Edgar Filing: Global Indemnity plc

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2015

¨	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) 1 649 2000

(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 x 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 x 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.:

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

As of July 28, 2015, the registrant had outstanding 13,665,096 A Ordinary Shares and 12,061,370 B Ordinary Shares.

TABLE OF CONTENTS


		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements:

	Consolidated Balance Sheets
	As of June 30, 2015 (Unaudited) and December 31, 2014		2

	Consolidated Statements of Operations
	Quarters and Six Months Ended June 30, 2015 (Unaudited) and June 30, 2014 (Unaudited)		3

	Consolidated Statements of Comprehensive Income
	Quarters and Six Months Ended June 30, 2015 (Unaudited) and June 30, 2014 (Unaudited)		4

	Consolidated Statements of Changes in Shareholders’ Equity
	Six Months Ended June 30, 2015 (Unaudited) and Year Ended December 31, 2014		5

	Consolidated Statements of Cash Flows
	Six Months Ended June 30, 2015 (Unaudited) and June 30, 2014 (Unaudited)		6

	Notes to Consolidated Financial Statements (Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		75

Item 4.	Controls and Procedures		75

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		76

Item 1A.	Risk Factors		76

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		76

Item 3.	Defaults Upon Senior Securities		77

Item 4.	Mine Safety Disclosures		77

Item 5.	Other Information		77

Item 6.	Exhibits		77

Signature			78

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GLOBAL INDEMNITY PLC

Consolidated Balance Sheets

(In thousands, except share amounts)


	(Unaudited) June 30, 2015			December 31, 2014
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost: $1,541,284 and $1,272,948)	$	1,550,622		$	1,283,475
Equity securities:
Available for sale, at fair value (cost: $103,019 and $99,297)		121,238			122,048
Other invested assets:
Available for sale, at fair value (cost: $28,887 and $33,174)		31,176			33,663

Total investments		1,703,036			1,439,186
Cash and cash equivalents		66,286			58,823
Restricted cash		—			113,696
Premiums receivable, net		113,218			56,586
Reinsurance receivables, net		142,828			125,718
Funds held by ceding insurers		28,047			25,176
Federal income taxes receivable		4,669			3,139
Deferred federal income taxes		26,884			20,250
Deferred acquisition costs		52,378			25,238
Intangible assets		30,630			17,636
Goodwill		7,134			4,820
Prepaid reinsurance premiums		34,619			4,725
Receivable for securities sold		997			60
Other assets		49,732			34,980

Total assets	$	2,260,458		$	1,930,033

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses	$	769,299		$	675,472
Unearned premiums		295,334			120,815
Ceded balances payable		18,938			2,800
Contingent commissions		13,923			12,985
Margin borrowing facilities		187,407			174,673
Other liabilities		44,302			34,998

Total liabilities		1,329,203			1,021,743

Commitments and contingencies (Note 11)		—			—
Shareholders’ equity:
Ordinary shares, $0.0001 par value, 900,000,000 ordinary shares authorized; A ordinary shares issued: 16,741,806 and 16,331,577, respectively; A ordinary shares outstanding: 13,665,096 and 13,266,762 , respectively; B ordinary shares issued and outstanding: 12,061,370 and 12,061,370, respectively		3			3
Additional paid-in capital		528,259			519,590
Accumulated other comprehensive income, net of taxes		20,102			23,384
Retained earnings		484,628			466,717
A ordinary shares in treasury, at cost: 3,076,710 and 3,064,815 shares, respectively		(101,737	)		(101,404	)

Total shareholders’ equity		931,255			908,290

Total liabilities and shareholders’ equity	$	2,260,458		$	1,930,033

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 June 30,						(Unaudited) Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Gross premiums written	$	166,515		$	82,905		$	309,384		$	160,102

Net premiums written	$	146,005		$	76,372		$	272,109		$	149,233

Net premiums earned	$	128,877		$	66,017		$	256,214		$	133,561
Net investment income		9,141			7,677			17,382			15,961
Net realized investment gains:
Other than temporary impairment losses on investments		(1,898	)		(37	)		(2,238	)		(62	)
Other net realized investment gains		8,430			39,918			5,800			39,130

Total net realized investment gains		6,532			39,881			3,562			39,068
Other income		577			155			1,129			323

Total revenues		145,127			113,730			278,287			188,913
Losses and Expenses:
Net losses and loss adjustment expenses		79,560			38,270			149,179			76,842
Acquisition costs and other underwriting expenses		50,926			27,171			99,184			53,656
Corporate and other operating expenses		4,334			3,172			15,874			6,133
Interest expense		535			319			1,040			510

Income before income taxes		9,772			44,798			13,010			51,772
Income tax expense (benefit)		(1,345	)		11,590			(4,901	)		9,741

Net income	$	11,117		$	33,208		$	17,911		$	42,031

Per share data:
Net income
Basic	$	0.44		$	1.32		$	0.70		$	1.67

Diluted	$	0.43		$	1.31		$	0.70		$	1.66

Weighted-average number of shares outstanding
Basic		25,454,579			25,128,280			25,447,398			25,121,171

Diluted		25,680,997			25,312,938			25,659,869			25,301,783

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

Consolidated Statements of Comprehensive Income

(In thousands)


	(Unaudited) Quarters Ended June 30,						(Unaudited) Six Months Ended June 30,
	2015			2014			2015			2014
Net income	$	11,117		$	33,208		$	17,911		$	42,031

Other comprehensive income (loss), net of taxes:
Unrealized holding gains (losses)		(7,087	)		11,728			(730	)		13,769
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss)		(1	)		(2	)		—			(3	)
Reclassification adjustment for gains included in net income		(917	)		(29,756	)		(2,716	)		(33,788	)
Unrealized foreign currency translation gains (losses)		402			(21	)		164			(5	)

Other comprehensive income (loss), net of taxes		(7,603	)		(18,051	)		(3,282	)		(20,027	)

Comprehensive income (loss), net of taxes	$	3,514		$	15,157		$	14,629		$	22,004

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except share amounts)


	(Unaudited) Six Months Ended June 30, 2015			Year Ended December 31, 2014
Number of A ordinary shares issued:
Number at beginning of period		16,331,577			16,200,406
Ordinary shares issued under share incentive plans		124,482			94,563
Ordinary shares issued to directors		18,045			36,608
Ordinary shares issued in connection with American Reliable Acquisition		267,702			—

Number at end of period		16,741,806			16,331,577

Number of B ordinary shares issued:
Number at beginning and end of period		12,061,370			12,061,370

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	$	519,590		$	516,653
Share compensation plans		8,611			2,900
Tax benefit on share-based compensation expense		58			37

Balance at end of period	$	528,259		$	519,590

Accumulated other comprehensive income, net of deferred income tax:
Balance at beginning of period	$	23,384		$	54,028
Other comprehensive income (loss):
Change in unrealized holding gains (losses)		(3,441	)		(30,299	)
Change in other than temporary impairment losses recognized in other comprehensive income		(5	)		(4	)
Unrealized foreign currency translation gains (losses)		164			(341	)

Other comprehensive income (loss)		(3,282	)		(30,644	)

Balance at end of period	$	20,102		$	23,384

Retained earnings:
Balance at beginning of period	$	466,717		$	403,861
Net income		17,911			62,856

Balance at end of period	$	484,628		$	466,717

Number of Treasury Shares:
Number at beginning of period		3,064,815			3,059,371
A ordinary shares purchased		11,895			5,444

Number at end of period		3,076,710			3,064,815

Treasury Shares, at cost:
Balance at beginning of period	$	(101,404	)	$	(101,265	)
A ordinary shares purchased, at cost		(333	)		(139	)

Balance at end of period	$	(101,737	)	$	(101,404	)

Total shareholders’ equity	$	931,255		$	908,290

See accompanying notes to consolidated financial statements.

GLOBAL INDEMNITY PLC

Consolidated Statements of Cash Flows

(In thousands)


	(Unaudited) Six Months Ended June 30,
	2015			2014
Cash flows from operating activities:
Net income	$	17,911		$	42,031
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Amortization of value of business acquired		18,743			—
Amortization and depreciation		2,334			1,806
Restricted stock and stock option expense		8,611			1,683
Deferred federal income taxes		(3,515	)		2,065
Amortization of bond premium and discount, net		7,188			3,700
Net realized investment gain		(3,562	)		(39,068	)
Equity in the earnings of a partnership		(1,342	)		—
Changes in:
Premiums receivable, net		1,191			(20,571	)
Reinsurance receivables, net		(4,387	)		15,845
Funds held by ceding insurers		(2,863	)		(7,160	)
Unpaid losses and loss adjustment expenses		5,457			(24,871	)
Unearned premiums		2,285			16,960
Ceded balances payable		2,919			719
Other assets and liabilities, net		(13,312	)		(3,589	)
Contingent commissions		(3,383	)		(2,055	)
Federal income tax receivable/payable		(1,530	)		5,015
Deferred acquisition costs, net		(27,140	)		(4,687	)
Prepaid reinsurance premiums		13,612			(1,287	)

Net cash provided by (used for) operating activities		19,217			(13,464	)

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		211,542			219,195
Proceeds from sale of equity securities		22,327			35,837
Proceeds from sale of preferred stock		1,540			—
Proceeds from maturity of fixed maturities		132,180			50,781
Proceeds from limited partnership distribution		4,287			—
Amounts paid in connection with derivatives		(521	)		(10,640	)
Purchases of fixed maturities		(393,932	)		(271,496	)
Purchases of equity securities		(22,996	)		(27,798	)
Purchases of other invested assets		—			(11,975	)

Net cash used for investing activities		(24,213	)		(16,096	)

Cash flows from financing activities:
Net borrowings under margin borrowing facilities		12,734			42,560
Tax benefit on share-based compensation expense		58			—
Purchase of A ordinary shares		(333	)		(139	)

Net cash provided by financing activities		12,459			42,421

Net change in cash and cash equivalents		7,463			12,861
Cash and cash equivalents at beginning of period		58,823			105,492

Cash and cash equivalents at end of period	$	66,286		$	118,353

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.”

Starting in the 1^st quarter of 2015, the Company manages its business through three business segments: Commercial Lines, managed in Bala Cynwyd, offers specialty property and casualty products designed for product lines such as Small Business Binding Authority, Property Brokerage, and Programs; Personal Lines, managed in Scottsdale, AZ, offers specialty personal lines and agricultural coverage; and Reinsurance Operations, managed in Bermuda, provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies. The Commercial Lines and Personal Lines segments comprise the Company’s U.S. Insurance Operations. See Note 14 for additional information regarding segments.

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 six months ended June 30, 2015 and 2014 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 2014 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.

2. Acquisition

On January 1, 2015, Global Indemnity Group, Inc., a subsidiary of the Company, acquired 100% of the voting equity interest of American Reliable Insurance Company (“American Reliable”) from American Bankers Insurance Group, Inc. by paying $113.7 million in cash and assuming $283.4 million of customary insurance related liabilities, obligations, and mandates. Per the American Reliable Stock Purchase Agreement, the ultimate purchase price is subject to (i) accounting procedures that were performed in 2015 to determine GAAP book value and (ii) indemnification on future development on recorded loss and loss adjustment expenses as of December 31, 2014. In accordance with the Stock Purchase Agreement, on the third calendar year following the calendar year of the closing, if loss and loss adjustment expenses for accident years 2014 and prior are lower than recorded unpaid loss and loss adjustment expenses as of December 31, 2014, Global Indemnity Group, Inc. will pay the variance to American Bankers Group, Inc. Conversely, if loss and loss adjustment expenses for accident years 2014 and prior exceed recorded unpaid loss and loss adjustment expenses as of December 31, 2014, American Bankers Group, Inc. will pay the variance to Global Indemnity Group, Inc. The Company’s current estimate of the purchase price, based on available financial information, is approximately $105.8 million.

The results of American Reliable’s operations have been included in the Company’s consolidated financial statements since the date of the acquisition on January 1, 2015.

The purchase of American Reliable expands Global Indemnity’s product offerings. American Reliable is a specialty company that distributes personal lines products written on an admitted basis that are unusual and harder to place. It complements Global Indemnity’s existing US Insurance Operations that primarily distribute commercial lines products on an excess and surplus lines basis.

American Reliable is domiciled in Arizona and as such is subject to its state insurance department regulations.

GLOBAL INDEMNITY PLC

For the quarter and six months ended June 30, 2015, American Reliable had total revenues of $67.3 million and $132.6 million, respectively, and pre-tax income (loss) of $(4.0) million and $2.7 million, respectively. These amounts are included in the Company’s results of operations for the quarter and six months ended June 30, 2015.

The following table presents the Company’s unaudited pro forma consolidated results of operations for the quarters and six months ended June 30, 2015 and 2014 as if the acquisition had occurred on January 1, 2014 instead of January 1, 2015.


	Pro Forma
	Quarters Ended June 30,				Six Months Ended June 30,
(Dollars in thousands except per share data)	2015		2014		2015		2014
Total Revenue	$	145,125	$	181,080	$	278,282	$	320,262
Net Income	$	11,117	$	35,108	$	23,306	$	43,361
Net Income per share	$	0.43	$	1.37	$	0.91	$	1.70

The pro forma results were calculated by applying the Company’s accounting policies and adjusting the result of American Reliable to reflect (i) impact of intercompany reinsurance with Global Indemnity Reinsurance Company, Ltd. (“Global Indemnity Reinsurance”), (ii) the impact on interest expense resulting from changes to the Company’s capital structure in connection with the acquisition, (iii) impact on investment income from the acquisition date adjustments to fair value of investments, (iv) impact on underwriting expenses from the acquisition date adjustments to fair value of deferred acquisition costs and intangible assets, (v) impact of excluding transaction costs related to the acquisition and (vi) the tax effects of the above adjustments.

The pro forma results do not include any anticipated cost synergies or other effects of the integration of American Reliable. Such pro forma amounts are not indicative of the results that actually would have occurred had the acquisition been completed on January 1, 2014, nor are they indicative of the future operating results of the combined company.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition:


(Dollars in thousands)
ASSETS:
Investments	$	226,458
Cash and cash equivalents		21,360
Premiums receivables, net		25,941
Accounts receivable		17,129
Reinsurance receivables		12,723
Prepaid Reinsurance Premiums		43,506
Intangible assets		32,000
Deferred federal income taxes		1,246
Other assets		6,550

Total assets		386,913

LIABILITIES:
Unearned premiums		172,234
Unpaid losses and loss adjustment expenses		88,370
Reinsurance balances payable		13,219
Contingent commission		3,876
Other liabilities		5,685

Total liabilities		283,384

Estimated fair value of net assets acquired		103,529
Purchase price		105,843

Goodwill	$	2,314

The Company is still in the process of valuing the assets acquired and liabilities assumed. As a result, the allocation of the acquisition consideration is subject to change. During the quarter ended June 30, 2015, the Company obtained additional information which changed the estimated fair value of the assets acquired and liabilities assumed from the values originally reported at March 31, 2015. During the quarter ended June 30, 2015, the Company re-estimated loss reserves, received a revised independent valuation, and continued to evaluate the asset and liability balances. This resulted in accounts receivable decreasing by $0.2 million, intangible assets related to the value of business acquired decreasing by $0.5 million, deferred federal income taxes increasing by $0.1 million, unpaid losses and loss adjustment expenses decreasing by $0.6 million, other liabilities decreasing by $0.3 million, and goodwill increasing by $0.1 million. The Company does not believe that this change in estimate is material to the overall fair value of the assets acquired and liabilities assumed.

GLOBAL INDEMNITY PLC

The transaction is being accounted for using the purchase method of accounting. The assets and liabilities acquired by the Company were adjusted to estimated fair value. The $2.3 million excess of cash and acquisition cost over the estimated fair value of assets acquired was recognized as goodwill. Under the purchase method of accounting, goodwill is not amortized but is tested for impairment at least annually.

Goodwill of $2.3 million, arising from the acquisition, consists largely of the synergies and economies of scales expected from combining the operations of Global Indemnity and American Reliable. The Company has determined that the goodwill of $2.3 million will be assigned to the Personal Lines segment. There is no tax goodwill.

An identification and valuation of intangible assets was performed that resulted in the recognition of intangible assets of $32.0 million with values assigned as follows:


(Dollars in thousands) Description	Useful Life	Amount
State insurance licenses	Indefinite	$	5,000
Value of business acquired	< 1 year		25,500
Agent relationships	10 years		900
Trade name	7 - 8 years		600

		$	32,000

Intangible assets arising from the acquisition will be deductible for income tax purposes over 15 years.

The fair value, gross contractual amounts due, and contractual cash flows not expected to be collected of acquired receivables are as follows:


(Dollars in thousands)	Fair Value		Gross Contractual Amounts Due		Contractual cash flows not expected to be collected
Premium receivables	$	25,941	$	26,896	$	955
Accounts receivable		17,129		17,129		—
Reinsurance receivables		12,723		12,723		—

In connection with the acquisition, the Company agreed to pay to Fox Paine & Company, LLC (“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 six months ended June 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 in May, 2015. These shares will be registered but cannot be sold until the earlier of five years or a change of control. See Note 12 for additional information on the Global Indemnity plc Share Incentive Plan.

Additional costs, mainly professional fees, of $5.1 million were incurred in connection with the acquisition of American Reliable. Of this amount, $3.3 million was recorded as corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the year ended December 31, 2014 and $1.8 million was recorded as corporate and other operating expenses on the Company’s Consolidated Statements of Operation during the six months ended June 30, 2015.

During the six months ended June 30, 2015, the Company paid approximately $1.6 million in employee compensation related cost, which were related to periods prior to the Acquisition. These costs were accrued by American Reliable and were included in the fair value of net assets acquired by Global Indemnity Group, Inc. on January 1, 2015.

GLOBAL INDEMNITY PLC

Geographic Concentration

The following table sets forth the geographic distribution of American Reliable’s gross premiums written, excluding business that is ceded under a 100% quota share reinsurance agreement to American Bankers Insurance Company of Florida, for the year ended December 31, 2014:


	Year Ended December 31, 2014
(Dollars in thousands)	Amount		Percent
Texas	$	32,760		12.3	%
California		25,556		9.6
North Carolina		23,040		8.7
Arizona		17,722		6.7
Louisiana		17,522		6.6
New York		13,408		5.0
Florida		12,361		4.6
Oklahoma		9,977		3.7
Georgia		8,768		3.3
New Jersey		6,925		2.6

Subtotal		168,039		63.1
All other states		98,264		36.9

Total	$	266,303		100.0	%

Marketing and Distribution

American Reliable distributes its insurance products primarily through a group of approximately 290 general and specialty agents and 332 retail agents in Arizona and New Mexico. Of the Company’s non-affiliated general and specialty agents, the top five accounted for 23.9% of American Reliable’s gross premiums written for the year ended December 31, 2014. One agency represented 6.8% of American Reliable’s gross premiums written for the year ended December 31, 2014. There is no agency which accounted for more than 10.0% of American Reliable’s revenue for the year ended December 31, 2014.

Dividend Limitations

The maximum amount of dividends, which can be paid by Arizona domiciled insurance companies without prior approval of the Insurance Commissioner, is subject to certain regulatory restrictions relating to statutory surplus. Specifically, an insurance company may pay dividends equal to the lesser of net income or 10% of its statutory surplus without specific approval from the Insurance Commissioner. At December 31, 2014, the maximum dividend, which may be distributed without approval in 2015, is zero. Dividends in excess of this amount are considered extraordinary.

Reinsurance

As a result of the acquisition, the following reinsurance treaties were entered into:

Earthquake Property Catastrophe Excess of Loss – Effective January 1, 2015, the Company purchased an earthquake property catastrophe excess of loss treaty which provides occurrence coverage for earthquake catastrophe losses of $30 million in excess of $5 million for American Reliable property business. This treaty provides for one full reinstatement of coverage at 100% additional premium as to time and pro rata as to amount of limit reinstated. This treaty was cancelled on May 31, 2015 and rolled into a new combined master catastrophe treaty which was effective June 1, 2015.

American Reliable Property Per Risk Excess of Loss – Effective January 1, 2015, American Reliable renewed its property per risk excess of loss treaty covering business underwritten by American Reliable. This treaty provides coverage in two layers: $1 million per risk in excess of $1 million per risk, and $3 million per risk in excess of $2 million per risk. The first layer is subject to a $2 million limit of liability for all risks involved in one loss occurrence, and the second layer is subject to a $6 million limit for all risks involved in one loss occurrence.

100% Ceded Quota Share to American Bankers – Effective December 1, 2014, American Reliable entered into four treaties to cede 100% of its liabilities related to certain businesses to American Bankers Insurance Company that were not included in the acquisition of American Reliable. For the quarter and six months ended June 30, 2015, American Reliable recorded ceded written premiums of $12.9 million and $23.0 million, respectively, and ceded earned premiums of $18.6 million and $37.4 million, respectively, to American Bankers Insurance Company.

GLOBAL INDEMNITY PLC

100% Assumed Quota Share from American Bankers – Effective December 1, 2014, American Reliable entered into two treaties to assume 100% of its liabilities from various insurers owned by Assurant, Inc. for business included in the acquisition but not written directly by American Reliable. For the quarter and six months ended June 30, 2015, American Reliable recorded assumed written premiums of $24.7 million and $48.1 million, respectively, and assumed earned premiums of $23.5 million and $47.2 million, respectively, from insurance companies owned by Assurant, Inc.

The effect of reinsurance on premiums written and earned by American Reliable is as follows:


(Dollars in thousands)	Written			Earned
For the quarter ended June 30, 2015:
Direct business	$	64,319		$	64,033
Reinsurance assumed		24,685			23,494
Reinsurance ceded		(16,177	)		(21,609	)

Net premiums	$	72,827		$	65,918


(Dollars in thousands)	Written			Earned
For the six months ended June 30, 2015:
Direct business	$	114,155		$	125,026
Reinsurance assumed		48,060			47,193
Reinsurance ceded		(28,732	)		(42,879	)

Net premiums	$	133,483		$	129,340

Commitments

As a result of the acquisition, the Company assumed operating leases related to the operations of American Reliable. Rental expense under these operating leases was $0.2 million and $0.5 million for the quarter and six months ended June 30, 2015, respectively. At June 30, 2015, future minimum cash payments under non-cancelable operating leases related to the operations of American Reliable were as follows:


(Dollars in thousands)
July 1, 2015 to June 30, 2016	$	896
July 1, 2016 to June 30, 2017		806
July 1, 2017 to June 30, 2018		783
July 1, 2018 to June 30, 2019		358

Total	$	2,843

At the time of the acquisition, one of the Company’s policy administration systems was under development. In April, 2015, the Company entered into an agreement with an unrelated third party to build out a rate, quote, bind and issue application for the Company’s agriculture products. This project has an estimated cost of approximately $2.6 million plus reimbursable travel and related expenses.

GLOBAL INDEMNITY PLC

3. Investments

The amortized cost and estimated fair value of investments were as follows as of June 30, 2015 and December 31, 2014:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Other than temporary impairments recognized in AOCI (1)
As of June 30, 2015
Fixed maturities:
U.S. treasury and agency obligations	$	88,489	$	1,811	$	(44	)	$	90,256	$	—
Obligations of states and political subdivisions		230,355		3,027		(850	)		232,532		—
Mortgage-backed securities		201,267		3,193		(480	)		203,980		—
Asset-backed securities		257,401		963		(193	)		258,171		(11	)
Commercial mortgage-backed securities		171,467		115		(614	)		170,968		—
Corporate bonds		453,473		2,838		(463	)		455,848		—
Foreign corporate bonds		138,832		660		(625	)		138,867		—

Total fixed maturities		1,541,284		12,607		(3,269	)		1,550,622		(11	)
Common stock		103,019		20,496		(2,277	)		121,238		—
Other invested assets		28,887		2,289		—			31,176		—

Total	$	1,673,190	$	35,392	$	(5,546	)	$	1,703,036	$	(11	)

(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 (2)
As of December 31, 2014
Fixed maturities:
U.S. treasury and agency obligations	$	78,569	$	2,281	$	(83	)	$	80,767	$	—
Obligations of states and political subdivisions		188,452		3,718		(697	)		191,473		—
Mortgage-backed securities		205,814		3,709		(764	)		208,759		(4	)
Asset-backed securities		177,853		713		(303	)		178,263		(13	)
Commercial mortgage-backed securities		133,984		21		(847	)		133,158		—
Corporate bonds		380,704		3,421		(709	)		383,416		—
Foreign corporate bonds		107,572		625		(558	)		107,639		—

Total fixed maturities		1,272,948		14,488		(3,961	)		1,283,475		(17	)
Common stock		99,297		25,689		(2,938	)		122,048		—
Other invested assets		33,174		489		—			33,663		—

Total	$	1,405,419	$	40,666	$	(6,899	)	$	1,439,186	$	(17	)

(2)

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% of shareholders’ equity at June 30, 2015 or December 31, 2014.

GLOBAL INDEMNITY PLC

The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at June 30, 2015, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(Dollars in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	112,314	$	113,541
Due in one year through five years		704,693		708,465
Due in five years through ten years		67,546		68,320
Due in ten years through fifteen years		8,818		9,246
Due after fifteen years		17,778		17,931
Mortgage-backed securities		201,267		203,980
Asset-backed securities		257,401		258,171
Commercial mortgage-backed securities		171,467		170,968

Total	$	1,541,284	$	1,550,622

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 June 30, 2015:


	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	$	504	$	—		$	3,376	$	(44	)	$	3,880	$	(44	)
Obligations of states and political subdivisions		41,091		(716	)		10,266		(134	)		51,357		(850	)
Mortgage-backed securities		62,327		(357	)		11,650		(123	)		73,977		(480	)
Asset-backed securities		62,664		(193	)		—		—			62,664		(193	)
Commercial mortgage-backed securities		96,171		(448	)		14,862		(166	)		111,033		(614	)
Corporate bonds		130,759		(446	)		2,978		(17	)		133,737		(463	)
Foreign corporate bonds		62,754		(625	)		—		—			62,754		(625	)

Total fixed maturities		456,270		(2,785	)		43,132		(484	)		499,402		(3,269	)
Common stock		32,507		(2,277	)		—		—			32,507		(2,277	)

Total	$	488,777	$	(5,062	)	$	43,132	$	(484	)	$	531,909	$	(5,546	)

(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.

GLOBAL INDEMNITY PLC


	Less than 12 months					12 months or longer (2)					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	$	11,728	$	(9	)	$	3,343	$	(74	)	$	15,071	$	(83	)
Obligations of states and political subdivisions		28,684		(314	)		28,061		(383	)		56,745		(697	)
Mortgage-backed securities		2,818		(7	)		51,203		(757	)		54,021		(764	)
Asset-backed securities		92,123		(283	)		1,683		(20	)		93,806		(303	)
Commercial mortgage-backed securities		92,664		(525	)		26,280		(322	)		118,944		(847	)
Corporate bonds		144,505		(656	)		3,216		(53	)		147,721		(709	)
Foreign corporate bonds		60,518		(558	)		—		—			60,518		(558	)

Total fixed maturities		433,040		(2,352	)		113,786		(1,609	)		546,826		(3,961	)
Common stock		20,002		(2,808	)		1,577		(130	)		21,579		(2,938	)

Total	$	453,042	$	(5,160	)	$	115,363	$	(1,739	)	$	568,405	$	(6,899	)

(2)

GLOBAL INDEMNITY PLC

The Company regularly performs various analytical valuation procedures with respect to its investments, including reviewing each fixed maturity security in an unrealized loss position to assess whether the security is a candidate for 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:

U.S. treasury and agency obligations – As of June 30, 2015, gross unrealized losses related to U.S. treasury and agency obligations were $0.044 million. With the exception of less than $0.001 million, all unrealized losses have been in an unrealized loss position for twelve months or greater and are rated AA+. Macroeconomic and market analysis is conducted in evaluating these securities. The analysis is driven by moderate interest rate anticipation, yield curve management, and security selection.

GLOBAL INDEMNITY PLC

Obligations of states and political subdivisions – As of June 30, 2015, gross unrealized losses related to obligations of states and political subdivisions were $0.850 million. Of this amount, $0.134 million have been in an unrealized loss position for twelve months or greater and are rated A or better. All factors that influence performance of the municipal bond market are considered in evaluating these securities. The aforementioned factors include investor expectations, supply and demand patterns, and current versus historical yield and spread relationships. The analysis relies on the output of fixed income credit analysts, as well as dedicated municipal bond analysts who perform extensive in-house fundamental analysis on each issuer, regardless of their rating by the major agencies.

Mortgage-backed securities (“MBS”) – As of June 30, 2015, gross unrealized losses related to mortgage-backed securities were $0.480 million. Of this amount, $0.123 million have been in an unrealized loss position for twelve months or greater, of which, 97.6% are rated AA+. 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 June 30, 2015, gross unrealized losses related to asset backed securities were $0.193 million. All unrealized losses have been in an unrealized loss position for less than 12 months and are rated A or better. The weighted average credit enhancement for the Company’s asset backed portfolio is 22.6. 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 June 30, 2015, gross unrealized losses related to the CMBS portfolio were $0.614 million. Of this amount, $0.166 million have been in an unrealized loss position for twelve months or greater and are rated AA- or better. The weighted average credit enhancement for the Company’s CMBS portfolio is 38.2. This represents the percentage of pool losses that can occur before a mortgage-backed security will incur its first dollar of principal loss. For the Company’s CMBS portfolio, a loan level analysis is utilized where every underlying CMBS loan is re-underwritten based on a set of assumptions reflecting expectations for the future path of the economy. In the analysis, the focus is centered on stressing the significant variables that influence commercial loan defaults and collateral losses in CMBS deals. These variables include: (1) a projected drop in occupancies; (2) capitalization rates that vary by property type and are forecasted to return to more normalized levels as the capital markets repair and capital begins to flow again; and (3) property value stress testing using projected property performance and projected capitalization rates. Term risk is triggered if the projected debt service coverage rate falls below 1x. Balloon risk is triggered if a property’s projected performance does not satisfy new tighter mortgage standards.

Corporate bonds – As of June 30, 2015, gross unrealized losses related to corporate bonds were $0.463 million. Of this amount, $0.017 million have been in an unrealized loss position for twelve months or greater and are rated BBB or better. The analysis for this sector includes maintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default.

Foreign bonds – As of June 30, 2015, gross unrealized losses related to foreign bonds were $0.625 million. All unrealized losses have been in an unrealized loss position for less than twelve months. 96.2% of the securities in an unrealized loss position are rated investment grade. 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,

GLOBAL INDEMNITY PLC

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 June 30, 2015, gross unrealized losses related to common stock were $2.277 million. All unrealized losses have been in an unrealized loss position for less than 12 months. To determine if an other than temporary impairment of an equity security has occurred, the Company considers, among other things, the severity and duration of the decline in fair value of the equity security. The Company also examines other factors to determine if the equity security could recover its value in a reasonable period of time.

The Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for the quarters and six months ended June 30, 2015 and 2014:


	Quarters Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Fixed maturities:
OTTI losses, gross	$	(13	)	$	—		$	(23	)	$	(25	)
Portion of loss recognized in other comprehensive income (pre-tax)		—			—			—			—

Net impairment losses on fixed maturities recognized in earnings		(13	)		—			(23	)		(25	)
Equity securities		(1,885	)		(37	)		(2,215	)		(37	)

Total	$	(1,898	)	$	(37	)	$	(2,238	)	$	(62	)

The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company for the quarters and six months ended June 30, 2015 and 2014 for which a portion of the OTTI loss was recognized in other comprehensive income.


	Quarters Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Balance at beginning of period	$	50		$	54		$	50		$	54
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	)		(4	)		(19	)		(4	)

Balance at end of period	$	31		$	50		$	31		$	50

Accumulated Other Comprehensive Income, Net of Tax

Accumulated other comprehensive income, net of tax, as of June 30, 2015 and December 31, 2014 was as follows:


(Dollars in thousands)	June 30, 2015			December 31, 2014
Net unrealized gains from:
Fixed maturities	$	9,338		$	10,527
Common stock		18,219			22,751
Other		935			369
Deferred taxes		(8,390	)		(10,263	)

Accumulated other comprehensive income, net of tax	$	20,102		$	23,384

GLOBAL INDEMNITY PLC

The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the quarters and six months ended June 30, 2015 and 2014:


Quarter Ended June 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	$	28,206		$	(501)		$	27,705
Other comprehensive income (loss) before reclassification		(6,845	)		159			(6,686	)
Amounts reclassified from accumulated other comprehensive income (loss)		(1,160	)		243			(917	)

Other comprehensive income (loss)		(8,005	)		402			(7,603	)

Ending balance	$	20,201		$	(99	)	$	20,102


Quarter Ended June 30, 2014 (Dollars in thousands)	Unrealized Gains and Losses on Available for Sale Securities, Net of Tax			Foreign Currency Items, Net of Tax			Accumulated Other Comprehensive Income, Net of Tax
Beginning balance	$	51,958		$	94		$	52,052
Other comprehensive income (loss) before reclassification		11,664			41			11,705
Amounts reclassified from accumulated other comprehensive income (loss)		(29,694	)		(62	)		(29,756	)

Other comprehensive income (loss)		(18,030	)		(21	)		(18,051	)

Ending balance	$	33,928		$	73		$	34,001


Six Months Ended June 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 income (loss) before reclassification		(404	)		(162	)		(566	)
Amounts reclassified from accumulated other comprehensive income (loss)		(3,042	)		326			(2,716	)

Other comprehensive income (loss)		(3,446	)		164			(3,282	)

Ending balance	$	20,201		$	(99	)	$	20,102


Six Months Ended June 30, 2014 (Dollars in thousands)	Unrealized Gains and Losses on Available for Sale Securities, Net of Tax			Foreign Currency Items, Net of Tax			Accumulated Other Comprehensive Income, Net of Tax
Beginning balance	$	53,950		$	78		$	54,028
Other comprehensive income (loss) before reclassification		13,691			70			13,761
Amounts reclassified from accumulated other comprehensive income (loss)		(33,713	)		(75	)		(33,788	)

Other comprehensive income (loss)		(20,022	)		(5	)		(20,027	)

Ending balance	$	33,928		$	73		$	34,001

GLOBAL INDEMNITY PLC

The reclassifications out of accumulated other comprehensive income for the quarters and six months ended June 30, 2015 and 2014 were as follows:


		Amounts Reclassified from Accumulated Other Comprehensive Income
		Quarters Ended June 30,
(Dollars in thousands) Details about Accumulated Other Comprehensive Income Components	Affected Line Item in the Consolidated Statements of Operations	2015			2014
Unrealized gains and losses on available for sale securities	Other net realized investment gains	$	(3,745	)	$	(45,840	)
	Other than temporary impairment losses on investments		1,897			37

	Total before tax		(1,848	)		(45,803	)
	Income tax expense (benefit)		688			16,109

	Net of tax	$	(1,160	)	$	(29,694	)

Foreign Currency Items	Other net realized investment (gains) losses	$	373		$	(96	)
	Income tax expense (benefit)		(130	)		34

	Net of tax	$	243		$	(62	)

Total reclassifications	Net of tax	$	(917	)	$	(29,756	)


		Amounts Reclassified from Accumulated Other Comprehensive Income
		Six Months Ended June 30,
(Dollars in thousands) Details about Accumulated Other Comprehensive Income Components	Affected Line Item in the Consolidated Statements of Operations	2015			2014
Unrealized gains and losses on available for sale securities	Other net realized investment gains	$	(7,126	)	$	(51,374	)
	Other than temporary impairment losses on investments		2,238			62

	Total before tax		(4,888	)		(51,312	)
	Income tax expense (benefit)		1,846			17,599

	Net of tax	$	(3,042	)	$	(33,713	)

Foreign Currency Items	Other net realized investment (gains) losses	$	501		$	(116	)
	Income tax expense (benefit)		(175	)		41

	Net of tax	$	326		$	(75	)

Total reclassifications	Net of tax	$	(2,716	)	$	(33,788	)

GLOBAL INDEMNITY PLC

Net Realized Investment Gains

The components of net realized investment gains for the quarters and six months ended June 30, 2015 and 2014 were as follows:


	Quarters Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Fixed maturities:
Gross realized gains	$	746		$	719		$	1,479		$	2,389
Gross realized losses		(110	)		(96	)		(241	)		(226	)

Net realized gains		636			623			1,238			2,163

Common stock:
Gross realized gains		3,371			45,868			5,923			49,875
Gross realized losses		(2,532	)		(592	)		(2,870	)		(610	)

Net realized gains		839			45,276			3,053			49,265

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

Net realized gains		—			—			96			—

Derivatives:
Gross realized gains		6,353			—			1,873			—
Gross realized losses		(1,296	)		(6,018	)		(2,698	)		(12,360	)

Net realized gains (losses)		5,057			(6,018	)		(825	)		(12,360	)

Total net realized investment gains	$	6,532		$	39,881		$	3,562		$	39,068

GLOBAL INDEMNITY PLC

The proceeds from sales of available-for-sale securities resulting in net realized investment gains for the six months ended June 30, 2015 and 2014 were as follows:


	Six Months Ended June 30,
(Dollars in thousands)	2015		2014
Fixed maturities	$	211,542	$	219,195
Equity securities		22,327		35,837
Preferred stock		1,540		—

Net Investment Income

The sources of net investment income for the quarters and six months ended June 30, 2015 and 2014 were as follows:


	Quarters Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Fixed maturities	$	8,022		$	6,797		$	16,036		$	14,052
Equity securities		924			1,941			1,716			4,081
Cash and cash equivalents		9			10			27			28
Other invested assets		1,089			87			1,342			87

Total investment income		10,044			8,835			19,121			18,248
Investment expense		(903	)		(1,158	)		(1,739	)		(2,287	)

Net investment income	$	9,141		$	7,677		$	17,382		$	15,961

The Company’s total investment return on a pre-tax basis for the quarters and six months ended June 30, 2015 and 2014 were as follows:


	Quarters Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Net investment income	$	9,141		$	7,677		$	17,382		$	15,961

Net realized investment gains		6,532			39,881			3,562			39,068
Change in unrealized investment losses		(9,752	)		(29,203	)		(5,155	)		(31,774	)

Net realized and unrealized investment returns		(3,220	)		10,678			(1,593	)		7,294

Total investment return	$	5,921		$	18,355		$	15,789		$	23,255

Total investment return % (1)		0.3	%		1.2	%		0.9	%		1.5	%

Average investment portfolio (2)	$	1,776,326		$	1,577,630		$	1,758,103		$	1,585,304

(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 June 30, 2015, the Company held insurance enhanced asset backed and credit securities with a market value of approximately $41.1 million. Approximately $17.5 million of these securities were tax free municipal bonds, which represented approximately 1.0% 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 $6.5 million of these bonds are pre-refunded with U.S. treasury securities, of which $0.1 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 $11.0 million of insurance enhanced municipal bonds, $0.5 million would have carried a lower credit rating had they not been insured. The following table provides a breakdown of the ratings for these municipal bonds with and without insurance.

GLOBAL INDEMNITY PLC


(Dollars in thousands)	Ratings with		Ratings without
Rating	Insurance		Insurance
AA	$	515	$	—
BB		—		515

Total	$	515	$	515

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 June 30, 2015, 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	$	1,688	$	138	$	—	$	1,550
Assured Guaranty Corporation		3,692		—		—		3,692
Municipal Bond Insurance Association		5,159		—		—		5,159
Gov’t National Housing Association		552		—		552		—

Total backed by financial guarantors		11,091		138		552		10,401
Other credit enhanced municipal bonds		6,363		6,363		—		—

Total	$	17,454	$	6,501	$	552	$	10,401

In addition to the tax-free municipal bonds, the Company held $23.6 million of asset-backed and taxable municipal bonds, 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 $23.6 million of insurance enhanced asset-backed and taxable municipal securities include Municipal Bond Insurance Association ($8.8 million), Ambac Financial Group ($1.5 million), Assured Guaranty Corporation ($11.0 million), Financial Guaranty Insurance Group ($0.3 million) and Build America Mutual ($2.0 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 June 30, 2015.

Bonds Held on Deposit

Certain cash balances, cash equivalents, equity securities and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral pursuant to borrowing arrangements, or were held in trust pursuant to intercompany reinsurance agreements. The fair values were as follows as of June 30, 2015 and December 31, 2014:


	Estimated Fair Value
(Dollars in thousands)	June 30, 2015		December 31, 2014
On deposit with governmental authorities	$	39,965	$	32,790
Intercompany trusts held for the benefit of U.S. policyholders		548,038		495,301
Held in trust pursuant to third party requirements		93,053		95,828
Letter of credit held for third party requirements		6,112		9,340
Securities held as collateral for borrowing arrangements (1)		238,283		222,809

Total	$	925,451	$	856,068

(1)

Amount required to collateralize margin borrowing facilities.

4. 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.

GLOBAL INDEMNITY PLC

The Company accounts for the interest rate swaps as non-hedge instruments and recognizes the fair value of the interest rate swaps in other assets or other liabilities on the consolidated balance sheets with the changes in fair value recognized as net realized investment gains in the consolidated statement of operations. The estimated fair value of the interest rate swaps, which is primarily derived from the forward interest rate curve, is based on the valuation received 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 June 30, 2015 and December 31, 2014:


(Dollars in thousands)			June 30, 2015					December 31, 2014
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	$	(11,801	)	$	200,000	$	(13,675	)

The following table summarizes the net gain and 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 six months ended June 30, 2015 and 2014:


			Quarters Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	Statement of Operations Line		2015		2014			2015			2014
Interest rate swap agreements		Net realized investment gains	$	5,057	$	(6,018	)	$	(825	)	$	(12,360	)

As of June 30, 2015, the Company is due receivables of $5.3 million for collateral posted and $13.1 million for margin calls made in connection with the interest rate swaps. These amounts are included in other assets on the consolidated balance sheets.

5. 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.

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for invested assets within the Level 3 category presented in the tables below may include changes in fair value that are attributed to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

GLOBAL INDEMNITY PLC

The following table presents information about the Company’s invested assets and derivative instruments measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.


As of June 30, 2015	Fair Value Measurements
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities:
U.S. treasury and agency obligations	$	80,256	$	10,000	$	—	$	90,256
Obligations of states and political subdivisions		—		232,532		—		232,532
Mortgage-backed securities		—		203,980		—		203,980
Commercial mortgage-backed securities		—		170,968		—		170,968
Asset-backed securities		—		258,171		—		258,171
Corporate bonds		—		455,848		—		455,848
Foreign corporate bonds		—		138,867		—		138,867

Total fixed maturities		80,256		1,470,366		—		1,550,622
Common stock		121,238		—		—		121,238
Other invested assets		—		—		31,176		31,176

Total assets measured at fair value	$	201,494	$	1,470,366	$	31,176	$	1,703,036

Liabilities:
Derivative instruments	$	—	$	11,801	$	—	$	11,801

Total liabilities measured at fair value	$	—	$	11,801	$	—	$	11,801


As of December 31, 2014	Fair Value Measurements
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities:
U.S. treasury and agency obligations	$	74,765	$	6,002	$	—	$	80,767
Obligations of states and political subdivisions		—		191,473		—		191,473
Mortgage-backed securities		—		208,759		—		208,759
Commercial mortgage-backed securities		—		133,158		—		133,158
Asset-backed securities		—		178,263		—		178,263
Corporate bonds		—		383,416		—		383,416
Foreign corporate bonds		—		107,639		—		107,639

Total fixed maturities		74,765		1,208,710		—		1,283,475
Common stock		122,048		—		—		122,048
Other invested assets		—		—		33,663		33,663

Total assets measured at fair value	$	196,813	$	1,208,710	$	33,663	$	1,439,186

Liabilities:
Derivative instruments	$	—	$	13,675	$	—	$	13,675

Total liabilities measured at fair value	$	—	$	13,675	$	—	$	13,675

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.

GLOBAL INDEMNITY PLC

There were no transfers between Level 1 and Level 2 during the quarters and six months ended June 30, 2015 or 2014.

The following table presents changes in Level 3 investments measured at fair value on a recurring basis for the quarters and six months ended June 30, 2015 and 2014:


	Quarters Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2015		2014			2015			2014
Beginning balance	$	29,992	$	5,364		$	33,663		$	3,489
Total gains (losses) (realized / unrealized):
Included in accumulated other comprehensive income (loss)		95		(204	)		458			(430	)
Investment Income:
Equity in Limited Partnership		1,089		—			1,342			—
Purchases		—		9,874			—			11,975
Distributions		—		—			(4,287	)		—

Ending balance	$	31,176	$	15,034		$	31,176		$	15,034

The investments classified as Level 3 in the above table relate to investments in limited partnerships. The Company does not have access to daily valuations; therefore, the estimated fair values of the limited partnerships are measured utilizing net asset value, typically on a quarter lag, as a practical expedient for the limited partnerships.

The Company uses the equity method to account for an investment in a limited partnership where its ownership interest exceeds 3%. The equity method of accounting for an investment in a limited partnership requires changes in fair market value to be reflected in the income statement. The Company records the changes in fair market value for investments in limited partnerships accounted for under the equity method to investment income. The change in fair market value included in investment income for this limited partnership during the second quarter of 2015 was $1.1 million.

Fair Value of Alternative Investments

Included in “Other invested assets” in the fair value hierarchy at June 30, 2015 and December 31, 2014 are limited liability partnerships measured at fair value. The following table provides the fair value and future funding commitments related to these investments at June 30, 2015 and December 31, 2014.


	June 30, 2015				December 31, 2014
(Dollars in thousands)	Fair Value		Future Funding Commitment		Fair Value		Future Funding Commitment
Equity Fund, LP (1)	$	3,325	$	2,391	$	3,401	$	2,436
Real Estate Fund, LP (2)		—		—		—		—
European Non-Performing Loan Fund, LP (3)		27,851		23,564		30,262		20,064

Total	$	31,176	$	25,955	$	33,663	$	22,500

(1)

This limited partnership invests in companies from various business sectors whereby the partnership has acquired control of the operating business as a lead or organizing investor. 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.

(2)

This limited partnership invests in real estate assets through a combination of direct or indirect investments in partnerships, limited liability companies, mortgage loans, and lines of credit. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company continues to hold an investment in this limited partnership and has written the fair value down to zero.

(3)

This limited partnership invests in distressed securities and assets through senior and subordinated, secured and unsecured debt and equity, in both public and private large-cap and middle-market companies. The Company does not have the 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.

GLOBAL INDEMNITY PLC

Pricing

The Company’s pricing vendors provide prices for all investment categories except for investments in limited partnerships which are measured utilizing net asset values as a practical expedient. One vendor provides prices for equity securities and all fixed maturity categories.

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

•

Equity 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 ABS’s, 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 municipals, a multi-dimensional relational model is used to evaluate securities within this asset class. The evaluated pricing models for this asset class 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 MBSs, a matrix model correlation to TBA (a forward MBS trade) or benchmarking is utilized to value a security.

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

•

Reviewing periodic reports provided by the Investment Manager that provide information regarding rating changes and securities placed on watch. This procedure allows the Company to understand why a particular security’s market value may have changed.

•

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 six months ended June 30, 2015 and 2014, the Company has not adjusted quotes or prices obtained from the pricing vendors.

GLOBAL INDEMNITY PLC

6. Income Taxes

The statutory income tax rates of the countries where the Company does business are 35% in the United States, 0% in Bermuda, 0% in the Cayman Islands, 0% in Gibraltar, 29.22% in the Duchy of Luxembourg, and 25% on non-trading income, 33% on capital gains and 12.5% on trading income in the Republic of Ireland. The statutory income tax rate of each country is applied against the 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 limited partnership distributions, and that amount is then added to the actual income taxes on net realized gains and losses, discrete items and limited partnership distributions. 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. In 2015, the Company recorded its income tax provision using a discrete period computation because a reliable estimate of an effective tax rate could not be made.

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 six months ended June 30, 2015 and 2014 were as follows:


Quarter Ended June 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	83,601		$	148,038		$	(65,124	)	$	166,515

Net premiums written	$	83,601		$	62,404		$	—		$	146,005

Net premiums earned	$	72,471		$	56,406		$	—		$	128,877
Net investment income		11,320			4,325			(6,504	)		9,141
Net realized investment gains (losses)		(118	)		6,650			—			6,532
Other income		13			564			—			577

Total revenues		83,686			67,945			(6,504	)		145,127
Losses and Expenses:
Net losses and loss adjustment expenses		39,621			39,939			—			79,560
Acquisition costs and other underwriting expenses		31,570			19,356			—			50,926
Corporate and other operating expenses		(334	)		4,668			—			4,334
Interest expense		430			6,609			(6,504	)		535

Income (loss) before income taxes	$	12,399		$	(2,627	)	$	—		$	9,772


Quarter Ended June 30, 2014: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries		Eliminations			Total
Revenues:
Gross premiums written	$	51,328		$	60,555	$	(28,978	)	$	82,905

Net premiums written	$	50,312		$	26,060	$	—		$	76,372

Net premiums earned	$	40,959		$	25,058	$	—		$	66,017
Net investment income		7,583			4,905		(4,811	)		7,677
Net realized investment gains (losses)		(225	)		40,106		—			39,881
Other income (loss)		(5	)		160		—			155

Total revenues		48,312			70,229		(4,811	)		113,730
Losses and Expenses:
Net losses and loss adjustment expenses		12,921			25,349		—			38,270
Acquisition costs and other underwriting expenses		17,081			10,090		—			27,171
Corporate and other operating expenses		1,511			1,661		—			3,172
Interest expense		214			4,916		(4,811	)		319

Income before income taxes	$	16,585		$	28,213	$	—		$	44,798

GLOBAL INDEMNITY PLC


Six Months Ended June 30, 2015: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	222,397		$	271,042		$	(184,055	)	$	309,384

Net premiums written	$	222,358		$	49,751		$	—		$	272,109

Net premiums earned	$	144,135		$	112,079		$	—		$	256,214
Net investment income		21,502			8,811			(12,931	)		17,382
Net realized investment gains (losses)		(387	)		3,949			—			3,562
Other income (loss)		(66	)		1,195			—			1,129

Total revenues		165,184			126,034			(12,931	)		278,287
Losses and Expenses:
Net losses and loss adjustment expenses		75,805			73,374			—			149,179
Acquisition costs and other underwriting expenses		61,864			37,320			—			99,184
Corporate and other operating expenses		1,747			14,127			—			15,874
Interest expense		824			13,147			(12,931	)		1,040

Income (loss) before income taxes	$	24,944		$	(11,934	)	$	—		$	13,010


Six Months Ended June 30, 2014: (Dollars in thousands)	Non-U.S. Subsidiaries			U.S. Subsidiaries			Eliminations			Total
Revenues:
Gross premiums written	$	101,327		$	113,547		$	(54,772	)	$	160,102

Net premiums written	$	100,311		$	48,922		$	—		$	149,233

Net premiums earned	$	83,313		$	50,248		$	—		$	133,561
Net investment income		15,234			10,325			(9,598	)		15,961
Net realized investment gains		1,027			38,041			—			39,068
Other income (loss)		(3	)		326			—			323

Total revenues		99,571			98,940			(9,598	)		188,913
Losses and Expenses:
Net losses and loss adjustment expenses		32,879			43,963			—			76,842
Acquisition costs and other underwriting expenses		34,875			18,781			—			53,656
Corporate and other operating expenses		2,878			3,255			—			6,133
Interest expense		454			9,654			(9,598	)		510

Income before income taxes	$	28,485		$	23,287		$	—		$	51,772

GLOBAL INDEMNITY PLC

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


	Quarters Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2015			2014		2015			2014
Current income tax expense:
Foreign	$	70		$	61	$	161		$	125
U.S. Federal		(2,657	)		7,821		(1,547	)		7,551

Total current income tax expense (benefit)		(2,587	)		7,882		(1,386	)		7,676

Deferred income tax expense (benefit):
U.S. Federal		1,242			3,708		(3,515	)		2,065

Total deferred income tax expense (benefit)		1,242			3,708		(3,515	)		2,065

Total income tax expense (benefit)	$	(1,345	)	$	11,590	$	(4,901	)	$	9,741

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 June 30,
	2015						2014
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	(848	)		(8.7	%)	$	9,925			22.2	%
Adjustments:
Tax exempt interest		(83	)		(0.8	)		(155	)		(0.3	)
Dividend exclusion		(258	)		(2.6	)		(479	)		(1.1	)
Effective tax rate adjustment		—			—			1,811			4.0
Other		(156	)		(1.6	)		488			1.1

Actual tax on continuing operations	$	(1,345	)		(13.7	%)	$	11,590			25.9	%

The effective income tax benefit rate for the quarter ended June 30, 2015 was 13.7%, compared to an effective income tax expense rate of 25.9%, for the quarter ended June 30, 2014. The decrease in the effective tax rate is primarily due to large capital gains in the quarter ended June 30, 2014. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.


	Six Months Ended June 30,
	2015						2014
(Dollars in thousands)	Amount			% of Pre- Tax Income			Amount			% of Pre- Tax Income
Expected tax provision at weighted average rate	$	(4,015	)		(30.9	%)	$	8,263			16.0	%
Adjustments:
Tax exempt interest		(219	)		(1.7	)		(370	)		(0.7	)
Dividend exclusion		(413	)		(3.2	)		(957	)		(1.9	)
Effective tax rate adjustment		—			—			2,312			4.5
Other		(254	)		(2.0	)		493			0.9

Income tax expense (benefit)	$	(4,901	)		(37.8	%)	$	9,741			18.8	%

The effective income tax benefit rate for the six months ended June 30, 2015 was 37.8%, compared to an effective income tax expense rate of 18.8% for the six months ended June 30, 2014. The decrease in the effective tax rate is primarily due to expenses related to the acquisition of American Reliable Insurance Company in 2015 and large capital gains in 2014. Taxes were computed using a discrete period computation because a reliable estimate of an effective tax rate could not be made.

GLOBAL INDEMNITY PLC

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at June 30, 2015 and December 31, 2014 are presented below:


(Dollars in thousands)	June 30, 2015		December 31, 2014
Deferred tax assets:
Discounted unpaid losses and loss adjustment expenses	$	8,351	$	7,492
Unearned premiums		8,061		3,409
Alternative minimum tax credit carryover		10,473		10,473
Partnership K1 basis differences		145		145
Capital gain on derivative instruments		4,130		4,786
Investment impairments		1,097		379
Stock options		2,306		2,048
Deferred acquisition costs		1,606		187
Stat-to-GAAP reinsurance reserve		1,424		1,424
Intercompany transfers		1,807		1,919
Other		4,082		3,050

Total deferred tax assets		43,482		35,312

Deferred tax liabilities:
Intangible assets		6,218		3,220
Unrealized gain on securities available-for-sale and investments in limited partnerships included in accumulated other comprehensive income		8,390		10,263
Investment basis differences		979		692
Depreciation and amortization		129		16
Other		882		871

Total deferred tax liabilities		16,598		15,062

Total net deferred tax assets	$	26,884	$	20,250

Management believes it is more likely than not that the deferred tax assets will be fully utilized in future years. As a result, the Company has not recorded a valuation allowance at June 30, 2015 and December 31, 2014.

The Company has an alternative minimum tax credit carry forward of $10.5 million and $10.5 million as of June 30, 2015 and December 31, 2014, respectively, which can be carried forward indefinitely. The company has no net operating loss (“NOL”) carryforward as of June 30, 2015 or December 31, 2014.

GLOBAL INDEMNITY PLC

7. 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 June 30,						Six Months Ended June 30,
(Dollars in thousands)	2015			2014			2015			2014
Balance at beginning of period	$	770,119		$	779,047		$	675,472		$	779,466
Less: Ceded reinsurance receivables		140,508			195,533			123,201			192,491

Net balance at beginning of period		629,611			583,514			552,271			586,975
Purchased reserves, gross		(584	)		—			88,370			—
Less: Purchased reserves ceded		—			—			11,681			—

Purchased reserves, net		(584	)		—			76,689			—

Incurred losses and loss adjustment expenses related to:
Current year		84,724			42,298			157,838			82,964
Prior years		(5,164	)		(4,028	)		(8,659	)		(6,122	)

Total incurred losses and loss adjustment expenses		79,560			38,270			149,179			76,842

Paid losses and loss adjustment expenses related to:
Current year		45,379			15,785			60,061			23,997
Prior years		32,406			30,402			87,276			64,223

Total paid losses and loss adjustment expenses		77,785			46,187			147,337			88,220

Net balance at end of period		630,802			575,597			630,802			575,597
Plus: Ceded reinsurance receivables		138,497			178,998			138,497			178,998

Balance at end of period	$	769,299		$	754,595		$	769,299		$	754,595

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 second quarter of 2015, the Company decreased its prior accident year loss reserves by $5.2 million, which consisted of a $3.6 million decrease related to Commercial Lines and a $1.6 million decrease related to Reinsurance Operations.

The $3.6 million decrease related to Commercial Lines primarily consisted of the following:

•

Professional: $2.9 million decrease primarily due to frequency emergence continuing to be better than anticipated in accident years 2006 through 2011.

•

General Liability: A $1.1 million decrease primarily related to accident years 2011 and 2012 due to less than anticipated frequency and severity.

The $1.6 million decrease related to Reinsurance Operations was primarily due to less severity on property than expected in accident years 2011 through 2014 due to catastrophe losses developing better than anticipated.

In the second quarter of 2014, the Company reduced its prior accident year loss reserves by $4.0 million, which consisted of a $3.0 million decrease related to Commercial Lines and a $1.0 million decrease related to Reinsurance Operations.

The $3.0 million decrease related to Commercial Lines primarily consisted of the following:

•

General liability: A $0.8 million net increase which consisted of a $6.0 million reduction in the ongoing General Liability book due to less frequency and severity than anticipated and a $6.8 million increase to the Company’s older environmentally exposed book.

•

Asbestos: A $6.9 million increase primarily related to accident years prior to 1990 due to recent development on several claims.

•

Professional: A $10.0 million reduction primarily driven by a lower than expected severity from accident years 2007 through 2010.

•

Other: A $0.7 million decrease primarily related to the auto physical damage and marine lines of business.

GLOBAL INDEMNITY PLC

The $1.0 million decrease related to Reinsurance Operations primarily consisted of the following:

•

Property: A $1.3 million decrease primarily related to accident year 2012 due to catastrophe losses developing better than expected.

•

Commercial Auto Liability: A $0.3 million increase in aggregate related to accident years 2009 to 2011.

In the first six months of 2015, the Company decreased its prior accident year loss reserves by $8.7 million, which consisted of a $5.6 million decrease related to Commercial Lines and a $3.1 million decrease related to Reinsurance Operations.

The $5.6 million decrease related to Commercial Lines primarily consisted of the following:

•

Property: A $0.8 million decrease primarily related to accident years 2009 through 2013 due to less than anticipated frequency and severity.

•

Umbrella: $0.3 million decrease primarily due to emergence continuing to be better than anticipated in accident years 2003 through 2005.

•

Professional: $2.9 million decrease primarily due to frequency emergence continuing to be better than anticipated in accident years 2006 through 2011.

•

General Liability: A $1.8 million decrease primarily related to accident years 2011 and 2012 due to less than anticipated frequency and severity.

The $3.1 million decrease related to Reinsurance Operations was primarily due to less severity on property than expected in accident years 2011 through 2014 due to catastrophe losses developing better than anticipated.

In the first six months of 2014, the Company reduced its prior accident year loss reserves by $6.1 million, which consisted of a $5.0 million decrease related to Commercial Lines and a $1.1 million decrease related to Reinsurance Operations.

The $5.0 million decrease related to Commercial Lines primarily consisted of the following:

•

Asbestos: A $6.9 million increase primarily related to accident years prior to 1990 due to recent development on several claims.

•

Professional: An $11.8 million reduction primarily driven by a lower than expected severity from accident years 2007 through 2010.

The $1.1 million decrease related to Reinsurance Operations primarily consisted of the following:

•

Property: A $1.3 million decrease primary due to less severity than expected in accident years 2011 through 2014 due to catastrophe losses developing better than anticipated.

•

Commercial Auto Liability: A $0.2 million increase in aggregate related to accident years 2009 to 2011.

8. Debt

The amount outstanding on the Company’s margin borrowing facilities was $187.4 million and $174.7 million as of June 30, 2015 and December 31, 2014, respectively. The borrowing rate for each facility is tied to LIBOR and is currently approximately 1%. These facilities are due on demand. The borrowings are subject to maintenance margin, which is a minimum account balance that must be maintained. A decline in market conditions could require an additional deposit of collateral. As of June 30, 2015, approximately $238.3 million in securities were deposited as collateral to support the borrowing.

GLOBAL INDEMNITY PLC

9. Shareholders’ Equity

Repurchases of the Company’s A ordinary shares

The following table provides information with respect to the A ordinary shares that were surrendered or repurchased during the quarter ended June 30, 2015:


Period (1)	Total Number of Shares Purchased			Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program
May 1-31, 2015		596	(2)	$	27.01		—

Total		596		$	27.01		—

(1)

Based on settlement date.

(2)

Surrendered by employees as payment of taxes withheld on the vesting of restricted A ordinary shares.

No shares were repurchased during the quarter ended June 30, 2014.

Please see Note 11 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2014 Annual Report on Form 10-K for more information on the Company’s repurchase program.

10. Related Party Transactions

Fox Paine & Company

As of June 30, 2015, Fox Paine beneficially owned shares having approximately 93% 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.

At June 30, 2015 and December 31, 2014, Global Indemnity Reinsurance was a limited partner in Fox Paine Capital Fund, II, which is managed by Fox Paine. 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. The Company’s investment in this limited partnership was valued at $3.3 million and $3.4 million at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015, the Company had an unfunded capital commitment of $2.4 million to the partnership. There were no distributions received from the limited partnership during the second quarter of 2015 or 2014. During the six months ended June 30, 2015, the Company received a distribution of $0.8 million. There were no distributions received from the limited partnership during the six months ended June 30, 2014.

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 in each of the quarters ended June 30, 2015 and 2014 and $1.0 million in each of the six months ended June 30, 2015 and 2014 as part of the annual management fee paid to Fox Paine. As of June 30, 2015 and December 31, 2014, unpaid management fees, which were included in other liabilities on the consolidated balance sheets, were $1.6 million and $0.6 million, respectively.

In connection with the acquisition, 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 six months ended June 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 in May, 2015. These shares will be registered but cannot be sold until the earlier of five years or a change of control. See Note 12 for additional information on the Global Indemnity plc Share Incentive Plan.

GLOBAL INDEMNITY PLC

Cozen O’Connor

The Company incurred $0.2 million and $0.06 million for legal services rendered by Cozen O’Connor during the quarters ended June 30, 2015 and 2014, respectively. The Company incurred $0.3 million and $0.09 million for legal services rendered by Cozen O’Connor during the six months ended June 30, 2015 and 2014, respectively. Stephen A. Cozen, the chairman of Cozen O’Connor, is a member of the Company’s Board of Directors.

Crystal & Company

The Company incurred brokerage fees with Crystal & Company, an insurance broker, of $0.06 million during each of the quarters ended June 30, 2015 and 2014 and $0.1 million during each of the six months ended June 30, 2015 and 2014. James W. Crystal, the chairman and chief executive officer of Crystal & Company, is a member of the Company’s Board of Directors.

Hiscox Insurance Company (Bermuda) Ltd.

Global Indemnity Reinsurance is a participant in a reinsurance agreement with Hiscox Insurance Company (Bermuda) Ltd. (“Hiscox Bermuda”) effective January 1, 2013. Steve Green, the President of Global Indemnity Reinsurance, was a member of Hiscox Bermuda’s Board of Directors until May, 2014. The Company estimated that the following earned premium and incurred losses related to the agreement have been assumed by Global Indemnity Reinsurance from Hiscox Bermuda:


	Quarters Ended June 30,
(Dollars in thousands)	2015		2014
Assumed earned premium	$	886	$	1,802
Assumed losses and loss adjustment expenses		239		541

	Six Months Ended June 30,
(Dollars in thousands)	2015		2014
Assumed earned premium	$	2,248	$	2,816
Assumed losses and loss adjustment expenses		643		845

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


(Dollars in thousands)	June 30, 2015		December 31, 2014
Net receivable balance	$	174	$	2,897

11. 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.

GLOBAL INDEMNITY PLC

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 June 30, 2015, the Company has funded $26.5 million of this commitment leaving $23.6 million as unfunded.

At June 30, 2015, the Company had an unfunded capital commitment of $2.4 million related to its investment in Fox Paine Capital Fund, II. See Note 10 for additional information on the Company’s investment in Fox Paine Capital Fund, II.

12. Share-Based Compensation Plans

On June 11, 2014, the Company’s Shareholders approved the Global Indemnity plc Share Incentive Plan (the “Plan”). The previous share incentive plan, which became effective in 2003, expired per its terms on September 5, 2013. The purpose of the Plan is to give the Company a competitive advantage in attracting and retaining officers, employees, consultants and non-employee directors by offering stock options, restricted shares and other stock-based awards. Under the Plan, the Company may issue up to 2.0 million A ordinary shares pursuant to awards granted under the Plan.

Options

No stock options were awarded during the quarters ended June 30, 2015 and 2014.

During the six months ended June 30, 2015, the company awarded 200,000 time based options with a strike price of $28.37 per share which vest one third on each of December 31, 2015, December 31, 2016, and December 31, 2017. During the six months ended June 30, 2014, the company awarded 25,000 time based options with a strike price of $24.00 per share which vest in February, 2017. No unvested stock options were forfeited during the quarters ended June 30, 2015 and 2014.

Restricted Shares

No restricted shares were issued to employees during the quarter ended June 30, 2015.

During the quarter ended June 30, 2014, the Company issued 5,671 A ordinary shares, with a weighted average grant date value of $26.45 per share, to a key employee under the Plan. An additional 90,023 A ordinary shares, which were earned prior to April 1, 2014, were granted to key employees when the Company’s Plan was approved on June 11, 2014.

During the six months ended June 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 six months ended June 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 anniversary of the third year subject to accident year true-up of bonus year underwriting results and are subject to Board approval.

During the six months ended June 30, 2014, the Company issued 95,694 A ordinary shares, with a weighted average grant date value of $25.37 per share, to key employees under the Plan.

Of the shares granted during the six months ended June 30, 2014, 11,587 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. 5,671 shares were granted to a key employee and vest 33 1/3% on each subsequent anniversary date of the award for a period of three years. The remaining 78,166 shares were granted to key employees and will vest as follows:

•

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

GLOBAL INDEMNITY PLC

•

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

During the quarters ended June 30, 2015 and 2014, the Company issued 8,798 and 9,250 A ordinary shares, respectively, at a weighted average grant date value of $28.08 and $25.99 per share, respectively, to non-employee directors of the Company under the Plan. During the six months ended June 30, 2015 and 2014, the Company issued 18,045 and 18,178 A ordinary shares, respectively, at a weighted average grant date value of $27.91 and $26.16 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 2015 and 2014 were fully vested but subject to certain restrictions. An additional 27,766 A ordinary shares were granted to non-employee directors on June 11, 2014. These shares were issued to non-employee directors prior to April 1, 2014 on the condition that the shareholders approve the Company’s revised share incentive plan at the Company’s 2014 annual shareholder meeting which occurred on June 11, 2014.

13. Earnings Per Share

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

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


(Dollars in thousands,	Quarters Ended June 30,				Six Months Ended June 30,
except share and per share data)	2015		2014		2015		2014
Net income	$	11,117	$	33,208	$	17,911	$	42,031

Basic earnings per share:
Weighted average shares outstanding – basic		25,454,579		25,128,280		25,447,398		25,121,171

Net income per share	$	0.44	$	1.32	$	0.70	$	1.67

Diluted earnings per share:
Weighted average shares outstanding – diluted		25,680,997		25,312,938		25,659,869		25,301,783

Net income per share	$	0.43	$	1.31	$	0.70	$	1.66

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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Weighted average shares for basic earnings per share		25,454,579		25,128,280		25,447,398		25,121,171
Non-vested restricted stock		122,141		77,880		109,308		77,125
Options		104,277		106,778		103,163		103,487

Weighted average shares for diluted earnings per share		25,680,997		25,312,938		25,659,869		25,301,783

The weighted average shares outstanding used to determine dilutive earnings per share for the quarters ended June 30, 2015 and 2014 do not include 512,500 and 37,500 shares, respectively, which were deemed to be anti-dilutive. The weighted average shares outstanding used to determine dilutive earnings per share for the six months ended June 30, 2015 and 2014 do not include 512,500 and 37,500 shares, respectively, which were deemed to be anti-dilutive.

GLOBAL INDEMNITY PLC

14. Segment Information

The acquisition of American Reliable has impacted the way the Company manages and analyzes its operating results. The business acquired from American Reliable is considered to be a separate segment, Personal Lines. The Company now manages its business through three business segments: Commercial Lines, managed in Bala Cynwyd, PA, offers specialty property and casualty products designed for product lines such as Small Business Binding Authority, Property Brokerage, and Programs; Personal Lines, managed in Scottsdale, AZ, offers specialty personal lines and agricultural coverage; and Reinsurance Operations, managed in Bermuda, provides reinsurance solutions through brokers and primary writers including insurance and reinsurance companies.

The following are tabulations of business segment information for the quarters and six months ended June 30, 2015 and 2014.


Quarter Ended June 30, 2015: (Dollars in thousands)	Commercial Lines (1)			Personal Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	59,033		$	89,004		$	18,478		$	166,515

Net premiums written	$	54,700		$	72,827		$	18,478		$	146,005

Net premiums earned	$	49,614		$	65,918		$	13,345		$	128,877
Other income		153			411			13			577

Total revenues		49,767			66,329			13,358			129,454

Losses and Expenses:
Net losses and loss adjustment expenses		30,039			45,180			4,341			79,560
Acquisition costs and other underwriting expenses		20,008	(3)		26,065	(4)		4,853			50,926

Income (loss) from segments	$	(280	)	$	(4,916	)	$	4,164		$	(1,032	)

Unallocated Items:
Net investment income											9,141
Net realized investment gains											6,532
Corporate and other operating expenses											(4,334	)
Interest expense											(535	)

Income before income taxes											9,772
Income tax benefit											1,345

Net income											11,117

Total assets	$	944,744		$	554,302		$	761,412	(5)	$	2,260,458

(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 $261 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Includes federal excise tax of $330 relating to cessions from Personal Lines to Reinsurance Operations.

(5)

Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries.

GLOBAL INDEMNITY PLC


Quarter Ended June 30, 2014: (Dollars in thousands)	Commercial Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	60,556		$	22,349		$	82,905

Net premiums written	$	55,039		$	21,333		$	76,372

Net premiums earned	$	53,034		$	12,983		$	66,017
Other income (loss)		160			(5	)		155

Total revenues		53,194			12,978			66,172
Losses and Expenses:
Net losses and loss adjustment expenses		33,875			4,395			38,270
Acquisition costs and other underwriting expenses		22,560	(3)		4,611			27,171

Income (loss) from segments	$	(3,241	)	$	3,972			731

Unallocated Items:
Net investment income								7,677
Net realized investment gains								39,881
Corporate and other operating expenses								(3,172	)
Interest expense								(319	)

Income before income taxes								44,798
Income tax expense								(11,590	)

Net income							$	33,208

Total assets	$	1,316,314		$	661,373	(4)	$	1,977,687

(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 $281 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries.

GLOBAL INDEMNITY PLC


Six Months Ended June 30, 2015: (Dollars in thousands)	Commercial Lines (1)			Personal Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	108,826		$	162,215		$	38,343		$	309,384

Net premiums written	$	100,322		$	133,483		$	38,304		$	272,109

Net premiums earned	$	100,328		$	129,340		$	26,546		$	256,214
Other income (loss)		318			877			(66	)		1,129

Total revenues		100,646			130,217			26,480			257,343

Losses and Expenses:
Net losses and loss adjustment expenses		59,642			81,098			8,439			149,179
Acquisition costs and other underwriting expenses		40,631	(3)		48,811	(4)		9,742			99,184

Income from segments	$	373		$	308		$	8,299		$	8,980

Unallocated Items:
Net investment income											17,382
Net realized investment gains											3,562
Corporate and other operating expenses											(15,874	)
Interest expense											(1,040	)

Income before income taxes											13,010
Income tax benefit											4,901

Net income											17,911

Total assets	$	944,744		$	554,302		$	761,412	(5)	$	2,260,458

(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 $529 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Includes federal excise tax of $647 relating to cessions from Personal Lines to Reinsurance Operations.

(5)

Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries.

GLOBAL INDEMNITY PLC


Six Months Ended June 30, 2014: (Dollars in thousands)	Commercial Lines (1)			Reinsurance Operations (2)			Total
Revenues:
Gross premiums written	$	113,548		$	46,554		$	160,102

Net premiums written	$	103,695		$	45,538		$	149,233

Net premiums earned	$	106,347		$	27,214		$	133,561
Other income (loss)		326			(3	)		323

Total revenues		106,673			27,211			133,884
Losses and Expenses:
Net losses and loss adjustment expenses		67,472			9,370			76,842
Acquisition costs and other underwriting expenses		44,278	(3)		9,378			53,656

Income (loss) from segments	$	(5,077	)	$	8,463			3,386

Unallocated Items:
Net investment income								15,961
Net realized investment gains								39,068
Corporate and other operating expenses								(6,133	)
Interest expense								(510	)

Income before income taxes								51,772
Income tax expense								(9,741	)

Net income							$	42,031

Total assets	$	1,316,314		$	661,373	(4)	$	1,977,687

(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 $561 relating to cessions from Commercial Lines to Reinsurance Operations.

(4)

Comprised of Global Indemnity Reinsurance’s total assets less its investment in subsidiaries.

GLOBAL INDEMNITY PLC

15. New Accounting Pronouncements

In May, 2015, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance surrounding investments in certain entities that calculate net asset value per share. The new guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. This guidance is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.

In May, 2015, the FASB issued new accounting guidance surrounding short-duration contracts. The new guidance requires additional disclosure surrounding the liability for unpaid claims and claim adjustment expenses. This guidance is effective for public business entities for annual periods beginning after December 15, 2015 and interim periods within annual periods beginning after December 15, 2016.

The Company does not expect either of these two new accounting pronouncements to have a material impact on the Company’s consolidated statements of financial position or results of operations.

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, 2014.

Recent Developments

On June 12, 2015, A.M. Best affirmed the financial strength rating of “A” (Excellent) for Global Indemnity Reinsurance and its U.S. insurance subsidiaries. Global Indemnity Reinsurance and subsidiaries have a financial size category of “XII” with A.M. Best, which represents an adjusted policyholder’s surplus of $1 billion to $1.25 billion.

Acquisition of American Reliable Insurance Company

On January 1, 2015, Global Indemnity Group, Inc. completed its acquisition of American Reliable. The results of American Reliable’s operations are included in the Company’s consolidated financial statements since the date of acquisition on January 1, 2015. The business acquired from American Reliable is considered to be a separate segment, Personal Lines. For additional information related to the acquisition of American Reliable, see Note 2 and Note 14 of the notes to the consolidated financial statements in Item 1 of Part I as well as the “Overview” and “Results of Operations” sections below.

Overview

In connection with the acquisition of American Reliable, the Company reevaluated segment classifications and determined that the Company will operate and manage its business through three business segments: Commercial Lines, Personal Lines, and Reinsurance Operations.

The Company’s Commercial Lines segment distribute property and casualty insurance products through a group of approximately 110 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

GLOBAL INDEMNITY PLC

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 the American Reliable product classification, offers specialty personal lines and agricultural coverage through general and specialty agents.

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

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

The Company’s expenses include losses and loss adjustment expenses, acquisition costs and other underwriting expenses, corporate and other operating expenses, interest, investment expenses, and income taxes. Losses and loss adjustment expenses are estimated by management and reflect the Company’s best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates. The Company records its best estimate of losses and loss adjustment expenses based on 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. 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 Company believes that of the Company’s significant accounting policies, the following may involve a higher degree of judgment and estimation.

Liability for Unpaid Losses and Loss Adjustment Expenses

Although variability is inherent in estimates, the Company believes that the liability for unpaid losses and loss adjustment expenses reflects its best estimate for future amounts needed to pay losses and related loss adjustment expenses and the impact of its reinsurance coverage with respect to insured events.

In developing loss and loss adjustment expense (“loss” or “losses”) reserve estimates for the Company’s Insurance Operations, its actuaries perform detailed reserve analyses each quarter. To perform the analysis, the data is organized at a “reserve category” level. Management is responsible for the final determination of loss reserve selections. A reserve category can be a line of business such as commercial automobile liability, or it can be a particular type of claim such as construction defect. The reserves within a reserve category level are characterized as short-tail and long-tail. For long-tail business, it will generally be several years between the time the business is written and the time when all claims are settled. The Company’s long-tail exposures include general liability, professional liability, products liability, commercial automobile liability, and excess and umbrella. Short-tail exposures include property, commercial automobile physical damage, and equine mortality.

GLOBAL INDEMNITY PLC

To manage its insurance operations, the Company differentiates by product classifications, which are Penn-America, United National, Diamond State and American Reliable. For further discussion about the Company’s product classifications, see “General – Business Segments—Insurance Operations” in Item 1 of Part I of the Company’s 2014 Annual Report on Form 10-K. Each of the Company’s product classifications contain both long-tail and short-tail exposures. Every reserve category is analyzed by the Company’s actuaries each quarter. The analyses generally include reviews of losses gross of reinsurance and net of reinsurance.

Loss reserve estimates for the Company’s Reinsurance Operations are developed by independent, external actuaries at least annually and are regularly monitored by management. Management is responsible for the final determination of loss reserve selections. The data for this analysis is organized by treaty and treaty year. As with the Company’s reserves for its Insurance Operations, reserves for its Reinsurance Operations are characterized as short-tail and long-tail. Long-tail exposures include workers compensation, professional liability, and excess and umbrella liability. Short-tail exposures are primarily catastrophe exposed property and marine accounts. Management reviews each treaty each quarter both gross and net of reinsurance.

In addition to the Company’s internal reserve analysis, independent external actuaries perform a full, detailed review of the Insurance and Reinsurance Operations’ reserves annually. The Company reviews both the internal and external actuarial analyses in determining its reserve position.

•

Paid Development method;

•

Incurred Development method;

•

Expected Loss Ratio method;

•

Bornhuetter-Ferguson method using premiums and paid loss;

•

Bornhuetter-Ferguson method using premiums and incurred loss; and

•

Average Loss method.

The Paid Development method estimates ultimate losses by reviewing paid loss patterns and applying them to accident years with further expected changes in paid loss. Selection of the paid loss pattern requires analysis of several factors including the impact of inflation on claims costs, the rate at which claims professionals make claim payments and close claims, the impact of judicial decisions, the impact of underwriting changes, the impact of large claim payments and other factors. Claim cost inflation itself requires evaluation of changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors. Because this method assumes that losses are paid at a consistent rate, changes in any of these factors can impact the results. Since the method does not rely on case reserves, it is not directly influenced by changes in the adequacy of case reserves.

For many reserve categories, paid loss data for recent periods may be too immature or erratic for accurate predictions. This situation often exists for long-tail exposures. In addition, changes in the factors described above may result in inconsistent payment patterns. Finally, estimating the paid loss pattern subsequent to the most mature point available in the data analyzed often involves considerable uncertainty for long-tail reserve categories.

The Incurred Development method is similar to the Paid Development method, but it uses case incurred losses instead of paid losses. Since this method uses more data (case reserves in addition to paid losses) than the Paid Development method, the incurred development patterns may be less variable than paid development patterns. However, selection of the incurred loss pattern requires analysis of all of the factors listed in the description of the Paid Development method. In addition, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place and the use of case incurred losses may not eliminate the issues associated with estimating the incurred loss pattern subsequent to the most mature point available.

The Expected Loss Ratio method multiplies premiums by an expected loss ratio to produce ultimate loss estimates for each accident year. This method may be useful if loss development patterns are inconsistent, losses emerge very slowly, or there is relatively little loss history from which to estimate future losses. The selection of the expected loss ratio requires analysis of loss ratios from earlier accident years or pricing studies and analysis of inflationary trends, frequency trends, rate changes, underwriting changes, and other applicable factors.

GLOBAL INDEMNITY PLC

The Bornhuetter-Ferguson method using premiums and paid losses is a combination of the Paid Development method and the Expected Loss Ratio method. This method normally determines expected loss ratios similar to the method used for the Expected Loss Ratio method and requires analysis of the same factors described above. The method assumes that only future losses will develop at the expected loss ratio level. The percent of paid loss to ultimate loss implied from the Paid Development method is used to determine what percentage of ultimate loss is yet to be paid. The use of the pattern from the Paid Development method requires consideration of all factors listed in the description of the Paid Development method. The estimate of losses yet to be paid is added to current paid losses to estimate the ultimate loss for each year. This method will react very slowly if actual ultimate loss ratios are different from expectations due to changes not accounted for by the expected loss ratio calculation.

The Bornhuetter-Ferguson method using premiums and incurred losses is similar to the Bornhuetter-Ferguson method using premiums and paid losses except that it uses case incurred losses. The use of case incurred losses instead of paid losses can result in development patterns that are less variable than paid development patterns. However, the inclusion of case reserves can lead to distortions if changes in case reserving practices have taken place. The method requires analysis of all the factors that need to be reviewed for the Expected Loss Ratio and Incurred Development methods.

The Average Loss method multiplies a projected number of ultimate claims by an estimated ultimate average loss for each accident year to produce ultimate loss estimates. Since projections of the ultimate number of claims are often less variable than projections of ultimate loss, this method can provide more reliable results for reserve categories where loss development patterns are inconsistent or too variable to be relied on exclusively. In addition, this method can more directly account for changes in coverage that impact the number and size of claims. However, this method can be difficult to apply to situations where very large claims or a substantial number of unusual claims result in volatile average claim sizes. Projecting the ultimate number of claims requires analysis of several factors including the rate at which policyholders report claims to the Company, the impact of judicial decisions, the impact of underwriting changes and other factors. Estimating the ultimate average loss requires analysis of the impact of large losses and claim cost trends based on changes in the cost of repairing or replacing property, changes in the cost of medical care, changes in the cost of wage replacement, judicial decisions, legislative changes and other factors.

For many exposures, especially those that can be considered long-tail, a particular accident year may not have a sufficient volume of paid losses to produce a statistically reliable estimate of ultimate losses. In such a case, the Company’s actuaries typically assign more weight to the Incurred Development method than to the Paid Development method. As claims continue to settle and the volume of paid losses increases, the actuaries may assign additional weight to the Paid Development method. For most of the Company’s reserve categories, even the incurred losses for accident years that are early in the claim settlement process will not be of sufficient volume to produce a reliable estimate of ultimate losses. In these cases, the Company will not assign any weight to the Paid and Incurred Development methods and will use the Bornhuetter-Ferguson and Expected Loss Ratio methods. For short-tail exposures, the Paid and Incurred Development methods can often be relied on sooner primarily because the Company’s history includes a sufficient number of years to cover the entire period over which paid and incurred losses are expected to change. However, the Company may also use the Expected Loss Ratio, Bornhuetter-Ferguson and Average Loss methods for short-tail exposures.

Generally, reserves for long-tail lines give more weight to the Expected Loss Ratio method in the more recent immature years. As the accident years mature, weight shifts to the Bornhuetter-Ferguson methods and eventually to the Incurred and/or Paid Development method. Claims related to umbrella business are usually reported later than claims for other long-tail lines. For umbrella business, the shift from the Expected Loss Ratio method to the Bornhuetter-Ferguson methods to the Loss Development method may be more protracted than for most long tailed lines. Reserves for short-tail lines tend to make the shift across methods more quickly than the long tail lines.

For other more complex reserve categories where the above methods may not produce reliable indications, the Company uses additional methods tailored to the characteristics of the specific situation. Such reserve categories include losses from construction defects and asbestos and environmental (“A&E”).

For construction defect losses, the Company’s actuaries organize losses by the year in which they were reported. To estimate losses from claims that have not been reported, various extrapolation techniques are applied to the pattern of claims that have been reported to estimate the number of claims yet to be reported. This process requires analysis of several factors including the rate at which policyholders report claims to the Company, the impact of judicial decisions, the impact of underwriting changes and other factors. An average claim size is determined from past experience and applied to the number of unreported claims to estimate reserves for these claims.

GLOBAL INDEMNITY PLC

Establishing reserves for A&E and other mass tort claims involves considerably more judgment than other types of claims due to, among other things, inconsistent court decisions, an increase in bankruptcy filings as a result of asbestos-related liabilities, and judicial interpretations that often expand theories of recovery and broaden the scope of coverage. The insurance industry continues to receive a substantial number of asbestos-related bodily injury claims, with an increasing focus being directed toward other parties, including installers of products containing asbestos rather than against asbestos manufacturers. This shift has resulted in significant insurance coverage litigation implicating applicable coverage defenses or determinations, if any, including but not limited to, determinations as to whether or not an asbestos-related bodily injury claim is subject to aggregate limits of liability found in most comprehensive general liability policies. The Company continues to closely monitor its asbestos exposure and make adjustments where they are warranted.

In 2009, one of the Company’s insurance companies entered into a settlement agreement to resolve asbestos related coverage litigation related to approximately 3,900 existing asbestos-related bodily injury claims and future claims. The settlement was approved by the Court and a final order was issued in September 2014.

In addition, the Company has exposure to other asbestos related matters. In 2013, three claims were reported on an excess policy that was written in 1985. These claims were settled in April, 2014. Management will continue to monitor the developments of the litigation noted above as well as the new claims that have been reported to determine if any additional financial exposure is present.

Reserve analyses performed by the Company’s internal and external actuaries result in actuarial point estimates. The results of the detailed reserve reviews were summarized and discussed with the Company’s senior management to determine the best estimate of reserves. This group considered many factors in making this decision. The factors included, but were not limited to, the historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and incurred loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in the Company’s pricing and underwriting, and overall pricing and underwriting trends in the insurance market.

Management’s best estimate at June 30, 2015 was recorded as the loss reserve. Management’s best estimate is as of a particular point in time and is based upon known facts, the Company’s actuarial analyses, current law, and the Company’s judgment. This resulted in carried gross and net reserves of $769.3 million and $630.8 million, respectively, as of June 30, 2015. A breakout of the Company’s gross and net reserves, excluding the effects of the Company’s intercompany pooling arrangements and intercompany stop loss and quota share reinsurance agreements, as of June 30, 2015 is as follows:


	Gross Reserves
(Dollars in thousands)	Case		IBNR (1)		Total
Commercial Lines		144,159		422,613		566,772
Personal Lines		35,656		73,965		109,621
Reinsurance Operations		31,917		60,989		92,906

Total		211,732		557,567		769,299


	Net Reserves (2)
(Dollars in thousands)	Case		IBNR (1)		Total
Commercial Lines		109,361		340,863		450,224
Personal Lines		34,972		53,068		88,040
Reinsurance Operations		31,917		60,621		92,538

Total		176,250		454,552		630,802

(1)

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

(2)

Does not include reinsurance receivable on paid losses.

The Company continually reviews these estimates and, based on new developments and information, includes adjustments of the estimated ultimate liability in the operating results for the periods in which the adjustments are made. The establishment of loss and loss adjustment expense reserves makes no provision for the possible broadening of coverage by legislative action or judicial interpretation, or the emergence of new types of losses not sufficiently represented in the Company’s historical experience or that cannot yet be quantified or estimated. The Company regularly analyzes its reserves and reviews pricing and reserving methodologies so that future adjustments to prior year reserves can be minimized. However, given the complexity of this process, reserves require continual updates and the ultimate liability may be higher or lower than previously indicated. Changes in estimates for loss and loss adjustment expense reserves are recorded in the period that the

GLOBAL INDEMNITY PLC

change in these estimates is made. See Note 7 of the notes to the consolidated financial statements in Item 1 of Part I of this report for details concerning the changes in the estimate for incurred loss and loss adjustment expenses related to prior accident years.

The detailed reserve analyses that the Company’s internal and external actuaries complete use a variety of generally accepted actuarial methods and techniques to produce a number of estimates of ultimate loss. The Company determines its best estimate of ultimate loss by reviewing the various estimates and assigning weight to each estimate given the characteristics of the reserve category being reviewed. The reserve estimate is the difference between the estimated ultimate loss and the losses paid to date. The difference between the estimated ultimate loss and the case incurred loss (paid loss plus case reserve) is considered to be losses incurred but not reported (“IBNR”). IBNR calculated as such includes a provision for development on known cases (supplemental development) as well as a provision for claims that have occurred but have not yet been reported (pure IBNR).

In light of the many uncertainties associated with establishing the estimates and making the assumptions necessary to establish reserve levels, the Company reviews its reserve estimates on a regular basis and makes adjustments in the period that the need for such adjustments is determined. The anticipated future loss emergence continues to be reflective of historical patterns, and the selected development patterns have not changed significantly from those underlying the Company’s most recent analyses.

The key assumptions fundamental to the reserving process are often different for various reserve categories and accident years. Some of these assumptions are explicit assumptions that are required of a particular method, but most of the assumptions are implicit and cannot be precisely quantified. An example of an explicit assumption is the pattern employed in the Paid Development method. However, the assumed pattern is itself based on several implicit assumptions such as the impact of inflation on medical costs and the rate at which claim professionals close claims. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Each reserve segment has an implicit frequency and severity for each accident year as a result of the various assumptions made.

Previous reserve analyses have resulted in the Company’s identification of information and trends that have caused it to increase or decrease frequency and severity assumptions in prior periods and could lead to the identification of a need for additional material changes in loss and loss adjustment expense reserves, which could materially affect results of operations, equity, business and insurer financial strength and debt ratings. Factors affecting loss frequency include, among other things, the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include, among other things, changes in policy limits and deductibles, rate of inflation and judicial interpretations. Another factor affecting estimates of loss frequency and severity is the loss reporting lag, which is the period of time between the occurrence of a loss and the date the loss is reported to the Company. The length of the loss reporting lag affects the Company’s ability to accurately predict loss frequency (loss frequencies are more predictable for short-tail lines) as well as the amount of reserves needed for IBNR.

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 reserving classes, the Company believes that frequency can be predicted with greater accuracy than severity. Therefore, the Company believes management’s best estimate is more sensitive to changes in severity than frequency. The following table, which the Company believes reflects a reasonable range of variability around its best estimate based on historical loss experience and management’s judgment, reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on the Company’s current accident year net loss estimate of $157.8 million for claims occurring during the six months ended June 30, 2015:


(Dollars in thousands)			Severity Change
			-10%			-5%			0%			5%			10%
Frequency Change	-5	%	$	(22,881	)	$	(15,386	)	$	(7,890	)	$	(395	)	$	7,101
	-3	%		(20,041	)		(12,387	)		(4,734	)		2,919			10,573
	-2	%		(18,620	)		(10,888	)		(3,156	)		4,576			12,308
	-1	%		(17,200	)		(9,389	)		(1,578	)		6,233			14,044
	0	%		(15,780	)		(7,890	)		0			7,890			15,780
	1	%		(14,360	)		(6,391	)		1,578			9,547			17,516
	2	%		(12,940	)		(4,892	)		3,156			11,204			19,252
	3	%		(11,519	)		(3,393	)		4,734			12,861			20,987
	5	%		(8,679	)		(395	)		7,890			16,175			24,459

GLOBAL INDEMNITY PLC

The Company’s net reserves for losses and loss expenses of $630.8 million as of June 30, 2015 relate to multiple accident years. Therefore, the impact of changes in frequency and severity for more than one accident year could be higher or lower than the amounts reflected above.

Recoverability of Reinsurance Receivables

The Company regularly reviews the collectability of its reinsurance receivables and includes adjustments resulting from this review in earnings in the period in which the adjustment arises. A.M. Best ratings, financial history, available collateral and payment history with the reinsurers are several of the factors that the Company considers when judging collectability. Changes in loss reserves can also affect the valuation of reinsurance receivables if the change is related to loss reserves that are ceded to reinsurers. Certain amounts may be uncollectible if the Company’s reinsurers dispute a loss or if the reinsurer is unable to pay. If its reinsurers do not pay, the Company remains legally obligated to pay the loss.

Investments

The carrying amount of the Company’s investments approximates their fair value. The Company regularly performs various analytical valuation procedures with respect to investments, including reviewing each fixed maturity security in an unrealized loss position to determine the amount of unrealized loss related to credit loss and the amount related to all other factors, such as changes in interest rates. The credit loss represents the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of the other than temporary impairment is recorded through earnings, whereas the amount relating to factors other than credit losses are recorded in other comprehensive income, net of taxes. During its review, the Company considers credit rating, market price, and issuer specific financial information, among other factors, to assess the likelihood of collection of all principal and interest as contractually due. Securities for which the Company determines that a credit loss is likely are subjected to further analysis to estimate the credit loss to be recognized in earnings, if any. See Note 3 of the notes to consolidated financial statements in Item 1 of Part I of this report for the specific methodologies and significant assumptions used by asset class. Upon identification of such securities and periodically thereafter, a detailed review is performed to determine whether the decline is considered other than temporary. This review includes an analysis of several factors, including but not limited to, the credit ratings and cash flows of the securities and the magnitude and length of time that the fair value of such securities is below cost.

For an analysis of the Company’s securities with gross unrealized losses as of June 30, 2015 and December 31, 2014, and for other than temporary impairment losses that the Company recorded for the quarters ended June 30, 2015 and 2014, please see Note 3 of the notes to the consolidated financial statements in Item 1 of Part I of this report.

Fair Value Measurements

The Company categorizes its invested assets and derivative instruments that are accounted for at fair value in the consolidated statements into a fair value hierarchy. The fair value hierarchy is directly related to the amount of subjectivity associated with the inputs utilized to determine the fair value of these assets.

The reported value of financial instruments not carried at fair value, principally cash and cash equivalents and margin borrowing facility, approximates fair value.

See Note 5 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further information about the fair value hierarchy and the Company’s assets that are accounted for at fair value.

Goodwill and Intangible Assets

The Company tests for impairment of goodwill at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of goodwill for impairment using both qualitative and quantitative factors. Impairment of goodwill is recognized only if the carrying amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit. The amount of the impairment loss would be equal to the excess carrying value of the goodwill over the implied fair value of the reporting unit goodwill.

GLOBAL INDEMNITY PLC

Impairment of intangible assets with indefinite useful lives is tested at least annually and more frequently as circumstances warrant in accordance with applicable accounting guidance. Accounting guidance allows for the testing of intangible assets for impairment using both qualitative and quantitative factors. Impairment of indefinite lived intangible assets is recognized only if the carrying amount of the intangible assets exceeds the fair value of said assets. The amount of the impairment loss would be equal to the excess carrying value of the assets over the fair value of said assets.

Intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amounts of definite lived intangible assets are regularly reviewed for indicators of impairment in accordance with applicable accounting guidance. Impairment is recognized only if the carrying amount of the intangible asset is in excess of its undiscounted projected cash flows. The impairment is measured as the difference between the carrying amount and the estimated fair value of the asset.

Deferred Acquisition Costs

The costs of acquiring new and renewal insurance and reinsurance contracts include commissions, premium taxes and certain other costs that vary with and are directly related to the successful acquisition of new and renewal insurance and reinsurance contracts. The excess of the Company’s costs of acquiring new and renewal insurance and reinsurance contracts over the related ceding commissions earned from reinsurers is capitalized as deferred acquisition costs and amortized over the period in which the related premiums are earned.

In accordance with accounting guidance for insurance enterprises, the method followed in computing such amounts limits them to their estimated realizable value that gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. A premium deficiency charge is recognized if the sum of expected loss and loss adjustment expenses and unamortized acquisition costs exceeds related unearned premium. This evaluation is done at a product line level in Insurance Operations and at a treaty level in Reinsurance Operations. Any future expected loss on the related unearned premium is recorded first by impairing the unamortized acquisition costs on the related unearned premium followed by an increase to loss and loss adjustment expense reserves on additional expected loss in excess of unamortized acquisition costs. The Company calculates deferred acquisition costs for Insurance Operations separately by product lines and for its Reinsurance Operations separately for each treaty.

Taxation

The Company provides for income taxes in accordance with applicable accounting guidance. The Company’s deferred tax assets and liabilities primarily result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of the Company’s assets and liabilities.

At each balance sheet date, management assesses the need to establish a valuation allowance that reduces deferred tax assets when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. A valuation allowance would be based on all available information including the Company’s assessment of uncertain tax positions and projections of future taxable income from each tax-paying component in each jurisdiction, principally derived from business plans and available tax planning strategies. There are no valuation allowances as of June 30, 2015 or December 31, 2014. The deferred tax asset balance is analyzed regularly by management. This assessment requires significant judgment and considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of carryforward periods, and tax planning strategies and/or actions. Based on these analyses, the Company has determined that its deferred tax asset is recoverable. Projections of future taxable income incorporate several assumptions of future business and operations that are apt to differ from actual experience. If, in the future, the Company’s assumptions and estimates that resulted in the forecast of future taxable income for each tax-paying component prove to be incorrect, a valuation allowance may be required. This could have a material adverse effect on the Company’s financial condition, results of operations, and liquidity.

On an interim basis, the Company generally records its tax provision using the expected full year effective tax rate. Forecasts which compute taxable income and taxes expected to be incurred in the jurisdictions where the Company does business are prepared several times per year. The effective tax rate is computed by dividing forecasted income tax expense not including tax on net realized investment gains (losses) and discrete items by forecasted pre-tax income not including net realized investment gains (losses) and discrete items. Changes in pre-tax and taxable income in the jurisdictions where the Company does business can change the effective tax rate. To compute the Company’s income tax expense on an interim basis, the Company generally applies its expected full year effective tax rate against its pre-tax income excluding net realized

GLOBAL INDEMNITY PLC

investment gains (losses) and discrete items and then adds actual tax on net realized investment gains (losses) and discrete items to that result. However, when there is significant volatility in the expected tax rate, the Company records its actual income tax provision in lieu of the estimated effective income tax rate.

The Company applies a more likely than not recognition threshold for all tax uncertainties, only allowing the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the taxing authorities.

Business Segments

The Company manages its business through three business segments: Personal Lines, Commercial Lines, and Reinsurance Operations.

The Company evaluates the performance of these three segments based on gross and net premiums written, revenues in the form of net premiums earned and expenses in the form of net losses and loss adjustment expenses, acquisition costs, and other underwriting expenses.

For a description of the Company’s segments, see Note 14 of the notes to the consolidated financial statements in Item 1 of Part I.

GLOBAL INDEMNITY PLC

The following table sets forth an analysis of financial data for the Company’s segments during the periods indicated:


(Dollars in thousands)	Quarters Ended June 30,						Six Months Ended June 30,
	2015			2014			2015		2014
Personal Lines premium written:
Gross premiums written	$	89,004		$	—		$	162,215	$	—
Ceded premiums written		16,177			—			28,732		—

Net premiums written	$	72,827		$	—		$	133,483	$	—

Commercial Lines premiums written:
Gross premiums written	$	59,033		$	60,556		$	108,826	$	113,548
Ceded premiums written		4,333			5,517			8,504		9,853

Net premiums written	$	54,700		$	55,039		$	100,322	$	103,695

Reinsurance Operations premiums written:
Gross premiums written	$	18,478		$	22,349		$	38,343	$	46,554
Ceded premiums written		—			1,016			39		1,016

Net premiums written	$	18,478		$	21,333		$	38,304	$	45,538

Revenues: (1)
Personal Lines	$	66,329		$	—		$	130,217	$	—
Commercial Lines		49,767			53,194			100,646		106,673
Reinsurance Operations		13,358			12,978			26,480		27,211

Total revenues	$	129,454		$	66,172		$	257,343	$	133,884

Expenses: (2)
Personal Lines (3)	$	71,245		$	—		$	129,909	$	—
Commercial Lines (4)		50,047			56,435			100,273		111,750
Reinsurance Operations		9,194			9,006			18,181		18,748

Total expenses	$	130,486		$	65,441		$	248,363	$	130,498

Income (loss) from segments:
Personal Lines	$	(4,916	)	$	—		$	308	$	—
Commercial Lines		(280	)		(3,241	)		373		(5,077	)
Reinsurance Operations		4,164			3,972			8,299		8,463

Total income (loss) from segments	$	(1,032	)	$	731		$	8,980	$	3,386

Insurance combined ratio analysis: (5)
Personal Lines
Loss ratio		68.5			—			62.7		—
Expense ratio		39.5			—			37.7		—

Combined ratio		108.0			—			100.4		—

Commercial Line
Loss ratio		60.6			63.9			59.4		63.5
Expense ratio		40.3			42.5			40.5		41.6

Combined ratio		100.9			106.4			99.9		105.1

Reinsurance Operations
Loss ratio		32.5			33.9			31.8		34.5
Expense ratio		36.4			35.5			36.7		34.5

Combined ratio		68.9			69.4			68.5		69.0

Consolidated
Loss ratio		61.7			58.0			58.2		57.5
Expense ratio		39.5			41.2			38.7		40.2

Combined ratio		101.2			99.2			96.9		97.7

(1)

Excludes net investment income and net realized investment gains, which are not allocated to the Company’s segments.

(2)

Excludes corporate and other operating expenses and interest expense, which are not allocated to the Company’s segments.

(3)

Includes excise tax of $330 and $0 for the quarters ended June 30, 2015 and 2014, respectively, and excise tax of $647 and $0 for the six months ended June 30, 2015 and 2014, respectively, related to cessions from the Company’s Personal Lines to the Company’s Reinsurance Operations.

(4)

Includes excise tax of $261 and $281 for the quarters ended June 30, 2015 and 2014, respectively, and excise tax of $529 and $561 for the six months ended June 30, 2015 and 2014, respectively, related to cessions from the Company’s Commercial Lines to the Company’s Reinsurance Operations.

(5)

The Company’s insurance combined ratios are GAAP financial measures that are generally viewed in the insurance industry as indicators of underwriting profitability. The loss ratio is the ratio of net losses and loss adjustment expenses to net premiums earned. The expense ratio is the ratio of acquisition costs and other underwriting expenses to net premiums earned. The combined ratio is the sum of the loss and expense ratios.

GLOBAL INDEMNITY PLC

Results of Operations

All percentage and dollar changes included in the text below have been calculated using the corresponding amounts from the applicable tables.

Quarter Ended June 30, 2015 Compared with the Quarter Ended June 30, 2014

Personal Lines

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


(Dollars in thousands)	Quarters Ended June 30,						Increase / (Decrease)
	2015			2014 (1)			$			%
Gross premiums written	$	89,004		$	83,005		$	5,999			7.2	%

Net premiums written	$	72,827		$	73,734		$	(907	)		(1.2	%)

Net premiums earned	$	65,918		$	64,889		$	1,029			1.6	%
Other income		411			399			12			3.0	%

Total revenues		66,329			65,288			1,041			1.6	%
Losses and expenses:
Net losses and loss adjustment expenses		45,180			38,339			6,841			17.8	%
Acquisition costs and other underwriting expenses (2)		26,065			28,023			(1,958	)		(7.0	%)

Loss from segment	$	(4,916	)	$	(1,074	)	$	(3,842	)		(357.7	%)

Underwriting Ratios:
Loss ratio:
Current accident year		68.5			59.7			8.8
Prior accident year		0.0			(0.6	)		0.6

Calendar year loss ratio		68.5			59.1			9.4
Expense ratio		39.5			43.2