67,924		66,544
Letter of credit held for third party requirements		4,292		5,598
Securities held as collateral for borrowing arrangements (1)		97,638		95,647

Total	$	797,109	$	849,820

(1)

Amount required to collateralize margin borrowing facilities.

Variable Interest Entities

A Variable Interest Entity (VIE) refers to an investment in which an investor holds a controlling interest that is not based on the majority of voting rights. Under the VIE model, the party that has the power to exercise significant management

GLOBAL INDEMNITY PLC

influence and maintain a controlling financial interest in the entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participate in 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 significant management influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do not consolidate the VIE in their financial results.

The Company has variable interests in several VIE’s for which it is not the primary beneficiary. These investments are accounted for under the equity method of accounting as their ownership interest exceeds 3% of their respective investments.

The fair value of one of the Company’s variable interest VIE’s was $29.1 million and $32.6 million as of September 30, 2016 and December 31, 2015, respectively. The Company’s maximum exposure to loss from this variable interest VIE, which factors in future funding commitments, was $51.1 million at September 30, 2016 and $52.6 million at December 31, 2015. The fair value of the remaining three variable interest VIE’s, which were acquired in 2016, were $3.6 million at September 30, 2016. The Company is not able to accurately estimate future funding requirements for the remaining three variable interest VIE’s due to related debt components of the underlying investments that are not considered variable interest VIE’s. If the entire future funding commitments of these three investments were considered variable interest VIE’s, the Company’s maximum exposure to loss from the remaining VIE’s at September 30, 2016 would be $24.6 million. The Company’s investment in variable interest VIE’s is included in other invested assets on the consolidated balance sheet with changes in fair value recorded in the statement of operations.

3.	Derivative Instruments

Interest rate swaps are used by the Company primarily to reduce risks from changes in interest rates. Under the terms of the interest rate swaps, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount.

The Company accounts for the interest rate swaps as non-hedge instruments and recognizes the fair value of the interest rate swaps in other assets or other liabilities on the consolidated balance sheets with the changes in fair value recognized as net realized investment gains (losses) in the consolidated statement of operations. The Company is ultimately responsible for the valuation of the interest rate swaps. To aid in determining the estimated fair value of the interest rate swaps, the Company relies on the forward interest rate curve and information obtained from a third party financial institution.

The following table summarizes information on the location and the gross amount of the derivatives’ fair value on the consolidated balance sheets as of September 30, 2016 and December 31, 2015:


(Dollars in thousands)		September 30, 2016					December 31, 2015
Derivatives Not Designated as Hedging Instruments under ASC 815	Balance Sheet Location	Notional Amount		Fair Value			Notional Amount		Fair Value
Interest rate swap agreements	Other liabilities	$	200,000	$	(24,388	)	$	200,000	$	(15,256	)

The following table summarizes the net gains (losses) included in the consolidated statement of operations for changes in the fair value of the derivatives and the periodic net interest settlements under the derivatives for the quarters and nine months ended September 30, 2016 and 2015:


		Quarters Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	Statement of Operations Line	2016		2015			2016			2015
Interest rate swap agreements	Net realized investment gains (losses)	$	758	$	(8,071	)	$	(12,794	)	$	(8,896	)

As of September 30, 2016 and December 31, 2015, the Company is due $4.4 million and $4.5 million, respectively, for funds it needed to post to execute the swap transaction and $25.2 million and $17.3 million, respectively, for margin calls made in connection with the interest rate swaps. These amounts are included in other assets on the consolidated balance sheets.

GLOBAL INDEMNITY PLC

4.	Fair Value Measurements

The accounting standards related to fair value measurements define fair value, establish a framework for measuring fair value, outline a fair value hierarchy based on inputs used to measure fair value, and enhance disclosure requirements for fair value measurements. These standards do not change existing guidance as to whether or not an instrument is carried at fair value. The Company has determined that its fair value measurements are in accordance 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 the measurement date.

•

Level 2 - inputs utilize other than quoted prices included in Level 1 that are observable for similar assets, either directly or indirectly.

•

Level 3 - inputs are unobservable for the asset, and include situations where there is little, if any, market activity for the asset.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.

The following table presents information about the Company’s invested assets and derivative instruments measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.


As of September 30, 2016	Fair Value Measurements
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities:
U.S. treasury and agency obligations	$	79,325	$	1,514	$	—	$	80,839
Obligations of states and political subdivisions		—		170,696		—		170,696
Mortgage-backed securities		—		106,949		—		106,949
Commercial mortgage-backed securities		—		174,653		—		174,653
Asset-backed securities		—		252,200		—		252,200
Corporate bonds and debt		—		378,795		16,860		395,655
Foreign corporate bonds		—		129,965		—		129,965

Total fixed maturities		79,325		1,214,772		16,860		1,310,957
Common stock		122,779		—		—		122,799

Total assets measured at fair value (1)	$	202,104	$	1,214,772	$	16,860	$	1,433,736

Liabilities:
Derivative instruments	$	—	$	24,388	$	—	$	24,388

Total liabilities measured at fair value	$	—	$	24,388	$	—	$	24,388

(1)	Excluded from the table above are limited liability companies and limited partnerships of $32.6 million at September 30, 2016 whose fair value is based on net asset value as a practical expedient.

GLOBAL INDEMNITY PLC


As of December 31, 2015	Fair Value Measurements
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities:
U.S. treasury and agency obligations	$	101,264	$	5,858	$	—	$	107,122
Obligations of states and political subdivisions		—		205,240		—		205,240
Mortgage-backed securities		—		159,123		—		159,123
Commercial mortgage-backed securities		—		140,390		—		140,390
Asset-backed securities		—		260,022		—		260,022
Corporate bonds		—		332,111		—		332,111
Foreign corporate bonds		—		102,141		—		102,141

Total fixed maturities		101,264		1,204,885		—		1,306,149
Common stock		110,315		—		—		110,315

Total assets measured at fair value (1)	$	211,579	$	1,204,885	$	—	$	1,416,464

Liabilities:
Derivative instruments	$	—	$	15,256	$	—	$	15,256

Total liabilities measured at fair value	$	—	$	15,256	$	—	$	15,256

(1)	Excluded from the table above are limited partnerships of $32.6 million at December 31, 2015 whose fair value is based on net asset value as a practical expedient.

The securities classified as Level 1 in the above table consist of U.S. Treasuries and equity securities actively traded on an exchange.

The securities classified as Level 2 in the above table consist primarily of fixed maturity securities and derivative instruments. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, security prices are derived through recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. If there are no recent reported trades, matrix or model processes are used to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of asset-backed securities, collateralized mortgage obligations, and mortgage-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. The estimated fair value of the interest rate swaps is obtained from a third party financial institution who utilizes observable inputs such as the forward interest rate curve.

For the Company’s material debt arrangements, the current fair value of the Company’s debt at September 30, 2016 and December 31, 2015 was as follows:


	September 30, 2016				December 31, 2015
(Dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Margin Borrowing Facilities	$	76,696	$	76,696	$	75,646	$	75,646
7.75% Subordinated Notes due 2045 (1)		96,466		99,706		96,388		91,748

Total	$	173,162	$	176,402	$	172,034	$	167,394

(1)	As of September 30, 2016 and December 31, 2015, the carrying value and fair value of the 7.75% Subordinated Notes due 2045 are net of unamortized debt issuance cost of $3.5 million.

The fair value of the margin borrowing facilities approximates its carrying value due to the facilities being due on demand. The 7.75% subordinated notes due 2045 are publicly traded instruments and are classified as Level 1 in the fair value hierarchy.

There were no transfers between Level 1 and Level 2 during the quarters ended September 30, 2016 or 2015.

GLOBAL INDEMNITY PLC

The following table presents changes in Level 3 investments measured at fair value on a recurring basis for the quarters and nine months ended September 30, 2016 and 2015:


	Quarters Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Beginning balance	$	11,220	$	—	$	—	$	—
Total gains (realized / unrealized):
Amortization of bond premium and discount, net		27		—		30		—
Included in accumulated other comprehensive income		534		—		531		—
Purchases		5,079		—		16,299		—
Distributions		—		—		—		—

Ending balance	$	16,860	$	—	$	16,860	$	—

The investments classified as Level 3 in the above table consist of privately placed securities with unobservable inputs. The Company does not have access to daily valuations; therefore, market trades, performance of the underlying assets, and key risks are considered in order to estimate fair values of these middle market corporate debt instruments.

Fair Value of Alternative Investments

Other invested assets consist of limited liability companies and limited partnerships whose fair value is based on the net asset value per share practical expedient. The following table provides the fair value and future funding commitments related to these investments at September 30, 2016 and December 31, 2015.


	September 30, 2016				December 31, 2015
(Dollars in thousands)	Fair Value		Future Funding Commitment		Fair Value		Future Funding Commitment
Real Estate Fund, LP (1)	$	—	$	—	$	—	$	—
European Non-Performing Loan Fund, LP (2)		29,073		22,014		32,592		20,014
Private Middle Market Loans, LLC (3)		3,562		21,058		—		—

Total	$	32,635	$	43,072	$	32,592	$	20,014

(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.

(2)

This limited partnership invests in distressed securities and assets through senior and subordinated, secured and unsecured debt and equity, in both public and private large-cap and middle-market companies. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the partnership agreement, the Company anticipates its interest in this partnership to be redeemed in 2020.

(3)

This interest consists of three separate equity investments in limited liability companies whereby the Company is also a lender via separate loan agreements. Typical financing is used for growth, acquisitions, or buyouts. The Company classifies their portion of the middle market corporate debt as fixed maturities. The Company has committed $40 million to this investment strategy, including both the equity and financing provisions. While the Company is not able to estimate the proportion of future funding commitments between equity and financing, the total remaining commitment is $21.1 million. Based on the terms of the investment management agreement, the Company anticipates its interest to be redeemed no later than 2024.

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 interest exceeds 3%. The equity method of accounting for an investment in a limited liability company and limited partnership requires that its cost basis be updated to account for the income or loss earned on the investment. The investment income associated with these limited liability companies or limited partnerships, which is reflected in the statement of operations, was $0.9 million and $0.1 million during the quarters ended September 30, 2016 and 2015, respectively, and $3.7 million and $1.4 million during the nine months ended September 30, 2016 and 2015, respectively.

GLOBAL INDEMNITY PLC

Pricing

The Company’s pricing vendors provide prices for all investment categories except for investments in limited liability companies and limited partnerships whose fair value is based on net asset values as a practical expedient. Two vendors provide prices for equity and fixed maturity securities.

The following is a description of the valuation methodologies used by the Company’s pricing vendors for investment securities carried at fair value:

•

Common stock prices are received from all primary and secondary exchanges.

•

Corporate and agency bonds are evaluated by utilizing a multi-dimensional relational model. For bonds with early redemption options, an option adjusted spread model is utilized. Both asset classes use standard inputs and incorporate security set up, defined sector breakdown, benchmark yields, apply base spreads, yield to maturity, and adjust for corporate actions.

•

Data from commercial vendors is aggregated with market information, then converted into a prepayment/spread/LIBOR curve model used for 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 interpolated swap yield curve. For both asset classes, evaluations utilize standard inputs plus new issue data, monthly payment information, and collateral performance. The evaluated pricing models incorporate discount rates, loan level information, prepayment speeds, treasury benchmarks, and LIBOR and swap curves.

•

For obligations of state and political subdivisions, a multi-dimensional relational model is used to evaluate securities. The pricing models incorporate security set-up, benchmark yields, apply base spreads, yield to worst or market convention, ratings updates, prepayment schedules and adjustments for material events notices.

•

U.S. treasuries are evaluated by obtaining feeds from a number of live data sources including active market makers and inter-dealer brokers.

•

For mortgage-backed securities, a matrix model correlation to TBA (a forward MBS trade) or benchmarking is utilized to value a security.

The Company performs certain procedures to validate whether the pricing information received from the pricing vendors is reasonable, to ensure that the fair value determination is consistent with accounting guidance, and to ensure that its assets are properly classified in the fair value hierarchy. The Company’s procedures include, but are not limited to:

•

Reviewing periodic reports provided by the Investment Manager that provides 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 may potentially change.

•

Understanding and periodically evaluating the various pricing methods and procedures used by the Company’s pricing vendors to ensure that investments are properly classified within the fair value hierarchy.

•

On a quarterly basis, the Company corroborates investment security prices received from its pricing vendors by obtaining pricing from a second pricing vendor for a sample of securities.

During the quarters and nine months ended September 30, 2016 and 2015, the Company has not adjusted quotes or prices obtained from the pricing vendors.

5.	Income Taxes

The statutory income tax rates of the countries where the Company does business are 35% in the United States, 0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 29.22% in the Duchy of Luxembourg, and 25% on non-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income tax rate of each

GLOBAL INDEMNITY PLC

country is applied against the expected annual taxable income of the Company in each country to estimate the annual income tax expense. Generally, during interim periods, the Company will divide total estimated annual income tax expense by total estimated annual pre-tax income to determine the expected annual income tax rate used to compute the income tax provision. The expected annual income tax rate is then applied against interim pre-tax income, excluding net realized gains and losses and distributions from limited liability companies and limited partnerships, and that amount is then added to the actual income taxes on net realized gains and losses, discrete items and distributions from limited liability companies and limited partnerships. However, when there is significant volatility in the expected effective tax rate, the Company records its actual income tax provision in lieu of the estimated effective income tax rate.

The Company’s income before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries, including the results of the quota share and stop-loss agreements between Global Indemnity Reinsurance and the Insurance Operations, for the quarters and nine months ended September 30, 2016 and 2015 were as follows:


Quarter Ended September 30, 2016: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	51,900		$	123,770		$	(42,101	)	$	133,569

Net premiums written	$	51,900		$	63,151		$	—		$	115,051

Net premiums earned	$	54,155		$	65,398		$	—		$	119,553
Net investment income		11,556			5,828			(8,589	)		8,795
Net realized investment gains (losses)		58			1,870			—			1,928
Other income (loss)		(10	)		7,862			—			7,852

Total revenues		65,759			80,958			(8,589	)		138,128
Losses and Expenses:
Net losses and loss adjustment expenses		27,932			44,230			—			72,162
Acquisition costs and other underwriting expenses		24,651			23,478			—			48,129
Corporate and other operating expenses		2,906			2,100			—			5,006
Interest expense		2,081			8,741			(8,589	)		2,233

Income (loss) before income taxes	$	8,189		$	2,409		$	—		$	10,598


Quarter Ended September 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	67,543		$	140,268		$	(57,663	)	$	150,148

Net premiums written	$	67,534		$	54,963		$	—		$	122,497

Net premiums earned	$	70,532		$	54,175		$	—		$	124,707
Net investment income		10,644			4,783			(6,575	)		8,852
Net realized investment gains (losses)		(1,256	)		(9,522	)		—			(10,778	)
Other income (loss)		(11	)		1,290			—			1,279

Total revenues		79,909			50,726			(6,575	)		124,060
Losses and Expenses:
Net losses and loss adjustment expenses		39,849			37,842			—			77,691
Acquisition costs and other underwriting expenses		30,504			20,430			—			50,934
Corporate and other operating expenses		1,648			1,919			—			3,567
Interest expense		1,501			6,669			(6,575	)		1,595

Income (loss) before income taxes	$	6,407		$	(16,134	)	$	—		$	(9,727	)

GLOBAL INDEMNITY PLC


Nine Months Ended September 30, 2016: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	141,297		$	394,312		$	(106,355	)	$	429,254

Net premiums written	$	141,283		$	215,950		$	—		$	357,233

Net premiums earned	$	162,594		$	196,399		$	—		$	358,993
Net investment income		36,791			13,888			(25,576	)		25,103
Net realized investment gains (losses)		128			(9,185	)		—			(9,057	)
Other income (loss)		17			9,586			—			9,603

Total revenues		199,530			210,688			(25,576	)		384,642
Losses and Expenses:
Net losses and loss adjustment expenses		84,154			130,903			—			215,057
Acquisition costs and other underwriting expenses		71,758			77,003			—			148,761
Corporate and other operating expenses		7,181			5,883			—			13,064
Interest expense		6,233			26,020			(25,576	)		6,677

Income (loss) before income taxes	$	30,204		$	(29,121	)	$	—		$	1,083


Nine Months Ended September 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	289,940		$	411,310		$	(241,718	)	$	459,532

Net premiums written	$	289,892		$	104,714		$	—		$	394,606

Net premiums earned	$	214,667		$	166,254		$	—		$	380,921
Net investment income		32,146			13,594			(19,506	)		26,234
Net realized investment gains (losses)		(1,643	)		(5,573	)		—			(7,216	)
Other income (loss)		(77	)		2,485			—			2,408

Total revenues		245,093			176,760			(19,506	)		402,347
Losses and Expenses:
Net losses and loss adjustment expenses		115,654			111,216			—			226,870
Acquisition costs and other underwriting expenses		92,368			57,750			—			150,118
Corporate and other operating expenses		3,395			16,046			—			19,441
Interest expense		2,325			19,816			(19,506	)		2,635

Income (loss) before income taxes	$	31,351		$	(28,068	)	$	—		$	3,283

The following table summarizes the components of income tax expense (benefit):


	Quarters Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2016		2015			2016			2015
Current income tax expense (benefit):
Foreign	$	84	$	67		$	289		$	228
U.S. Federal		146		(579	)		146			(2,126	)

Total current income tax expense (benefit)		230		(512	)		435			(1,898	)

Deferred income tax expense (benefit):
U.S. Federal		833		(5,469	)		(10,847	)		(8,984	)

Total deferred income tax expense (benefit)		833		(5,469	)		(10,847	)		(8,984	)

Total income tax expense (benefit)	$	1,063	$	(5,981	)	$	(10,412	)	$	(10,882	)

The weighted average expected tax provision has been calculated using income (loss) before income taxes in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate.

GLOBAL INDEMNITY PLC

The following table summarizes the differences between the tax provision for financial statement purposes and the expected tax provision at the weighted average tax rate:


	Quarters Ended September 30,
	2016						2015
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	933			8.8	%	$	(5,580	)		(57.4	%)
Adjustments:
Tax exempt interest		(101	)		(1.0	)		(107	)		(1.1	)
Dividend exclusion		(3	)		0.0			(175	)		(1.8	)
Other		234			2.2			(119	)		(1.2	)

Actual tax on continuing operations	$	1,063			10.0	%	$	(5,981	)		(61.5	%)

The effective income tax rate for the quarter ended September 30, 2016 was 10.0%, compared to an effective income tax benefit rate of 61.5% for the quarter ended September 30, 2015. The increase is primarily due to capital gains and the gain on the sale of United National Specialty Insurance Company during the quarter ended September 30, 2016. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.


	Nine Months Ended September 30,
	2016						2015
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	(9,896	)		(913.8	%)	$	(9,595	)		(292.3	%)
Adjustments:
Tax exempt interest		(304	)		(28.1	)		(326	)		(9.9	)
Dividend exclusion		(480	)		(44.3	)		(588	)		(17.9	)
Other		268			24.8			(373	)		(11.4	)

Actual tax on continuing operations	$	(10,412	)		(961.4	%)		(10,882	)		(331.5	%)

The effective income tax benefit rate for the nine months ended September 30, 2016 was 961.4%, compared to an effective income tax benefit rate of 331.5% for the nine months ended September 30, 2015. The increase is primarily due to losses incurred in the Company’s U.S. operations. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.

The Company has an alternative minimum tax (“AMT”) credit carryforward of $11.0 million and $10.9 million as of September 30, 2016 and December 31, 2015, respectively, which can be carried forward indefinitely. The Company has a net operating loss (“NOL”) carryforward of $10.1 million and $1.9 million as of September 30, 2016 and December 31, 2015, respectively, which will expire in 2036 and 2035, respectively. The Company has a Section 163(j) (“163(j)”) carryforward of $3.9 million and $3.1 million as of September 30, 2016 and December 31, 2015, respectively, which can be carried forward indefinitely. The 163(j) carryforward is for disqualified interest paid or accrued to a related entity that is not subject to U.S. tax.

GLOBAL INDEMNITY PLC

6.	Liability for Unpaid Losses and Loss Adjustment Expenses

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:


	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Balance at beginning of period	$	683,850		$	769,299		$	680,047		$	675,472
Less: Ceded reinsurance receivables		111,579			138,497			108,130			123,201

Net balance at beginning of period		572,271			630,802			571,917			552,271
Purchased reserves, gross		1,410			1,119			1,410			89,489
Less: Purchased reserves ceded		(641	)		1,119			(641	)		12,800

Purchased reserves, net		2,051			—			2,051			76,689

Incurred losses and loss adjustment expenses related to:
Current year		81,579			86,203			239,991			244,041
Prior years		(9,417	)		(8,512	)		(24,934	)		(17,171	)

Total incurred losses and loss adjustment expenses		72,162			77,691			215,057			226,870

Paid losses and loss adjustment expenses related to:
Current year		49,704			53,512			113,090			113,573
Prior years		35,147			56,385			114,302			143,661

Total paid losses and loss adjustment expenses		84,851			109,897			227,392			257,234

Net balance at end of period		561,633			598,596			561,633			598,596
Plus: Ceded reinsurance receivables		102,749			130,913			102,749			130,913

Balance at end of period	$	664,382		$	729,509		$	664,382		$	729,509

When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserve estimates.

In the third quarter of 2016, the Company reduced its prior accident year loss reserves by $9.4 million, which consisted of a $6.5 million decrease related to Commercial Lines and a $2.9 million decrease related to Reinsurance Operations.

The $6.5 million reduction of prior accident year loss reserves related to Commercial Lines primarily consisted of the following:

•

General Liability: A $9.0 million reduction in aggregate with $3.2 million of favorable development in the construction defect reserve category and $6.0 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category reflects the lower than expected claims frequency and severity which led to a reduction in the 2005 through 2015 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the driver of the favorable development mainly in accident years 2004 through 2012.

•

Property: A $2.1 million increase was due to higher than expected case incurred emergence in the property brokerage segment excluding catastrophe experience in the 2011 through 2015 accident years.

The $2.9 million reduction related to Reinsurance Operations was from the property lines. Ultimate losses were lowered in the 2014 and 2015 accident years based on a review of the experience reported from cedants.

In the third quarter of 2015, the Company decreased its prior accident year loss reserves by $8.5 million, which consisted of a $7.3 million decrease related to Commercial Lines and a $1.2 million decrease related to Reinsurance Operations.

The $7.3 million decrease related to Commercial Lines primarily consisted of the following:

•

Professional: A $3.5 million decrease in aggregate primarily related to better than anticipated loss emergence in accident years 2006 through 2012.

•

General Liability: A $3.8 million decrease in aggregate primarily related to accident years 1999 through 2013 primarily due to better than anticipated frequency and severity in construction defect.

GLOBAL INDEMNITY PLC

The $1.2 million decrease in aggregate related to Reinsurance Operations was primarily due to lower than expected emergence on property catastrophe contracts for accident years 2009 to 2013.

In the first nine months of 2016, the Company decreased its prior accident year loss reserves by $24.9 million, which consisted of an $18.8 million decrease related to Commercial Lines and a $6.1 million decrease related to Reinsurance Operations.

The $18.8 million decrease related to Commercial Lines primarily consisted of the following:

•

General Liability: A $21.1 million reduction in aggregate with $4.8 million of favorable development in the construction defect reserve category and $16.3 million of favorable development in the other general liability reserve categories. The favorable development in the construction defect reserve category reflects the lower than expected claims frequency and severity which led to a reduction in the 2005 through 2015 accident years. For the other general liability reserve categories, lower than anticipated claims severity was the driver of the favorable development mainly in accident years 2004 through 2012.

•

Property: A $0.8 million increase in aggregate with a $0.5 million increase in the non-catastrophe segments and a $0.3 million increase in the catastrophe segments. The increases reflect higher than expected case incurred emergence primarily in the 2012 through 2015 accident years.

The $6.1 million reduction related to Reinsurance Operations was from the property lines. Ultimate losses were lowered for the 2013 through 2015 accident years due to lower than expected emergence of catastrophe losses.

In the first nine months of 2015, the Company decreased its prior accident year loss reserves by $17.2 million, which consisted of a $12.9 million decrease related to Commercial Lines and a $4.3 million decrease related to Reinsurance Operations.

The $12.9 million decrease related to Commercial Lines primarily consisted of the following:

•

Property: A $0.8 million decrease in aggregate primary related to better than anticipated loss emergence in the 2011 through 2014 accident years.

•

Umbrella: $0.3 million decrease primarily related to accident years 2003 through 2005 as a result of better than anticipated loss emergence.

•

Professional: $6.4 million decrease in aggregate primarily related to better than anticipated frequency in accident years 2006 through 2012.

•

General Liability: A $5.7 million decrease in aggregate primarily related to accident years prior to 2013 due to better than anticipated frequency and severity in construction defect.

The $4.3 million decrease in aggregate related to Reinsurance Operations was primarily due to improved results reported by the Company’s cedants on property contracts for accident years 2009 through 2014.

7.	Shareholders’ Equity

Repurchases of the Company’s A ordinary shares

No shares were repurchased during the quarters ended September 30, 2016 and 2015. During the nine months ended September 30, 2016 and 2015, the Company repurchased 28,099 shares and 11,895 shares, respectively, with an average price paid of $28.64 per share and $ 28.03 per share, respectively.

Please see Note 12 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2015 Annual Report on Form 10-K for more information on the Company’s repurchase program.

GLOBAL INDEMNITY PLC

8.	Related Party Transactions

Fox Paine & Company

As of September 30, 2016, Fox Paine beneficially owned shares having approximately 84% of the Company’s total outstanding voting power. Fox Paine has the right to appoint a number of the Company’s Directors equal in aggregate to the pro rata percentage of the voting shares of the Company beneficially held by Fox Paine for so long as Fox Paine holds an aggregate of 25% or more of the voting power in the Company. Fox Paine 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. The Company relies on Fox Paine to provide management services and other services related to the operations of the Company.

Global Indemnity Reinsurance was a limited partner in Fox Paine Capital Fund, II, which was managed by Fox Paine & Company. This investment was originally made by United National Insurance Company in June 2000 and pre-dates the September 5, 2003 acquisition by Fox Paine of Wind River Investment Corporation, which was the predecessor holding company for United National Insurance Company. In connection with the Company’s share redemption in 2015, Global Indemnity Reinsurance elected to redeem its shares in Fox Paine Capital Fund II, and as a result, the Company no longer held an interest in Fox Paine Capital Fund II as of November 10, 2015. All of Global Indemnity Reinsurance’s allocable Global Indemnity plc shares that were held by Fox Paine Capital Fund, II were transferred into a new unrelated liquidating partnership.

There were no distributions received from Fox Paine Capital Fund II during the quarters ended September 30, 2016 or 2015. During the nine months ended September 30, 2015, the Company received a distribution of $0.8 million from Fox Paine Capital Fund II. The Company did not receive any distributions from Fox Paine Capital Fund II during the nine months ended September 30, 2016.

The Company relies on Fox Paine to provide management services and other services related to the operations of the Company. The Company incurred management fees of $0.5 million and $0.4 million during the quarters ended September 30, 2016 and 2015, respectively, and $1.5 million and $1.4 million during the nine months ended September 30, 2016 and 2015, respectively, as part of the annual management fee paid to Fox Paine. As of September 30, 2016 and December 31, 2015, unpaid management fees, which were included in other liabilities on the consolidated balance sheets, were $4.1 million and $2.6 million, respectively.

In connection with the acquisition of American Reliable, the Company agreed to pay to Fox Paine an investment banking fee of 3% of the amount paid plus the additional capital required to operate American Reliable on a standalone basis and a $1.5 million investment advisory fee, which in the aggregate, totaled $6.5 million. This amount is included in corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the nine months ended September 30, 2015. As payment for these fees, 267,702 A ordinary shares of Global Indemnity were issued under the Global Indemnity plc Share Incentive Plan (the “Plan”) in May, 2015. These shares cannot be sold until the earlier of five years after January 1, 2015 or a change of control.

Cozen O’Connor

The Company incurred $0.2 million and $0.6 million for legal services rendered by Cozen O’Connor during the quarter and nine months ended September 30, 2015, respectively. Stephen A. Cozen, the chairman of Cozen O’Connor, was a member of the Company’s Board of Directors until he resigned effective December 31, 2015.

Crystal & Company

The Company incurred brokerage fees with Crystal & Company, an insurance broker, of $0.1 million during each of the quarters ended September 30, 2016 and 2015 and $0.2 million during each of the nine months ended September 30, 2016 and 2015. James W. Crystal, the chairman and chief executive officer of Crystal & Company, was a member of the Company’s Board of Directors until he resigned effective July 24, 2016.

Hiscox Insurance Company (Bermuda) Ltd.

Global Indemnity Reinsurance is a participant in two reinsurance agreements with Hiscox Insurance Company (Bermuda)

GLOBAL INDEMNITY PLC

Ltd. (“Hiscox Bermuda”) while Steve Green, the President of Global Indemnity Reinsurance, was a member of Hiscox Bermuda’s Board of Directors. Steve Green was a member of the Hiscox Bermuda’s Board of Directors until May, 2014. The Company estimated that the following earned premium and incurred losses related to these agreements have been assumed by Global Indemnity Reinsurance from Hiscox Bermuda:


	Quarters Ended September 30,
(Dollars in thousands)	2016			2015
Assumed earned premium	$	(2	)	$	47
Assumed losses and loss adjustment expenses		(209	)		(167	)

	Nine Months Ended September 30,
(Dollars in thousands)	2016			2015
Assumed earned premium	$	51		$	2,294
Assumed losses and loss adjustment expenses		(419	)		476

Net balances due to Global Indemnity Reinsurance under this agreement are as follows:


(Dollars in thousands)	September 30, 2016			December 31, 2015
Net payable balance	$	(114	)	$	(110	)

9.	Commitments and Contingencies

Legal Proceedings

The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company maintains insurance and reinsurance coverage for such risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on its business, results of operations, cash flows, or financial condition.

There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’ have operations that are in runoff, and therefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business.

Commitments

During 2014, the Company entered into a $50 million commitment to purchase an alternative investment vehicle which is comprised of European non-performing loans. As of September 30, 2016, the Company has funded $28.0 million of this commitment leaving $22.0 million as unfunded.

In June, 2016, the Company entered into a $40 million commitment with an investment manager that provides financing for middle market companies. Typical financing arrangements are used for growth, acquisitions, or buyouts. This investment vehicle targets companies with $10 - $50 million in earnings before interest, taxes, depreciation, and amortization. As of September 30, 2016, the Company has funded $18.9 million of this commitment leaving $21.1 million as unfunded. Of the $18.9 million funded, $16.3 million and $2.6 million, respectively, was invested in middle market corporate debt and three separate equity investments in limited liability companies.

10.

Share-Based Compensation Plans

Options

No stock options were awarded during the quarters ended September 30, 2016 and 2015. No unvested stock options were forfeited during the quarters ended September 30, 2016 and 2015.

GLOBAL INDEMNITY PLC

The Company did not award any stock options during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company awarded 200,000 stock options with a strike price of $28.37 which were subsequently forfeited during the nine months ended September 30, 2016. No unvested stock options were forfeited during the nine months ended September 30, 2015.

Restricted Shares

No restricted shares were issued to employees during the quarters ended September 30, 2016 and 2015.

During the nine months ended September 30, 2016, the Company granted 121,346 A ordinary shares, with a weighted average grant date value of $28.97 per share, to key employees under the Plan. Of the shares granted during the nine months ended September 30, 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 were granted to another key employee and vest 100% on February 7, 2019. 8,253 were issued 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%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the grant, respectively.

•

50% of granted stock vests 100% on the third anniversary of the grant subject to a true-up of bonus year underwriting results and are subject to Board approval.

During the nine months ended September 30, 2015, the Company issued 138,507 A ordinary shares, with a weighted average grant date value of $28.37 per share, to key employees under the Plan.

Of the shares granted during the nine months ended September 30, 2015, 10,574 were granted to the Company’s Chief Executive Officer and vest 33 1/3 on each subsequent anniversary date of the grant for a period of three years subject to an accident year true-up of bonus year underwriting results as of the third anniversary of the grant and an additional 44,058 were granted to the Company’s Chief Executive Officer and other key employees which vest 100% on January 1, 2018. The remaining 83,875 shares were granted to key employees and will vest as follows:

•

16.5%, 16.5%, and 17.0% of the granted stock vest on the first, second, and third anniversary of the grant, respectively.

•

50% of granted stock vests 100% on the third anniversary of the grant subject to a true-up of bonus year underwriting results and are subject to Board approval.

During the quarters ended September 30, 2016 and 2015, the Company issued 8,802 and 9,392 A ordinary shares, respectively, at a weighted average grant date value of $29.70 and $26.17 per share, respectively, to non-employee directors of the Company under the Plan. During the nine months ended September 30, 2016 and 2015, the Company issued 28,416 and 27,437 A ordinary shares, respectively, at a weighted average grant date value of $29.40 and $27.31 per share, respectively, to non-employee directors of the Company under the Plan. All of the shares issued to non-employee directors of the Company in 2016 and 2015 were fully vested but subject to certain restrictions.

11.

Earnings Per Share

Earnings per share have been computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during the period.

GLOBAL INDEMNITY PLC

The following table sets forth the computation of basic and diluted earnings per share:


(Dollars in thousands,	Quarters Ended September 30,					Nine Months Ended September 30,
except share and per share data)	2016		2015			2016		2015
Net income (loss)	$	9,535	$	(3,746	)	$	11,495	$	14,165

Basic earnings per share:
Weighted average shares outstanding – basic		17,254,843		25,463,994			17,241,040		25,452,991

Net income (loss) per share	$	0.55	$	(0.15	)	$	0.67	$	0.56

Diluted earnings per share:
Weighted average shares outstanding – diluted (1)		17,540,060		25,463,994			17,515,854		25,684,931

Net income (loss) per share	$	0.54	$	(0.15	)	$	0 .66	$	0.55

(1)

For the quarter ended September 30, 2015, “weighted average shares outstanding – basic” was used to calculate “diluted earnings per share” due to a net loss for the period.

A reconciliation of weighted average shares for basic earnings per share to weighted average shares for diluted earnings per share is as follows:


	Quarters Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Weighted average shares for basic earnings per share		17,254,843		25,463,994		17,241,040		25,452,991
Non-vested restricted stock		176,087		—		165,011		128,942
Options		109,130		—		109,803		102,998

Weighted average shares for diluted earnings per share		17,540,060		25,463,994		17,515,854		25,684,931

If the Company had not incurred a loss in the quarter ended September 30, 2015, 25,704,931 weighted average shares would have been used to compute the diluted loss per share calculation. In addition to the basic shares, weighted average shares for the diluted calculation would have included 138,261 shares of non-vested restricted stock and 102,676 share equivalents for options.

The weighted average shares outstanding used to determine dilutive earnings per share for the quarters ended September 30, 2016 and 2015 do not include 300,000 and 512,500 options, respectively, which were deemed to be anti-dilutive. The weighted average shares outstanding used to determine dilutive earnings per share for the nine months ended September 30, 2016 and 2015 do not include 300,000 and 512,500 options, respectively, which were deemed to be anti-dilutive.

The following table summarizes options which are deemed to be anti-dilutive at September 30, 2016:


Grant Date	Expiration Date	Outstanding Options		Strike Price
February 9, 2014	February 10, 2024		300,000	$	32.38

			300,000

12.

Segment Information

The Company manages its business through three business segments: Commercial Lines, managed in Bala Cynwyd, Pennsylvania, offers specialty property and casualty products designed for product lines such as Small Business Binding Authority, Property Brokerage, and Programs. Personal Lines, managed in Scottsdale, Arizona, offers specialty personal lines and agricultural coverage. Reinsurance Operations, managed in Bermuda, provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies.

GLOBAL INDEMNITY PLC

Going forward, any business previously written by United National Specialty Insurance Company has been and will be written by other companies within the Company’s U.S. Insurance Operations.

The following are tabulations of business segment information for the quarters and nine months ended September 30, 2016 and 2015.


Quarter Ended September 30, 2016: (Dollars in thousands)	Commercial Lines (1)			Personal Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	50,214		$	73,557	(6)	$	9,798		$	133,569

Net premiums written	$	45,754		$	59,499		$	9,798		$	115,051

Net premiums earned	$	48,179		$	60,816		$	10,558		$	119,553
Other income (loss)		7,031			832			(11	)		7,852

Total revenues		55,210			61,648			10,547			127,405

Losses and Expenses:
Net losses and loss adjustment expenses		23,887			42,888			5,387			72,162
Acquisition costs and other underwriting expenses		19,362	(3)		25,097	(4)		3,670			48,129

Income (loss) from segments	$	11,961		$	(6,337	)	$	1,490		$	7,114

Unallocated Items:
Net investment income											8,795
Net realized investment gains											1,928
Corporate and other operating expenses											(5,006	)
Interest expense											(2,233	)

Income before income taxes											10,598
Income tax expense											(1,063	)

Net income											9,535

Total assets	$	757,267		$	512,190		$	712,358	(5)	$	1,981,815

(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 $132 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Includes federal excise tax of $304 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 $7,328 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement.

GLOBAL INDEMNITY PLC


Quarter Ended September 30, 2015: (Dollars in thousands)	Commercial Lines (1)			Personal Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	52,920		$	87,349	(6)	$	9,879		$	150,148

Net premiums written	$	49,325		$	63,302		$	9,870		$	122,497

Net premiums earned	$	48,916		$	62,132		$	13,659		$	124,707
Other income (loss)		102			1,188			(11	)		1,279

Total revenues		49,018			63,320			13,648			125,986

Losses and Expenses:
Net losses and loss adjustment expenses		22,832			48,899			5,960			77,691
Acquisition costs and other underwriting expenses		20,686	(3)		25,779	(4)		4,469			50,934

Income (loss) from segments	$	5,500		$	(11,358	)	$	3,219		$	(2,639	)

Unallocated Items:
Net investment income											8,852
Net realized investment losses											(10,778	)
Corporate and other operating expenses											(3,567	)
Interest expense											(1,595	)

Loss before income taxes											(9,727	)
Income tax benefit											5,981

Net loss											(3,746	)

Total assets	$	1,005,435		$	572,807		$	740,377	(5)	$	2,318,619

(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 $258 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Includes federal excise tax of $310 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 $18,749 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement.


Nine Months Ended September 30, 2016: (Dollars in thousands)	Commercial Lines (1)			Personal Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	157,335		$	236,978	(6)	$	34,941		$	429,254

Net premiums written	$	141,764		$	180,542		$	34,927		$	357,233

Net premiums earned	$	143,699		$	183,631		$	31,663		$	358,993
Other income		7,354			2,232			17			9,603

Total revenues		151,053			185,863			31,680			368,596

Losses and Expenses:
Net losses and loss adjustment expenses		78,605			122,748			13,704			215,057
Acquisition costs and other underwriting expenses		58,752	(3)		78,381	(4)		11,628			148,761

Income (loss) from segments	$	13,696		$	(15,266	)	$	6,348		$	4,778

Unallocated Items:
Net investment income											25,103
Net realized investment losses											(9,057	)
Corporate and other operating expenses											(13,064	)
Interest expense											(6,677	)

Income before income taxes											1,083
Income tax benefit											10,412

Net income											11,495

Total assets	$	757,267		$	512,190		$	712,358	(5)	$	1,981,815

(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 $391 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Includes federal excise tax of $918 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 $30,910 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement.

GLOBAL INDEMNITY PLC


Nine Months Ended September 30, 2015: (Dollars in thousands)	Commercial Lines (1)			Personal Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	161,746		$	249,564	(6)	$	48,222		$	459,532

Net premiums written	$	149,647		$	196,785		$	48,174		$	394,606

Net premiums earned	$	149,244		$	191,472		$	40,205		$	380,921
Other income (loss)		420			2,065			(77	)		2,408

Total revenues		149,664			193,537			40,128			383,329

Losses and Expenses:
Net losses and loss adjustment expenses		82,474			129,997			14,399			226,870
Acquisition costs and other underwriting expenses		61,317	(3)		74,590	(4)		14,211			150,118

Income (loss) from segments	$	5,873		$	(11,050	)	$	11,518		$	6,341

Unallocated Items:
Net investment income											26,234
Net realized investment losses											(7,216	)
Corporate and other operating expenses											(19,441	)
Interest expense											(2,635	)

Income before income taxes											3,283
Income tax benefit											10,882

Net income											14,165

Total assets	$	1,005,435		$	572,807		$	740,377	(5)	$	2,318,619

(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 $787 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Includes federal excise tax of $957 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 $41,749 of business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement.

13.

New Accounting Pronouncements

The following are new accounting guidance issued in 2016 which have not yet been adopted.

In August 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance regarding the classification of certain cash receipts and cash payments within the statement 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.

In June, 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance surrounding the measurement of credit losses on financial instruments. For assets held at amortized cost basis, the new guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of information for credit loss estimates. For available for sale debt securities, credit losses should 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. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application of this new guidance is permitted as of the fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. The Company is still evaluating the impact of this guidance on its financial condition, results of operations, and cash flows.

In March, 2016, the FASB issued new accounting guidance surrounding stock compensation. The new guidance simplifies several aspects of the accounting for share-based payment, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for public entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods. 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.

GLOBAL INDEMNITY PLC

In February, 2016, the FASB issued new accounting guidance regarding leases. The new guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance 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. 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.

In January, 2016, the FASB issued new accounting guidance surrounding the accounting for financial instruments. The new guidance addresses certain aspects 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 value with the changes in fair value recognized in net income. It also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. This guidance is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application of this new guidance is permitted as of the beginning of the fiscal year of adoption. The Company is still evaluating the impact of this guidance on its financial condition, results of operations, and cash flows.

In 2016, the FASB issued several new accounting pronouncements which provided clarification to existing guidance surrounding revenue from contracts with customers. Long and short duration insurance contracts, which comprise the majority of the Company’s revenues, are excluded from this accounting guidance. This guidance is effective for public 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. 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.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes of Global Indemnity included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to the Company’s plans and strategy, constitutes forward-looking statements that involve risks and uncertainties. Please see “Cautionary Note Regarding Forward-Looking Statements” at the end of this Item 2 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein. For more information regarding the Company’s business and operations, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Recent Developments

James W. Crystal and Larry N. Port resigned from the Company’s Board of Directors effective July 24, 2016 and July 28, 2016, respectively.

On June 20, 2016, the Company announced that its Board of Directors has unanimously approved a plan to re-domicile 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 general meeting of its shareholders. The proposals submitted to a vote of the shareholders at the meetings are described in detail in the Company’s proxy statement filed on July 15, 2016. All resolutions required to effectuate the re-domestication were approved by the requisite shareholder vote. On October 21,

GLOBAL INDEMNITY PLC

2016, the High Court of Ireland sanctioned Global Indemnity plc’s scheme of arrangement related to the re-domestication from Ireland to Cayman Islands. A Cayman Islands exempted company, Global Indemnity Limited, will replace Global Indemnity plc as the ultimate holding company of the Global Indemnity group of companies. The Company does not expect the re-domestication will have any material impact on its financial results, including the Company’s global effective tax rate. The Company expects to complete the re-domestication during the week of November 7, 2016.

The Company believes that the Cayman Islands offers a business friendly regulatory environment and a predictable legal framework that simultaneously provides both corporate certainty and shareholder protections, presents a flexible and stable legal and corporate governance framework, which allows a company’s Board of Directors latitude to exercise its judgment in what it deems to be in the best interests of the company and offers a beneficial tax regime.

Upon implementation of the move to the Cayman Islands, each Company A ordinary share will be cancelled and replaced with one A ordinary share of Global Indemnity Limited and each Company B ordinary share will be cancelled and replaced with one B ordinary share of Global Indemnity Limited. The Company intends that the Global Indemnity Limited A ordinary shares will trade on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol GBLI, the same symbol under which the Company’s A ordinary shares are currently listed. The Company intends that Global Indemnity Limited will be subject to U.S. Securities and Exchange Commission reporting requirements, the mandates of the U.S. Sarbanes-Oxley Act and the corporate governance rules of NASDAQ. The Company will report its consolidated financial results in U.S. dollars and under U.S. generally accepted accounting principles.

For additional information on the proposed re-domestication, see the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 15, 2016.

Overview

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 classifications. These product classifications are: 1) Penn-America, which includes property and general liability products for small commercial businesses distributed through a select network of wholesale general agents with specific binding authority; 2) United National, which includes property, general liability, and professional lines products distributed through program administrators with specific binding authority; and 3) Diamond State, which includes property, casualty, and professional lines products distributed through wholesale brokers and program administrators with specific binding authority.

The Company’s Personal Lines segment, via American Reliable, offers specialty personal lines and agricultural coverage through a group of approximately 285 agents, primarily comprised of wholesale general agents, with specific binding authority in the admitted marketplace.

The Company’s Reinsurance Operations consisting solely of the operations of Global Indemnity Reinsurance, provides reinsurance solutions through brokers and on a direct basis. Global Indemnity Reinsurance is a Bermuda based treaty reinsurer for specialty property and casualty insurance and reinsurance companies. Global Indemnity Reinsurance conducts business in Bermuda and is focused on using its capital capacity to write catastrophe-oriented placements and other niche or specialty-focused treaties meeting the Company’s risk tolerance and return thresholds.

The Company derives its revenues primarily from premiums paid on insurance policies that it writes and from income generated by its investment portfolio, net of fees paid for investment management services. The amount of insurance premiums that the Company receives is a function of the amount and type of policies it writes, as well as prevailing market prices.

GLOBAL INDEMNITY PLC

The Company’s expenses include losses and loss adjustment expenses, acquisition costs and other underwriting expenses, corporate and other operating expenses, interest, investment expenses, and income taxes. Losses and loss adjustment expenses are estimated by management and reflect the Company’s best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates. The Company records its best estimate of losses and loss adjustment expenses considering both internal and external actuarial analyses of the estimated losses the Company expects to incur on the insurance policies it writes. The ultimate losses and loss adjustment expenses will depend on the actual costs to resolve claims. Acquisition costs consist principally of commissions and premium taxes that are typically a percentage of the premiums on the insurance policies the Company writes, net of ceding commissions earned from reinsurers. Other underwriting expenses consist primarily of personnel expenses and general operating expenses related to underwriting activities. Corporate and other operating expenses are comprised primarily of outside legal fees, other professional and accounting fees, directors’ fees, management fees and salaries and benefits for company personnel whose services relate to the support of corporate activities. Interest expense is primarily comprised of amounts due on outstanding debt.

Critical Accounting Estimates and Policies

The Company’s consolidated financial statements are prepared in conformity with GAAP, which require it to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.

The most critical accounting policies involve significant estimates and include those used in determining the liability for unpaid losses and loss adjustment expenses, recoverability of reinsurance receivables, investments, fair value measurements, goodwill and intangible assets, deferred acquisition costs, and taxation. For a detailed discussion on each of these policies, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There have been no significant changes to any of these policies during the current year.

GLOBAL INDEMNITY PLC

Results of Operations

The following table summarizes the Company’s results for the three and nine months ended September 30, 2016 and 2015:


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016			2015			Change			2016			2015			Change
Gross premiums written	$	133,569		$	150,148			(11.0	%)	$	429,254		$	459,532			(6.6	%)

Net premiums written	$	115,051		$	122,497			(6.1	%)	$	357,233		$	394,606			(9.5	%)

Net premiums earned	$	119,553		$	124,707			(4.1	%)	$	358,993		$	380,921			(5.8	%)
Other income		7,852			1,279			513.9	%		9,603			2,408			298.8	%

Total revenues		127,405			125,986			1.1	%		368,596			383,329			(3.8	%)
Losses and expenses:
Net losses and loss adjustment expenses		72,162			77,691			(7.1	%)		215,057			226,870			(5.2	%)
Acquisition costs and other underwriting expenses		48,129			50,934			(5.5	%)		148,761			150,118			(0.9	%)

Underwriting income (loss)		7,114			(2,639	)		369.6	%		4,778			6,341			(24.6	%)
Net investment income		8,795			8,852			(0.6	%)		25,103			26,234			(4.3	%)
Net realized investment gains (losses)		1,928			(10,778	)		117.9	%		(9,057	)		(7,216	)		(25.5	%)
Corporate and other operating expenses		(5,006	)		(3,567	)		40.3	%		(13,064	)		(19,441	)		(32.8	%)
Interest expense		(2,233	)		(1,595	)		40.0	%		(6,677	)		(2,635	)		153.4	%

Income (loss) before income taxes		10,598			(9,727	)		209.0	%		1,083			3,283			(67.0	%)
Income tax (expense) benefit		(1,063	)		5,981			(117.8	%)		10,412			10,882			4.3	%

Net income (loss)	$	9,535		$	(3,746	)		354.5	%	$	11,495		$	14,165			(18.8	%)

Underwriting Ratios:
Loss ratio (1):		60.3	%		62.3	%					59.9	%		59.6	%
Expense ratio (2)		40.3	%		40.8	%					41.4	%		39.4	%

Combined ratio (3)		100.6	%		103.1	%					101.3	%		99.0	%

(1)	The loss ratio is a GAAP financial measure that is generally viewed in the insurance industry as an indicator of underwriting profitability and is calculated by dividing net losses and loss adjustment expenses by net 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 net premiums earned.

(3)	The combined ratio is a GAAP financial measure and is the sum of the Company’s loss and expense ratios.

GLOBAL INDEMNITY PLC

Premiums

The following table summarizes the change in premium volume by business segment:


	Quarters Ended September 30,				%			Nine Months Ended September 30,				%
(Dollars in thousands)	2016		2015		Change			2016		2015		Change
Gross premiums written (1)
Personal Lines (3) (4)	$	73,557	$	87,349		(15.8	%)	$	236,978	$	249,564		(5.0	%)
Commercial Lines (4)		50,214		52,920		(5.1	%)		157,335		161,746		(2.7	%)
Reinsurance (5)		9,798		9,879		(0.8	%)		34,941		48,222		(27.5	%)

Total gross premiums written	$	133,569	$	150,148		(11.0	%)	$	429,254	$	459,532		(6.6	%)

Ceded premiums written
Personal Lines (4)	$	14,058	$	24,047		(41.5	%)	$	56,436	$	52,779		6.9	%
Commercial Lines (4)		4,460		3,595		24.1	%		15,571		12,099		28.7	%
Reinsurance (5)		—		9		(100.0	%)		14		48		(70.8	%)

Total ceded premiums written	$	18,518	$	27,651		(33.0	%)	$	72,021	$	64,926		10.9	%

Net premiums written (2)
Personal Lines (4)	$	59,499	$	63,302		(6.0	%)	$	180,542	$	196,785		(8.3	%)
Commercial Lines (4)		45,754		49,325		(7.2	%)		141,764		149,647		(5.3	%)
Reinsurance (5)		9,798		9,870		(0.7	%)		34,927		48,174		(27.5	%)

Total net premiums written	$	115,051	$	122,497		(6.1	%)	$	357,233	$	394,606		(9.5	%)

Net premiums earned
Personal Lines (4)	$	60,816	$	62,132		(2.1	%)	$	183,631	$	191,472		(4.1	%)
Commercial Lines (4)		48,179		48,916		(1.5	%)		143,699		149,244		(3.7	%)
Reinsurance (5)		10,558		13,659		(22.7	%)		31,663		40,205		(21.2	%)

Total net premiums earned	$	119,553	$	124,707		(4.1	%)	$	358,993	$	380,921		(5.8	%)

(1)	Gross premiums written represent the amount received or to be received for insurance policies written without reduction for reinsurance costs or other 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 reinsurance agreement of $7,328 and $18,749 during the quarters ended September 30, 2016 and 2015, respectively, and $30,910 and $41,749 during the nine months ended September 30, 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 11.0% and 6.6% for the quarter and nine months ended September 30, 2016, respectively, as compared to same periods in 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 $7.3 million and $18.7 million for the quarters ended September 30, 2016 and 2015, respectively and $30.9 million and $41.7 million for the nine months ended September 30, 2016 and 2015, respectively. Excluding the business that is ceded 100% to insurance entities owned by Assurant, gross premiums written decreased by 3.9% and 4.7% for the quarter and nine months ended September 30, 2016, respectively, as compared to same periods in 2015. The decline is mainly due to one of the treaties within the Reinsurance Operations being non-renewed in 2016 in an effort to reduce catastrophe exposure. In addition, there was some slight reduction of premiums within both Commercial Lines and Personal Line primarily due to non-renewing unprofitable business and limiting catastrophe exposure in certain areas.

GLOBAL INDEMNITY PLC

Net Retention

The ratio of net premiums written to gross premiums written is referred to as the Company’s net premium retention. The Company’s net premium retention is summarized by segments as follows:


	Quarters Ended September 30,									Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			Change			2016			2015			Change
Personal Lines (1)		89.8	%		92.3	%		(2.5	)		87.6	%		94.7	%		(7.1	)
Commercial Lines		91.1	%		93.2	%		(2.1	)		90.1	%		92.5	%		(2.4	)
Reinsurance		100.0	%		99.9	%		0.1			100.0	%		99.9	%		0.1

Total (1)		91.1	%		93.2	%		(2.1	)		89.7	%		94.5	%		(4.8	)

(1)

Excludes business written by American Reliable that is ceded to insurance companies owned by Assurant under a 100% quota share reinsurance agreement of $7.3 million and $18.7 million during the quarters ended September 30, 2016 and 2015, respectively, and $30.9 million and $41.7 million during the nine months ended September 30, 2016 and 2015, respectively.

The net premium retention for the Personal Lines segment for the quarter and nine months ended September 30, 2016 decreased by 2.5 points and 7.1 points, respectively, as compared to the same period in 2015. The reduction in the Personal Lines’ retention rate for the quarter was primarily due to the quota share arrangement that was put in place during the second quarter of 2016. The reduction in the Personal Lines’ retention rate for the nine months ended September 30, 2016 was primarily due to an increase in catastrophe reinsurance as well as the quota share arrangement that was put in place during the second quarter of 2016.

The net premium retention for the Commercial Lines segment for the quarter and nine months ended September 30, 2016 decreased by 2.1 points and 2.4 points, respectively, as compared to the same period in 2015 primarily due to ceding more premiums in an effort to reduce exposure to catastrophes and large losses.

Net Premiums earned

Net premiums earned within the Personal Lines segment decreased by 2.1% and 4.1% for the quarter and nine months ended September 30, 2016, respectively, as compared to the same period in 2015. Property net premiums earned were $50.6 million and $52.7 million for the quarter ended September 30, 2016 and 2015, respectively, and $153.8 million and $164.0 million for the nine months ended September 30, 2016 and 2015, respectively. Casualty net premiums earned were $10.2 million and $9.4 million for the quarter ended September 30, 2016 and 2015, respectively, and $29.8 million and $27.5 million for the nine months ended September 30, 2016 and 2015, respectively.

Net premiums earned within the Commercial Lines segment decreased by 1.5% and 3.7% for the quarter and nine months ended September 30, 2016, respectively, as compared to the same period in 2015. The decline in net premiums earned was primarily due to decreasing the Company’s property retention, additional property excess of loss reinsurance was purchased, and a slight reduction in gross premiums written. Property net premiums earned were $27.4 million and $28.5 million for the quarter ended September 30, 2016 and 2015, respectively, and $82.9 million and $89.7 million for the nine months ended September 30, 2016 and 2015, respectively. Casualty net premiums earned were $20.8 million and $20.4 million for the quarter ended September 30, 2016 and 2015, respectively, and $60.8 million and $59.6 million for the nine months ended September 30, 2016 and 2015, respectively.

Net premiums earned within the Reinsurance Operations segment decreased by 22.7% and 21.2% for the quarter and nine months ended September 30, 2016, respectively, as compared to the same period in 2015. The decline in net premiums earned was primarily due to one treaty being non-renewed in 2016 in an effort to reduce catastrophe exposure. Property net premiums earned were $9.5 million and $12.5 million for the quarter ended September 30, 2016 and 2015, respectively, and $28.9 million and $38.3 million for the nine months ended September 30, 2016 and 2015, respectively. Casualty net premiums earned were $1.0 million and $1.1 million for the quarter ended September 30, 2016 and 2015, respectively, and $2.8 million and $1.9 million for the nine months ended September 30, 2016 and 2015, respectively.

GLOBAL INDEMNITY PLC

Reserves

Management’s best estimate at September 30, 2016 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 $664.4 million and $561.6 million, respectively, as of September 30, 2016. 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 September 30, 2016 is as follows:


	Gross Reserves
(Dollars in thousands)	Case		IBNR (1)		Total
Commercial Lines	$	130,965	$	362,678	$	493,643
Personal Lines		36,359		66,398		102,757
Reinsurance Operations		18,139		49,843		67,982

Total	$	185,463	$	478,919	$	664,382


	Net Reserves (2)
(Dollars in thousands)	Case		IBNR (1)		Total
Commercial Lines	$	102,594	$	301,873	$	404,467
Personal Lines		32,030		57,445		89,475
Reinsurance Operations		18,139		49,552		67,691

Total	$	152,763	$	408,870	$	561,633

(1)

Losses incurred but not reported, including the expected future emergence of case reserves.

(2)

Does not include reinsurance receivable on paid losses.

Each reserve category has an implicit frequency and severity for each accident year as a result of the various assumptions made. If the actual levels of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management’s best estimate. For most of its reserve categories, the Company believes that frequency can be predicted with greater accuracy than severity. Therefore, the Company believes management’s best estimate is more likely influenced by changes in severity than frequency. The following table, which the Company believes reflects a reasonable range of variability around its best estimate based on historical loss experience and management’s judgment, reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on the Company’s current accident year net loss estimate of $240.0 million for claims occurring during the nine months ended September 30, 2016:


			Severity Change
(Dollars in thousands)			-10%			-5%			0%			5%			10%
Frequency Change	-5	%	$	(34,800	)	$	(23,400	)	$	(12,000	)	$	(600	)		10,800
	-3	%		(30,480	)		(18,840	)		(7,200	)		4,440			16,080
	-2	%		(28,320	)		(16,560	)		(4,800	)		6,960			18,720
	-1	%		(26,160	)		(14,280	)		(2,400	)		9,480			21,360
	0	%		(24,000	)		(12,000	)		—			12,000			24,000
	1	%		(21,840	)		(9,720	)		2,400			14,520			26,640
	2	%		(19,680	)		(7,440	)		4,800			17,040			29,280
	3	%		(17,520	)		(5,160	)		7,200			19,560			31,920
	5	%		(13,200	)		(600	)		12,000			24,600			37,200

The Company’s net reserves for losses and loss adjustment expenses of $561.6 million as of September 30, 2016 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.

GLOBAL INDEMNITY PLC

Underwriting Results

The following table compares the Company’s combined ratios by segment:


	Quarters Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Personal Lines		111.8	%		120.2	%		109.5	%		106.9	%
Commercial Lines		89.8	%		89.0	%		95.6	%		96.3	%
Reinsurance		85.8	%		76.3	%		80.0	%		71.1	%

Total		100.6	%		103.1	%		101.3	%		99.0	%

Personal Lines

The components of income from the Company’s Personal Lines segment and corresponding underwriting ratios are as follows:


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016 (3)			2015 (3)			Change			2016 (3)			2015 (3)			Change
Gross premiums written (1)	$	73,557		$	87,349			(15.8	%)	$	236,978		$	249,564			(5.0	%)

Net premiums written	$	59,499		$	63,302			(6.0	%)	$	180,542		$	196,785			(8.3	%)

Net premiums earned	$	60,816		$	62,132			(2.1	%)	$	183,631		$	191,472			(4.1	%)
Other income		832			1,188			(30.0	%)		2,232			2,065			8.1	%

Total revenues		61,648			63,320			(2.6	%)		185,863			193,537			(4.0	%)
Losses and expenses:
Net losses and loss adjustment expenses		42,888			48,899			(12.3	%)		122,748			129,997			(5.6	%)
Acquisition costs and other underwriting expenses (2)		25,097			25,779			(2.6	%)		78,381			74,590			5.1	%

Underwriting income (loss)	$	(6,337	)	$	(11,358	)		(44.2	%)	$	(15,266	)	$	(11,050	)		38.2	%

Underwriting Ratios:
Loss ratio:
Current accident year		70.5	%		78.7	%					66.8	%		67.9	%
Prior accident year		0.0	%		0.0	%					0.0	%		0.0	%

Calendar year loss ratio		70.5	%		78.7	%					66.8	%		67.9	%
Expense ratio		41.3	%		41.5	%					42.7	%		39.0	%

Combined ratio		111.8	%		120.2	%					109.5	%		106.9	%

(1)

(2)

Includes excise tax related to cessions from the Company’s Personal Lines to its Reinsurance Operations of $304 and $310 for the quarters ended September 30, 2016 and 2015, respectively, and $918 and $957 for the nine months ended September 30, 2016 and 2015, respectively.

(3)

Includes business ceded to the Company’s Reinsurance Operations.

Premiums

See “Result of Operations” above for a discussion on premiums.

Other Income

Other income was $0.8 million and $1.2 million for the quarters ended September 30, 2016 and 2015, respectively, and $2.2 million and $2.1 million for the nine months ended September 30, 2016 and 2015, respectively. Other income is primarily comprised of fee income on installments, commission income and accrued interest on the anticipated indemnification of unpaid loss and loss adjustment expense reserves. In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., any variance paid related to the loss indemnification will be subject to interest of 5% compounded semi-annually.

GLOBAL INDEMNITY PLC

Loss Ratio

The current accident year losses and loss ratio is summarized as follows:


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016			2015			Change			2016			2015			Change
Catastrophe	$	9,169		$	13,663			(32.9	%)	$	28,112		$	29,739			(5.5	%)
Non-catastrophe		33,719			35,236			(4.3	%)		94,636			100,258			(5.6	%)

Total accident year losses	$	42,888		$	48,899			(12.3	%)	$	122,748		$	129,997			(5.6	%)

Current accident year loss ratio:
Catastrophe		15.1	%		22.0	%					15.3	%		15.5	%
Non-catastrophe		55.4	%		56.7	%					51.5	%		52.4	%

Total accident year loss ratio		70.5	%		78.7	%					66.8	%		67.9	%

The current accident year catastrophe loss ratio improved by 6.9 points during the quarter ended September 30, 2016 as compared to same period in 2015 primarily due to the third quarter of 2015 being adversely impacted by the California wild fires which led to a much higher case incurred loss ratio in 2015 as compared to the current accident quarter at three months of development. While the quarter to date shows an improvement of 6.9 points, the nine months ended September 30, 2016 only improved by 0.2 points compared to the same period in 2015. This is mainly due to higher losses from convective storms in 2016 as opposed to 2015.

For the quarter and nine months ended September 30, 2016 and 2015, the Company had no changes to net prior accident year losses.

Expense Ratios

The expense ratio for the Company’s Personal Lines improved by 0.2 points from 41.5% for the quarter ended September 30, 2015 to 41.3% for the quarter ended September 30, 2016. The previous year’s expense ratio benefitted from a 1.7 point reduction due to the impact of accounting adjustments related to the purchase of American Reliable in 2015. The improvement in the expense ratio is due to efficiencies realized from the integration of American Reliable into the Company’s U.S. Insurance Operations.

The expense ratio increased 3.7 points from 39.0% for the nine months ended September 30, 2015 to 42.7% for the nine months ended September 30, 2016 primarily due to the reduction in earned premiums in 2016 as a result of the quota share arrangement and the 2015 expense ratio benefitting from accounting adjustments related to the purchase of American Reliable.

GLOBAL INDEMNITY PLC

Commercial Lines

The components of income from the Company’s Commercial Lines segment and corresponding underwriting ratios are as follows:


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016 (2)			2015 (2)			Change			2016 (2)			2015 (2)			Change
Gross premiums written	$	50,214		$	52,920			(5.1	%)	$	157,335		$	161,746			(2.7	%)

Net premiums written	$	45,754		$	49,325			(7.2	%)	$	141,764		$	149,647			(5.3	%)

Net premiums earned	$	48,179		$	48,916			(1.5	%)	$	143,699		$	149,244			(3.7	%)
Other income		7,031			102			NM			7,354			420			NM

Total revenues		55,210			49,018			12.6	%		151,053			149,664			0.9	%
Losses and expenses:
Net losses and loss adjustment expenses		23,887			22,832			4.6	%		78,605			82,474			(4.7	%)
Acquisition costs and other underwriting expenses (1)		19,362			20,686			(6.4	%)		58,752			61,317			(4.2	%)

Underwriting income (loss)	$	11,961		$	5,500			117.5	%	$	13,696		$	5,873			133.2	%

Underwriting Ratios:
Loss ratio:
Current accident year		63.1	%		61.6	%					67.8	%		63.9	%
Prior accident year		(13.5	%)		(14.9	%)					(13.1	%)		(8.7	%)

Calendar year loss ratio		49.6	%		46.7	%					54.7	%		55.2	%
Expense ratio		40.2	%		42.3	%					40.9	%		41.1	%

Combined ratio		89.8	%		89.0	%					95.6	%		96.3	%

NM – not meaningful

(1)

Includes excise tax related to cessions from the Company’s Commercial Lines to its Reinsurance Operations of $132 and $258 for the quarters ended September 30, 2016 and 2015, respectively, and $391 and $787 for the nine months ended September 30, 2016 and 2015, respectively.

(2)

Includes business ceded to the Company’s Reinsurance Operations.

GLOBAL INDEMNITY PLC

Reconciliation of non-GAAP financial measures and ratios

The table below reconciles the non-GAAP measures or ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP measure or ratio. The Company believes the non-GAAP measures or ratios are useful to investors when evaluating the Company’s underwriting performance as trends in 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.


	Quarter Ended September 30,												Nine Months Ended September 30,
	2016			2015			2016			2015			2016			2015			2016			2015
Property
Non catastrophe property losses and ratio excluding the effect of prior accident year (1)	$	12,580		$	14,884			45.9	%		52.2	%	$	43,932		$	41,899			53.0	%		46.7	%
%Effect of prior accident year		2,088			21			7.6	%		0.1	%		555			(1,012	)		0.7	%		(1.1	%)

Non catastrophe property losses and ratio (2)	$	14,668		$	14,905			53.5	%		52.3	%	$	44,487		$	40,887			53.7	%		45.6	%

Catastrophe losses and ratio excluding the effect of prior accident year (1)	$	2,596		$	509			9.5	%		1.8	%	$	13,591		$	10,917			16.4	%		12.2	%
Effect of prior accident year		(2	)		43			0.0	%		0.1	%		299			249			0.4	%		0.3	%

Catastrophe losses and ratio (2)	$	2,594		$	552			9.5	%		1.9	%	$	13,890		$	11,166			16.8	%		12.5	%

Total property losses and ratio excluding the effect of prior accident year (1)	$	15,176		$	15,393			55.4	%		54.0	%	$	57,523		$	52,816			69.4	%		58.9	%
Effect of prior accident year		2,086			64			7.6	%		0.2	%		854			(763	)		1.0	%		(0.9	%)

Total property losses and ratio (2)	$	17,262		$	15,457			63.0	%		54.2	%	$	58,377		$	52,053			70.4	%		58.0	%

Casualty
Total Casualty losses and ratio excluding the effect of prior accident year (1)	$	15,236		$	14,750			73.3	%		72.3	%	$	39,935		$	42,576			65.6	%		71.5	%
Effect of prior accident year		(8,611	)		(7,375	)		(41.4	%)		(36.1	%)		(19,706	)		(12,155	)		(32.4	%)		(20.4	%)

Total Casualty losses and ratio (2)	$	6,625		$	7,375			31.9	%		36.1	%	$	20,229		$	30,421			33.3	%		51.1	%

Total
Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1)	$	30,412		$	30,143			63.1	%		61.6	%	$	97,457		$	95,392			67.8	%		63.9	%
Effect of prior accident year		(6,525	)		(7,311	)		(13.5	%)		(14.9	%)		(18,852	)		(12,918	)		(13.1	%)		(8.7	%)

Total net losses and loss adjustment expense and total loss ratio (2)	$	23,887		$	22,832			49.6	%		46.7	%	$	78,605		$	82,474			54.7	%		55.2	%

(1)	Non-GAAP measure / ratio

(2)	Most directly comparable GAAP measure / ratio

Premiums

See “Result of Operations” above for a discussion on premiums.

Other Income

Other income was $7.0 million and $0.1 million for the quarters ended September 30, 2016 and 2015, respectively, and $7.4 million and $0.4 million for the nine months ended September 30, 2016 and 2015, respectively. For the quarter and nine months ended September 30, 2016, other income is primarily comprised of the net gain on the asset sale of the Company’s wholly owned subsidiary, United National Specialty Insurance Company of $6.9 million and fee income. For the quarter and nine months ended September 30, 2015, other income is primarily comprised of fee income.

GLOBAL INDEMNITY PLC

Loss Ratio

The current accident year losses and loss ratio is summarized as follows:


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016			2015			Change			2016			2015			Change
Property losses
Catastrophe	$	2,596		$	509			410.0	%	$	13,591		$	10,917			24.5	%
Non-catastrophe		12,580			14,884			(15.5	%)		43,932			41,899			4.9	%

Property losses		15,176			15,393			(1.4	%)		57,523			52,816			8.9	%
Casualty losses		15,236			14,750			3.3	%		39,934			42,576			(6.2	%)

Total accident year losses	$	30,412		$	30,143			0.9	%	$	97,457		$	95,392			2.2	%

Current accident year loss ratio:
Property
Catastrophe		9.5	%		1.8	%					16.4	%		12.2	%
Non-catastrophe		45.9	%		52.2	%					53.0	%		46.7	%

Property loss ratio		55.4	%		54.0	%					69.4	%		58.9	%
Casualty loss ratio		73.3	%		72.3	%					65.6	%		71.5	%

Total accident year loss ratio		63.1	%		61.6	%					67.8	%		63.9	%

The current accident year catastrophe loss ratio increased by 7.7 points and 4.2 point during the quarter and nine months ended September 30, 2016, respectively, as compared to the same period in 2015 primarily due to higher losses from convective storms in 2016 as opposed to 2015.

The current accident year non-catastrophe property loss ratio improved by 6.3 points during the quarter ended September 30, 2016 as compared to the same period in 2015. The third quarter of 2015 was adversely impacted by one large hotel fire loss in Florida. The decrease in the loss ratio also reflects a lower frequency and severity in the latest accident quarter compared to the same quarter last year.

The current accident year non-catastrophe property loss ratio increased by 6.3 points during the nine months ended September 30, 2016 as compared to the same period in 2015 which is mainly attributable to an increase in large property losses.

The current accident year casualty loss ratio improved by 5.9 points during the nine months ended September 30, 2016 as compared to the same period in 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 calendar year loss ratio for the quarter and nine months ended September 30, 2016 includes a decrease of $6.5 million, or 13.5 percentage points, and a decrease of $18.9 million, or 13.1 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and nine months ended September 30, 2015 includes a decrease of $7.3 million, or 14.9 percentage points and a decrease of $12.9 million, or 8.7 percentage points, respectively, related to reserve development on prior accident years. Please see Note 6 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.

Expense Ratios

The expense ratio for the Company’s Commercial Lines improved by 2.1 points from 42.3% for the quarter ended September 30, 2015 to 40.2% for the quarter ended September 30, 2016. The expense ratio improved 0.2 points from 41.1% for the nine months ended September 30, 2015 to 40.9% for the nine months ended September 30, 2016. The improvement in the expense ratio is primarily due to efficiencies realized from integration of American Reliable into the Company’s U.S. Insurance Operations.

GLOBAL INDEMNITY PLC

Reinsurance Operations

The components of income from the Company’s Reinsurance Operations segment and corresponding underwriting ratios are as follows:


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016 (1)			2015 (1)			Change			2016 (1)			2015 (1)			Change
Gross premiums written	$	9,798		$	9,879			(0.8	%)	$	34,941		$	48,222			(27.5	%)

Net premiums written	$	9,798		$	9,870			(0.7	%)	$	34,927		$	48,174			(27.5	%)

Net premiums earned	$	10,558		$	13,659			(22.7	%)	$	31,663		$	40,205			(21.2	%)
Other income		(11	)		(11	)		0.0	%		17			(77	)		(122.1	%)

Total revenues		10,547			13,648			(22.7	%)		31,680			40,128			(21.1	%)
Losses and expenses:
Net losses and loss adjustment expenses		5,387			5,960			(9.6	%)		13,704			14,399			(4.8	%)
Acquisition costs and other underwriting expenses		3,670			4,469			(17.9	%)		11,628			14,211			(18.2	%)

Underwriting income (loss)	$	1,490		$	3,219			(53.7	%)	$	6,348		$	11,518			(44.9	%)

Underwriting Ratios:
Loss ratio:
Current accident year		78.4	%		52.4	%					62.5	%		46.4	%
Prior accident year		(27.4	%)		(8.8	%)					(19.2	%)		(10.6	%)

Calendar year loss ratio		51.0	%		43.6	%					43.3	%		35.8	%
Expense ratio		34.8	%		32.7	%					36.7	%		35.3	%

Combined ratio		85.8	%		76.3	%					80.0	%		71.1	%

(1)

External business only, excluding business assumed from affiliates.

Reconciliation of non-GAAP financial measures and ratios


	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Loss ratio excluding the effect of prior accident year (1)		78.4	%		52.4	%		62.5	%		46.4	%
Effect of prior accident year		(27.4	%)		(8.8	%)		(19.2	%)		(10.6	%)

Loss ratio (2)		51.0	%		43.6	%		43.3	%		35.8	%

(1)	Non-GAAP measure / ratio

(2)	Most directly comparable GAAP measure / ratio

Premiums

See “Result of Operations” above for a discussion on premiums.

Other Income (Loss)

The Company recognized a loss of $0.01 million for both the quarters ended September 30, 2016 and 2015 and income of $0.02 million and a loss of $0.08 for the nine months ended September 30, 2016 and 2015, respectively. Other income (loss) is comprised of foreign exchange gains and losses.

GLOBAL INDEMNITY PLC

Loss Ratio

The current accident year loss ratio increased by 26.0 points and 16.1 points during the quarter and nine months ended September 30, 2016, respectively. This increase was mainly attributable to higher than expected case incurred emergence primarily from the Fort McMurray fires in 2016.

The calendar year loss ratio for the quarter and nine months ended September 30, 2016 includes a decrease of $2.9 million, or 27.4 percentage points, and a decrease of $6.1 million, or 19.2 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and nine months ended September 30, 2015 includes a decrease of $1.2 million, or 8.8 percentage points and a decrease of $4.3 million, or 10.6 percentage points, respectively, related to reserve development on prior accident years. Please see Note 6 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development.

Expense Ratio

The expense ratio for the Company’s Reinsurance Operations increased by 2.1 points from 32.7% for the quarter ended September 30, 2015 to 34.8% for the quarter ended September 30, 2016. The expense ratio increased 1.4 points from 35.3% for the nine months ended September 30, 2015 to 36.7% for the nine months ended September 30, 2016. The increase is primarily due to improvements in prior year losses resulting in higher contingent commissions due as well as a reduction in earned premiums.

Unallocated Corporate Items

Net Investment Income


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016			2015			Change			2016			2015			Change
Gross investment income (1)	$	9,782		$	9,601			1.9	%	$	29,293		$	28,722			2.0	%
Investment expenses		(987	)		(749	)		31.8	%		(4,190	)		(2,488	)		68.4	%

Net investment income	$	8,795		$	8,852			(0.6	%)	$	25,103		$	26,234			(4.3	%)

(1)

Excludes realized gains and losses

Gross investment income increased by 1.9% and 2.0% for the quarter and nine months ended September 30, 2016, respectively, as compared to the same periods in 2015. The increase was primarily due to the increase in income related to the Company’s limited partnership 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.

Investment expenses increased by 31.8% and 68.4% for the quarter and nine months ended September 30, 2016, respectively, as compared to the same periods in 2015. The increase is mainly attributable to higher investment fees related to a new investment in middle market corporate debt and equity investments in limited liability companies. See Note 9 of the notes to the consolidated financial statements in Item 1 of Part I of this report for additional information on the Company’s $40 million commitment related to this new investment.

At September 30, 2016, the Company held agency mortgage-backed securities with a market value of $76.1 million. Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 2.0 years as of September 30, 2016, compared with 2.1 years as of September 30, 2015. Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities, was 1.9 years as of September 30, 2016 and September 30, 2015. Changes in interest rates can cause principal payments on certain investments to extend or shorten which can impact duration. At September 30, 2016, the Company’s embedded book yield on its fixed maturities, not including cash, was 2.2% compared with 2.1% at September 30, 2015. The embedded book yield on the $170.7 million of municipal bonds in the Company’s portfolio, which includes $105.9 million of taxable municipal bonds, was 2.8% at September 30, 2016, compared to an embedded book yield of 2.7% on the Company’s municipal bond portfolio of $235.4 million at September 30, 2015.

GLOBAL INDEMNITY PLC

Net Realized Investment Gains (Losses)

The components of net realized investment gains (losses) for the quarters and six months ended June 30, 2016 and 2015 were as follows:


	Quarters Ended September 30,						%			Nine Months Ended September 30,						%
(Dollars in thousands)	2016			2015			Change			2016			2015			Change
Common stock		2,989			3,275			(8.7	%)		7,056			8,543			(17.4	%)
Fixed maturities		395			(1,341	)		129.5	%		1,162			16			7162.5	%
Interest rate swap		758			(8,071	)		109.4	%		(12,794	)		(8,896	)		(43.8	%)
Other than temporary impairment losses		(2,214	)		(4,641	)		(52.3	%)		(4,481	)		(6,879	)		34.9	%

Net realized investment gains (losses)		1,928			(10,778	)		117.9	%		(9,057	)		(7,216	)		25.5	%

See Note 2 of the notes to the consolidated financial statements in Item 1 of Part I of this report for an analysis of total investment return on a pre-tax basis for the quarters and nine months ended September 30, 2016 and 2015.

Corporate and Other Operating Expenses

Corporate and other operating expenses consist of outside legal fees, other professional fees, directors’ fees, management fees, salaries and benefits for holding company personnel, development costs for new products, and taxes incurred which are not directly related to operations. Corporate and other operating expenses were $5.0 million and $3.6 during the quarters ended September 30, 2016 and 2015, respectively. This increase is primarily due to cost incurred in connection with the re-domestication of $1.2 million in 2016. Corporate and other operating expenses were $13.1 million and $19.4 during the nine months ended September 30, 2016 and 2015, respectively. This decrease is primarily due to 2015 including cost incurred in connection with the American Reliable acquisition of $8.3 million; whereas, 2016 included cost incurred in connection with the re-domestication of $2.8 million.

Interest Expense

Interest expense increased 40.0% and 153.4% during the quarter and nine months ended September 30, 2016 as compared to the same periods in 2015. This increase 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. See Note 11 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 details on the Company’s debt.

Income Tax Benefit

The income tax expense was $1.1 million for the quarter ended September 30, 2016 compared with income tax benefit of $6.0 million for the quarter ended September 30, 2015. The increase in income tax expense is primarily due to capital gains and the gain on the sale of United National Specialty Insurance Company during the quarter ended September 30, 2015.

The income tax benefit was $10.4 million for the nine months ended September 30, 2016 compared with income tax benefit of $10.9 million for the quarter ended September 30, 2015.

See Note 6 of the notes to the consolidated financial statements in Item 1 of Part I of this report for a comparison of income tax between periods.

Net Income (Loss)

The factors described above resulted in a net income of $9.5 million and a net loss of $3.7 million for the quarter ended September 30, 2016 and 2015, respectively, and net income of $11.5 million and $14.2 million for the nine months ended September 30, 2016 and 2015, respectively.

GLOBAL INDEMNITY PLC

Liquidity and Capital Resources

Sources and Uses of Funds

Global Indemnity is a holding company. Its principal asset is its ownership of the shares of its direct and indirect subsidiaries, including those of its U.S. insurance companies: United National Insurance Company, Diamond State Insurance Company, Penn-America Insurance Company, Penn-Star Insurance Company, Penn-Patriot Insurance Company, and American Reliable Insurance Company; and its Reinsurance Operations: Global Indemnity Reinsurance.

The principal sources of cash that Global Indemnity requires to meet its short term and long term liquidity needs, including the payment of corporate expenses, debt service payments, and share repurchases includes dividends, other permitted disbursements from its direct and indirect subsidiaries, reimbursement for equity awards granted to employees and intercompany borrowings. The principal sources of funds at these direct and indirect subsidiaries include underwriting operations, investment income, and proceeds from sales and redemptions of investments. Funds are used principally by these operating subsidiaries to pay claims and operating expenses, to make debt payments, fund margin requirements on interest rate swap agreements, to purchase investments, and to make dividend payments. The future liquidity of Global Indemnity is dependent on the ability of its subsidiaries to pay dividends. On October 29, 2015, Global Indemnity acquired rights, expiring December 31, 2019, to redeem an additional 3,397,031 ordinary shares for $78.1 million, which is subject to an annual 3% increase. In addition, the Company has future funding commitments of $43.1 million related to investments. The timing of this commitment is uncertain. Other than the impact of this potential redemption and the Company’s future funding commitments related to investments, Global Indemnity has no commitments that could have a material impact on its short-term or long-term liquidity needs.

Global Indemnity’s U.S. insurance companies are restricted by statute as to the amount of dividends that they may pay without the prior approval of regulatory authorities. The dividend limitations imposed by state laws are based on the statutory financial results of each insurance company within the Insurance Operations that are determined by using statutory accounting practices that differ in various respects from accounting principles used in financial statements prepared in conformity with GAAP. See “Regulation—Statutory Accounting Principles” in Item 1 of Part I of the Company’s 2015 Annual Report on Form 10-K. Key differences relate to, among other items, deferred acquisition costs, limitations on deferred income taxes, reserve calculation assumptions and surplus notes. See Note 18 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 further information on dividend limitations related to the U.S. Insurance Companies. During the quarter and nine months ended September 30, 2016, United National Specialty Insurance Company paid a $12.0 million dividend to its parent company, Diamond State Insurance Company.

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. Global Indemnity Reinsurance is prohibited, without the approval of the Bermuda Monetary Authority (“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. See “Regulation—Bermuda Insurance Regulation” in Item 1 of Part I of the Company’s 2015 Annual Report on Form 10-K. Global Indemnity Reinsurance did not declare or pay any dividends during the quarter or nine months ended September 30, 2016.

Cash Flows

Sources of operating funds consist primarily of net premiums written and investment income. Funds are used primarily to pay claims and operating expenses and to purchase investments.

The Company’s reconciliation of net income to cash used for operations is generally influenced by the following:

•

the fact that the Company collects premiums, net of commissions, in advance of losses paid;

•

the timing of the Company’s settlements with its reinsurers; and

•

the timing of the Company’s loss payments.

GLOBAL INDEMNITY PLC

Net cash used for operating activities was $9.3 million and $1.2 million for the nine months ended September 30, 2016 and 2015, respectively. The decrease in operating cash flows of approximately $8.1 million from the prior year was primarily a net result of the following items:


	Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			Change
Net premiums collected	$	363,677		$	404,157		$	(40,480	)
Net losses paid		(223,580	)		(256,949	)		33,369
Underwriting and corporate expenses		(170,442	)		(181,893	)		11,451
Net investment income		27,840			35,057			(7,217	)
Net federal income taxes paid		(263	)		(94	)		(169	)
Interest paid		(6,578	)		(1,484	)		(5,094	)

Net cash used for operating activities	$	(9,346	)	$	(1,206	)	$	(8,140	)

The decline in net premiums collected of $40.5 million is primarily due to the settlement of a terminated quota share agreement between American Reliable and Bankers Atlantic Reinsurance Company.

See the consolidated statement of cash flows in the consolidated financial statements in Item 1 of Part I of this report for details concerning the Company’s investing and financing activities

Liquidity

Stop Loss Agreement, Quota Share Arrangements and Intercompany Pooling Arrangement

Global Indemnity’s U.S. insurance companies, excluding Personal Lines, and Global Indemnity Reinsurance participated in a stop loss agreement that provided protection to the U.S. insurance companies, excluding Personal Lines, in a loss corridor from 70% to 90% subject to certain restrictions. This agreement 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 Reinsurance whereby 50% of the net retained business of the U.S. insurance companies was ceded to Global Indemnity Reinsurance. Effective January 1, 2016, the cession percentage was lowered to 40% from 50%. These agreements exclude named storms. Global Indemnity Reinsurance is an unauthorized reinsurer. As a result, any losses and unearned premiums that are ceded to Global Indemnity Reinsurance by the U.S. insurance companies must be collateralized. To satisfy this requirement, Global Indemnity Reinsurance has set up custodial trust accounts on behalf of the U.S. insurance companies.

Location-Specific Quota Share

Effective May 1, 2016, the Company purchased a location specific quota share whereby 50% of the net retained underwriting results were ceded for certain states and business segments. Recoveries under the treaty are subject to a $100 million limit for a single property loss occurrence and $3 million for a single casualty loss occurrence. This treaty expires on May 1, 2017.

Other than the items discussed in the preceding paragraphs, there have been no material changes to the Company’s liquidity during the nine months ended September 30, 2016. Please see Item 7 of Part II in the Company’s 2015 Annual Report on Form 10-K for information regarding the Company’s liquidity.

Capital Resources

There have been no material changes to the Company’s capital resources during the nine months ended September 30, 2016. Please see Item 7 of Part II in the Company’s 2015 Annual Report on Form 10-K for information regarding the Company’s capital resources.

GLOBAL INDEMNITY PLC

Contractual Obligations

In June, 2016, the Company entered into a $40 million commitment with an investment manager that provides financing for middle market companies. As of September 30, 2016, the Company has funded $18.9 million of this commitment leaving $21.1 million as unfunded. Of the $18.9 million funded, $16.3 million and $2.6 million, respectively, was invested in middle market corporate debt and three separate equity investments in limited liability companies as of September 30, 2016.

Other than the item discussed in the preceding paragraph, there have been no material changes to the Company’s contractual obligations during the nine months ended September 30, 2016. Please see Item 7 of Part II in the Company’s 2015 Annual Report on Form 10-K for information regarding the Company’s contractual obligations.

Off Balance Sheet Arrangements

The Company has no off balance sheet arrangements.

Cautionary Note Regarding Forward-Looking Statements

Some of the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report may include forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934, as amended, that reflect the Company’s current views with respect to future events and financial performance. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “plan,” “seek,” “intend,” or “anticipate” or the negative thereof or comparable terminology, and include discussions of strategy, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives, expectations or consequences of identified transactions or natural disasters, and statements about the future performance, operations, products and services of the companies.

The Company’s business and operations are and will be subject to a variety of risks, uncertainties and other factors. Consequently, actual results and experience may materially differ from those contained in any forward-looking statements. See “Risk Factors” in Item 1A of Part I in the Company’s 2015 Annual Report on Form 10-K, as supplemented by the Company’s definitive proxy statement on Schedule 14A filed July 15, 2016, for risks, uncertainties and other factors that could cause actual results and experience to differ from those projected. The Company’s forward-looking statements speak only as of the date of this report or as of the date they were made. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Global equities posted positive results for the quarter ending 30 September 2016, as investors quickly put Brexit fears in the rearview mirror. Expectations for continued accommodative monetary policy from central banks around the globe helped to stoke investors’ risk appetites. In the United States, economic data releases during the quarter were mixed. US equities climbed for the fourth consecutive quarter, ending September with a 7.8% year-to-date advance. Within the S&P 500 Index, seven of the 11 sectors posted positive results.

Volatility across the major fixed income asset classes declined markedly in the third quarter as fears about the adverse consequences of Britain’s decision to leave the European Union subsided. Credit sectors more than fully recovered from their post-Brexit shock, as the negative impact on financial markets was much smaller than originally feared. While the policy paths of major central banks appeared to diverge during the quarter, expectations of an extended period of central bank policy accommodation amid sluggish global growth supported fixed income markets. Credit spreads tightened and the US dollar ended mixed versus its major counterparts.

The Company’s investment grade fixed income portfolio continues to maintain high quality with an AA- average rating and a low duration of 1.9 years. Portfolio purchases during the quarter were focused within U.S. corporate bonds. These purchases were funded primarily through maturities and paydowns. During the third quarter, the portfolio’s asset allocation was relatively unchanged.

There have been no other material changes to the Company’s market risk since December 31, 2015. Please see Item 7A of Part II in the Company’s 2015 Annual Report on Form 10-K for information regarding the Company’s market risk.

GLOBAL INDEMNITY PLC

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2016. Based upon that evaluation, and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2016, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II-OTHER INFORMATION

Item 1.

Legal Proceedings

The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company maintains insurance and reinsurance coverage for risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on its business, results of operations, cash flows, or financial condition.

Item 1A.

Risk Factors

The Company’s results of operations and financial condition are subject to numerous risks and uncertainties described in Item 1A of Part I in the Company’s 2015 Annual Report on Form 10-K, filed with the SEC on March 14, 2016, as supplemented by the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 15, 2016. The risk factors identified therein have not materially changed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s Share Incentive Plan allows employees to surrender the Company’s A ordinary shares as payment for the tax liability incurred upon the vesting of restricted stock that was issued under either the 2003 or 2014 Plan. There were no shares purchased from the Company’s employees during the quarter ended September 30, 2016. All A ordinary shares purchased from employees by the Company are held as treasury stock and recorded at cost.

Item 3. Defaults upon Senior Securities

None.

GLOBAL INDEMNITY PLC

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits



31.1+		Certification of Chief Executive Officer pursuant to Rule 13a-14 (a) / 15d-14 (a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+		Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) / 15d-14 (a) of the Securities Exchange Act of 1934, as amended, as adopted 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 plc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 formatted in XBRL: (i) Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015; (ii) Consolidated Statements of Operations for the quarters and nine months ended September 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2016 and 2015; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2016 and the year ended December 31, 2015; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements.

+	Filed or furnished herewith, as applicable.

GLOBAL INDEMNITY PLC

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	GLOBAL INDEMNITY PLC Registrant

November 4, 2016		By:	/s/ Thomas M. McGeehan
Date: November 4, 2016		Thomas M. McGeehan
		Chief Financial Officer
		(Authorized Signatory and Principal Financial and Accounting Officer)

Global Indemnity Group, LLC - FORM 10-Q - November 4, 2016

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