þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Fiscal Year Ended December 31, 2010 | ||
OR
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Transition Period From to |
Ireland
(State or other jurisdiction of incorporation or organization) |
98-0664891
(I.R.S. Employer Identification No.) |
Title of Each Class
|
Name of Exchange on Which Registered
|
|
Common A Ordinary shares,
$0.0001 Par Value |
The Nasdaq Global Select Market |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
1
2
Item 1.
Business
Penn-America
distributes property and general liability products for small
commercial businesses through a select network of wholesale
general agents with specific binding authority;
United National distributes property, general liability, and
professional lines products through program administrators with
specific binding authority; and
Diamond State distributes property, casualty, and professional
lines products through wholesale brokers that are underwritten
by our personnel and selected brokers with specific binding
authority.
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For the Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
Amount
Percent
Amount
Percent
Amount
Percent
$
245,481
71.0
%
$
267,992
78.6
%
$
353,130
93.2
%
100,282
29.0
73,006
21.4
25,570
6.8
$
345,763
100.0
%
$
340,998
100.0
%
$
378,700
100.0
%
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For the Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
Amount
Percent
Amount
Percent
Amount
Percent
$
196,065
66.1
%
$
218,264
75.0
%
$
305,479
98.8
%
100,439
33.9
72,731
25.0
3,601
1.2
$
296,504
100.0
%
$
290,995
100.0
%
$
309,080
100.0
%
For the Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
Amount
Percent
Amount
Percent
Amount
Percent
$
31,215
9.0
%
$
28,264
8.3
%
$
39,793
10.5
%
28,072
8.1
34,061
10.0
41,893
11.1
22,133
6.4
24,292
7.1
26,029
6.9
16,009
4.6
17,224
5.1
26,045
6.9
10,981
3.2
12,339
3.6
13,214
3.5
9,903
2.9
9,506
2.8
12,446
3.3
9,181
2.7
11,948
3.5
16,956
4.5
8,687
2.5
8,630
2.5
11,766
3.1
8,582
2.5
8,918
2.6
13,617
3.5
6,540
1.9
6,927
2.0
8,467
2.2
151,303
43.8
162,109
47.5
210,226
55.5
100,282
29.0
73,006
21.4
25,570
6.8
94,178
27.2
105,883
31.1
142,904
37.7
$
345,763
100.0
%
$
340,998
100.0
%
$
378,700
100.0
%
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automated system criteria edits and exception reports;
individual policy reviews to measure adherence to our
underwriting manual including: risk selection, underwriting
compliance, policy issuance and pricing;
periodic
on-site
comprehensive audits to evaluate processes, controls,
profitability and adherence to all aspects of our underwriting
manual including: risk selection, underwriting compliance,
policy issuance and pricing;
internal quarterly actuarial analysis of loss ratios produced by
business underwritten by our wholesale general agents and
program administrators; and
internal quarterly analysis of financial results, including
premium growth and overall profitability of business produced by
our wholesale general agents and program administrators.
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individual policy reviews to measure our underwriters
adherence to our underwriting manual including: risk selection,
underwriting compliance, policy issuance and pricing;
periodic underwriting review to evaluate adherence to all
aspects of our underwriting manual including: risk selection,
underwriting compliance, policy issuance and pricing;
internal quarterly actuarial analysis of loss ratios produced by
business underwritten by our underwriters; and
internal quarterly analysis of financial results, including
premium growth and overall profitability of business produced by
our underwriters.
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A.M.
Gross
Prepaid
Total
Percent
Ceded
Percent
Best
Reinsurance
Reinsurance
Reinsurance
of
Premiums
of
Rating
Receivables
Premium
Assets
Total
Written
Total
(Dollars in millions)
A+
$
202.2
$
6.6
$
208.8
45.5
%
$
20.3
41.3
%
A
97.1
97.1
21.2
A++
20.2
0.5
20.7
4.5
1.6
3.3
A
17.5
17.5
3.8
A
13.5
13.5
3.0
A
11.8
3.1
14.9
3.2
10.3
20.9
A
8.1
8.1
1.8
A-
7.7
7.7
1.7
A
7.3
0.2
7.5
1.6
1.2
2.4
A-
6.8
6.8
1.5
392.2
10.4
402.6
87.8
33.4
67.9
55.5
0.7
56.2
12.2
15.8
32.1
447.7
11.1
458.8
100.0
%
$
49.2
100.0
%
(24.7
)
(24.7
)
423.0
11.1
434.1
(289.3
)
(5.2
)
(294.5
)
$
133.7
$
5.9
$
139.6
11
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our knowledge of the circumstances surrounding the claim;
the severity of injury or damage;
jurisdiction of the occurrence;
the potential for ultimate exposure;
litigation related developments;
the type of loss; and
our experience with the insured and the line of business and
policy provisions relating to the particular type of claim.
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(Dollars in thousands)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
$
131,128
$
156,784
$
260,820
$
314,027
$
344,614
$
639,291
$
735,342
$
800,885
$
835,839
$
725,296
$
645,548
$
26,163
$
63,667
$
42,779
$
76,048
$
85,960
$
154,069
$
169,899
$
190,723
$
215,903
$
189,358
72,579
82,970
96,623
136,133
139,822
268,827
300,041
360,336
366,647
75,661
118,401
141,545
171,659
180,801
355,987
413,055
470,313
98,654
150,062
164,181
197,596
209,938
414,068
478,408
121,407
164,023
182,043
214,376
237,636
440,206
129,371
177,682
193,536
235,022
251,350
139,090
186,173
211,036
244,389
143,435
201,899
218,930
156,432
208,806
162,430
$
131,128
$
156,784
$
260,820
$
314,023
$
344,614
$
639,291
$
735,342
$
800,885
$
835,839
$
725,297
$
645,548
124,896
228,207
261,465
313,213
343,332
632,327
716,361
832,733
827,439
671,399
180,044
228,391
263,995
315,230
326,031
629,859
732,056
812,732
768,623
180,202
231,133
268,149
298,989
323,696
635,504
707,525
765,435
175,198
236,271
252,078
301,660
332,302
622,122
672,712
179,727
226,116
264,058
308,776
323,547
608,050
173,424
242,666
272,806
303,146
316,195
187,441
254,110
266,880
298,566
198,999
249,861
264,055
196,423
249,673
196,687
$
(65,559
)
$
(92,889
)
$
(3,235
)
$
15,461
$
28,419
$
31,241
$
62,630
$
35,450
$
67,217
$
53,897
$
800,630
907,357
2,004,422
2,059,760
1,876,510
1,914,224
1,702,010
1,503,238
1,506,429
1,257,741
1,052,745
669,502
750,573
1,743,602
1,745,733
1,531,896
1,274,933
966,668
702,353
670,591
532,445
407,197
131,128
156,784
260,820
314,027
344,614
639,291
735,342
800,885
835,838
725,296
645,548
1,269,647
1,583,234
1,667,695
1,545,365
1,310,262
1,431,994
1,234,344
1,388,359
1,342,561
1,148,129
1,052,745
1,072,960
1,333,561
1,403,640
1,246,799
994,067
823,944
561,632
622,924
573,938
476,730
407,197
$
196,687
$
249,673
$
264,055
$
298,566
$
316,195
$
608,050
$
672,712
$
765,435
$
768,623
$
671,399
$
645,548
$
(469,017
)
$
(675,877
)
$
336,727
$
514,395
$
566,248
$
482,230
$
467,666
$
114,879
$
163,868
$
109,612
$
General Liability:
The
$43.7 million reduction primarily consisted of net
reductions of $45.5 million related to accident years 2002
through 2009 due to lower than anticipated frequency and
severity. Incurred losses for these years have developed at a
rate lower than the Companys historical averages. The
reduction was driven by the
Penn-America
Small Business segment where loss emergence was consistently
better than expected throughout the year. This reduction was
partially offset by net increases of $1.8 million related
to accident years 2001 and prior where the Company increased the
loss and loss adjustment expense estimates related to
construction defect claims.
Umbrella:
The $5.4 million
reduction in the umbrella lines related to all accident years
2009 and prior due to less than anticipated severity. As these
accident years have matured, more weight has been given to
experience based methods which continue to develop favorably
compared to our initial indications.
Professional Liability:
The
$4.8 million reduction primarily consisted of net
reductions of $9.6 million related to accident years 2001
through 2008 driven by lower than expected paid and incurred
activity related to our Public Officials, Social Services and
Real Estate products. This reduction was partially offset by
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increases of $4.7 million related to accident year 2009
where the Company experienced higher than expected claim
frequency and severity driven by our Lawyers, Allied Health and
Real Estate products.
Property:
The reduction in the property
lines primarily consisted of reductions of $2.7 million
related to accident years 2002 and 2004 through 2008 driven by
lower than anticipated severity in the
Penn-America
book of business and a reduction in reserve estimates related to
2008 catastrophes. This was partially offset by increases of
$0.2 million primarily related to accident year 2009 where
the Company experienced higher than expected claim frequency and
severity in our
Penn-America
book of business. We identified an unusually large loss in our
Equine Mortality program which was offset by favorable
experience in our Diamond State book of business and a reduction
in ULAE reserves.
Auto Liability:
The increase in the
automobile liability lines was primarily due to increases of
$2.5 million related to accident year 2009 from a
non-standard auto treaty in our Reinsurance Operations.
Workers Compensation:
The
increase in our workers compensation lines is related to
an accident year 2009 structured excess of loss treaty at our
Reinsurance Operations where we increased our loss estimates
based on industry workers compensation results.
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December 31, 2010
December 31, 2009
December 31, 2008
Estimated
Percent
Estimated
Percent of
Estimated
Percent of
(Dollars in thousands)
Fair Value
of Total
Fair Value
Total
Fair Value
Total
$
119,888
7.0
%
$
186,087
10.8
%
$
292,604
18.3
%
202,690
11.8
236,088
13.6
152,777
9.6
245,012
14.3
225,598
13.0
243,030
15.2
249,080
14.4
364,000
21.0
384,069
24.0
38,733
2.3
144,457
9.0
115,099
6.7
114,163
6.6
16,553
1.0
532,784
31.0
460,730
26.6
213,655
13.4
60,994
3.6
70,993
4.1
29,150
1.8
21,283
1.3
1,444,392
84.1
1,471,572
84.9
1,204,974
75.3
147,526
8.6
65,656
3.8
55,278
3.5
5,380
0.3
7,999
0.5
46,672
2.9
$
1,717,186
100.0
%
$
1,731,314
100.0
%
$
1,599,528
100.0
%
(1)
Includes collateralized mortgage obligations of $13,445,
$21,959, and $34,395 for 2010, 2009, and 2008, respectively.
(2)
Does not include payable for securities purchased of $4,768,
$37,258 and $710 for 2010, 2009 and 2008, respectively.
Years Ended December 31,
(Dollars in thousands)
2010
2009
2008
$
1,408,353
$
1,307,718
$
1,275,700
60,262
62,099
63,268
4.28
%
4.75
%
4.96
%
$
1,393,655
$
1,423,050
$
1,192,385
50,737
48,522
12,589
(1)
Represents income earned by fixed maturities, gross of
investment expenses and excluding realized gains and losses.
17
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December 31, 2010
December 31, 2009
Estimated
Percent
Estimated
Percent
(Dollars in thousands)
Fair Value
of Total
Fair Value
of Total
$
639,814
44.3
%
$
740,658
50.4
%
251,850
17.5
231,403
15.7
288,663
20.0
299,703
20.4
53,468
3.7
60,439
4.1
85,641
5.9
47,816
3.2
110,931
7.7
78,212
5.3
7,899
0.5
5,856
0.4
6,126
0.4
7,485
0.5
$
1,444,392
100.0
%
$
1,471,572
100.0
%
December 31, 2010
December 31, 2009
Estimated
Percent of
Estimated
Percent of
(Dollars in thousands)
Market Value
Total
Market Value
Total
$
90,076
6.2
%
$
59,587
4.0
%
665,633
46.2
718,081
48.8
212,990
14.7
149,785
10.2
26,339
1.8
26,679
1.8
46,442
3.2
39,277
2.7
1,041,480
72.1
993,409
67.5
249,080
17.2
364,000
24.7
38,733
2.7
115,099
8.0
114,163
7.8
$
1,444,392
100.0
%
$
1,471,572
100.0
%
18
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American International Group;
Argo Group International Holdings, Ltd.;
Berkshire Hathaway;
Everest Re Group, Ltd.;
Great American Insurance Group;
HCC Insurance Holdings, Inc.;
IFG Companies;
JRG Reinsurance Company, Ltd.;
Maiden Holdings, Ltd.;
Markel Corporation;
Alterra Capital Holdings, Ltd.;
Nationwide Insurance;
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Navigators Insurance Group;
RLI Corporation;
Torus Insurance Holdings, Ltd.;
W.R. Berkley Corporation; and
Western World Insurance Group.
20
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Penn-Star Insurance Company and Penn-Patriot Insurance Company
had an unusual value for the change in net written premiums from
the result of an unearned premium transfer within the group
during 2009.
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Item 1A.
Risk
Factors
30
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claim and expense payments;
severity of claims;
legislative and judicial developments; and
changes in economic conditions, including the effect of
inflation.
31
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competition;
capital capacity;
rising levels of actual costs that are not foreseen by companies
at the time they price their products;
volatile and unpredictable developments, including man-made,
weather-related and other natural catastrophes or terrorist
attacks;
changes in loss reserves resulting from the general claims and
legal environments as different types of claims arise and
judicial interpretations relating to the scope of insurers
liability develop; and
fluctuations in interest rates, inflationary pressures and other
changes in the investment environment, which affect returns on
invested assets and may affect the ultimate payout of losses.
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standards of solvency, including risk-based capital measurements;
restrictions on the nature, quality and concentration of
investments;
restrictions on the types of terms that we can include or
exclude in the insurance policies we offer;
restrictions on the way rates are developed and the premiums we
may charge;
standards for the manner in which general agencies may be
appointed or terminated;
credit for reinsurance;
certain required methods of accounting;
reserves for unearned premiums, losses and other
purposes; and
potential assessments for the provision of funds necessary for
the settlement of covered claims under certain insurance
policies provided by impaired, insolvent or failed insurance
companies.
37
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elect all of our directors;
amend our articles of association (as long as their voting power
is greater than 75%);
ratify the appointment of our auditors;
increase our share capital;
resolve to pay dividends or distributions; and
approve the annual report and the annual financial statements.
38
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Item 1B.
Unresolved
Staff Comments
Item 2.
Properties
Item 3.
Legal
Proceedings
42
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Item 4.
(Removed
and Reserved)
43
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100
143
144
Item 5.
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
High
Low
$
19.90
$
13.30
20.36
14.38
17.21
10.10
21.25
15.46
$
26.96
$
7.40
12.94
7.46
15.38
8.74
17.82
13.24
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12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
$
100.0
$
138.0
$
108.5
$
69.8
$
43.1
$
55.7
100.0
112.1
111.2
98.3
98.8
113.2
100.0
109.5
120.3
71.5
102.9
120.3
Note:
We completed our Rights Offering on May 5, 2009, which
increased our total outstanding Class A ordinary shares by
17.2 million shares. See Note 12 to the consolidated
financial statements in Item 8 of Part II of this
report for details concerning the Rights Offering.
Note:
We completed our re-domestication transaction on July 2,
2010, which resulted in shares of INDM being
exchanged for shares of GBLI on a
one-for-two
basis. Share prices prior to July 6, 2010 have been
adjusted to reflect the impact of the
one-for-two
share exchange. See Note 2 to the consolidated financial
statements in Item 8 of Part II of this report for
details concerning the re-domestication.
45
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46
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Item 6.
Selected
Financial Data
For the Years Ended December 31,
2010
2009
2008
2007
2006
(Dollars in thousands, except shares and per share data)
$
345,763
$
340,999
$
378,700
$
563,112
$
652,965
296,504
290,995
309,080
490,535
560,535
286,774
301,674
382,508
536,323
546,469
26,437
15,862
(50,259
)
968
(570
)
370,487
387,750
400,079
614,632
612,437
(96,449
)
84,903
75,437
(141,560
)
98,917
89,338
84,903
75,437
(141,560
)
98,917
99,418
$
84,903
$
75,437
$
(141,560
)
$
98,917
$
89,338
2.81
2.92
(7.74
)
4.80
4.36
2.80
2.91
(7.74
)
4.76
4.32
$
84,903
$
75,437
$
(141,560
)
$
98,917
$
99,418
2.81
2.92
(7.74
)
4.80
4.85
2.80
2.91
(7.74
)
4.76
4.81
30,237,787
25,856,049
18,278,094
20,629,013
20,478,554
30,274,259
25,881,610
18,278,094
20,785,119
20,668,308
(1)
The results of our discontinued operations for 2010, 2009, 2008,
and 2007 relating to our Agency Operations that were sold in
2006 are included in income from continuing operations due to
immateriality. The results of discontinued operations continue
to be stated separately for 2006.
(2)
In 2008, Diluted loss per share is the same as
Basic loss per share since there was a net loss for
that year.
(3)
In May 2009, we issued 17.2 million Class A ordinary
shares and 11.4 million Class B ordinary shares in
conjunction with the Rights Offering. In computing the basic and
diluted weighted share counts, the number of shares outstanding
prior to May 5, 2009 (the date that the ordinary shares
were issued in conjunction with the Rights Offering) was
adjusted by a factor of 1.114 to reflect the impact of a bonus
element associated with the Rights Offering in accordance with
appropriate accounting guidance. As a result, share counts for
the prior periods have been restated.
47
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(4)
Shares outstanding and per share amounts have been restated to
reflect the
1-for-2
stock exchange effective July 2, 2010 when the Company
completed its re-domestication to Ireland.
(1)
Our insurance operating ratios are non-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. The ratios
presented here represent the consolidated results of both our
Insurance Operations and Reinsurance Operations.
(2)
Our 2010 loss and combined ratios were impacted by a
$54.1 million reduction of net losses and loss adjustment
expenses for prior accident years. Our 2009 loss and combined
ratios were impacted by a $9.1 million reduction of net
losses and loss adjustment expenses for prior accident years.
Our 2008 loss and combined ratios were impacted by a
$34.9 million increase of net losses and loss adjustment
expenses for prior accident years. Our 2007 loss and combined
ratios were impacted by a $29.1 million reduction of net
losses and loss adjustment expenses for prior accident years.
Our 2006 loss and combined ratios were impacted by a
$15.6 million reduction of net losses and loss adjustment
expenses for prior accident years. See Results of
Operations in Item 7 of Part II of this report
for details of these items and their impact on the loss and
combined ratios.
(3)
Our loss and combined ratios for 2010, 2009, 2008, 2007, and
2006 include $2.8 million, $5.8 million,
$21.5 million, $1.7 million, and $4.6 million,
respectively, of catastrophic losses from our U.S. Insurance
Operations. See Results of Operations in Item 7
of Part II of this report for a discussion of the impact of
these losses on the loss and combined ratios.
48
Table of Contents
Item 7.
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
49
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50
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51
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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.
52
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53
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Gross Reserves
(Dollars in thousands)
Case
IBNR(1)
Total
$
348,354
$
630,274
$
978,628
20,277
53,840
74,117
$
368,631
$
684,114
$
1,052,745
Net Reserves(2)
(Dollars in thousands)
Case
IBNR(1)
Total
$
214,427
$
357,926
$
572,353
20,156
53,039
73,195
$
234,583
$
410,965
$
645,548
(1)
Losses incurred but not reported, including the expected future
emergence of case reserves.
(2)
Does not include reinsurance receivable on paid losses.
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Severity Change
(Dollars in thousands)
−10%
−5%
0%
5%
10%
−5
%
$
(26,747
)
$
(17,985
)
$
(9,223
)
$
(461
)
$
8,301
−3
%
(23,426
)
(14,480
)
(5,534
)
3,413
12,359
−2
%
(21,766
)
(12,728
)
(3,689
)
5,349
14,388
−1
%
(20,106
)
(10,975
)
(1,845
)
7,286
16,417
0
%
(18,446
)
(9,223
)
9,223
18,446
1
%
(16,786
)
(7,471
)
1,845
11,160
20,475
2
%
(15,126
)
(5,718
)
3,689
13,097
22,504
3
%
(13,466
)
(3,966
)
5,534
15,033
24,533
5
%
(10,145
)
(461
)
9,223
18,907
28,591
55
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56
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57
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Years Ended December 31,
(Dollars in thousands)
2010
2009
2008
$
245,481
$
267,992
$
353,130
49,416
49,728
47,651
$
196,065
$
218,264
$
305,479
$
100,282
$
73,007
$
25,570
(157
)
276
21,969
$
100,439
$
72,731
$
3,601
$
194,820
$
250,409
$
374,174
92,607
51,265
8,334
$
287,427
$
301,674
$
382,508
$
162,626
(3)
$
252,494
(3)
$
431,114
(3)
85,897
36,817
16,827
$
248,523
$
289,311
$
447,941
$
32,194
$
(2,085
)
$
(56,940
)
6,710
14,448
(8,493
)
$
38,904
$
12,363
$
(65,433
)
36.6
58.4
78.5
47.1
42.4
36.7
83.7
100.8
115.2
63.9
45.2
136.2
28.8
26.6
65.7
92.7
71.8
201.9
45.4
56.2
79.8
41.2
39.8
37.3
86.6
96.0
117.1
(1)
Excludes net investment income and net realized investment gains
(losses), which are not allocated to our segments.
(2)
Excludes corporate and other operating expenses and interest
expense, which are not allocated to our segments.
58
Table of Contents
(3)
Includes excise tax of $1,021, $1,342, and $1,871 related to
cessions from our U.S. Insurance Companies to Wind River
Reinsurance for 2010, 2009, and 2008, respectively.
(4)
Our insurance combined ratios are non-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.
Increase/(Decrease)
(Dollars in thousands)
2010
2009
$
%
$
245,481
$
267,992
$
(22,511
)
(8.4
)%
$
196,065
$
218,264
$
(22,199
)
(10.2
)%
$
194,167
$
250,409
$
(56,242
)
(22.5
)%
653
653
100.0
%
$
194,820
$
250,409
$
(55,589
)
(22.2
)%
71,175
146,197
(75,022
)
(51.3
)%
91,451
106,297
(14,846
)
(14.0
)%
$
32,194
$
(2,085
)
$
34,279
1,644.1
%
65.9
62.0
3.9
(29.3
)
(3.6
)
(25.7
)
36.6
58.4
(21.8
)
45.7
42.1
3.6
1.4
0.3
1.1
47.1
42.4
4.7
83.7
100.8
(17.1
)
(1)
Includes excise tax of $1,021 and $1,342 related to cessions
from our U.S. Insurance Companies to Wind River Reinsurance for
2010 and 2009, respectively.
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In 2010, we reduced our prior accident year loss reserves by
$56.6 million and reduced our allowance for uncollectible
reinsurance by $0.2 million. The reduction of our prior
accident year loss reserves primarily consisted of a
$43.7 million reduction in our general liability lines, a
$5.4 million reduction in our umbrella lines, a
$4.9 million reduction in our professional liability lines,
and a $2.0 million reduction in our property lines:
General Liability:
The reduction in the
general liability lines primarily consisted of reductions of
$45.4 million related to accident years 2002 through 2009
due to lower than anticipated frequency and severity. Incurred
losses for these years have developed at a rate lower than the
Companys historical averages. This reduction was partially
offset by net increases of $1.8 million related to accident
years 2001 and prior where the Company increased the loss and
loss adjustment expense estimates related to construction defect
claims.
Umbrella:
The $5.4 million
reduction in the umbrella lines related to all accident years
2009 and prior due to less than anticipated severity. As these
accident years have matured, more weight has been given to
experience based methods which continue to develop favorably
compared to our initial indications.
Professional Liability:
The reduction
in the professional liability lines primarily consisted of
reductions of $9.9 million related to accident years 2001
through 2008 driven by lower than expected paid and incurred
activity during the quarter. This reduction was partially offset
by increases of $5.0 million related to accident year 2009
where the Company experienced higher than expected claim
frequency and severity.
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Property:
The reduction in the property
lines primarily consisted of reductions of $2.9 million
related to accident years 2002 and 2004 through 2008 driven by
lower than anticipated severity, partially offset by increases
of $0.9 million primarily related to accident year 2009
where the Company experienced higher than expected claim
frequency and severity.
In 2009, we reduced our prior accident year loss reserves by
$8.4 million and reduced our allowance for uncollectible
reinsurance by $0.7 million. The reduction of our prior
accident year loss reserves primarily consisted of a
$5.5 million reduction in our property lines, a
$2.9 million reduction in our general liability lines, and
a $4.7 million reduction in our umbrella lines, offset by a
$4.7 million increase in our professional liability lines:
Property:
The reduction in the property
lines primarily consisted of reductions related to accident year
2006 through 2008 due to better than expected loss emergence in
Diamond State brokerage.
General Liability:
The reduction in the
general liability lines primarily consisted of net reductions of
$13.5 million related to accident years 2006 and prior due
to loss emergence that had been consistently lower than expected
during those years, partially offset by increases of
$10.6 million related to accident years 2007 and 2008 that
were driven by a large claim and an increase in our construction
defect provisions for
Penn-America.
Umbrella:
The reduction in the umbrella
lines primarily consisted of net reductions of $5.1 million
related to accident years 2007 and prior that were driven by
loss emergence throughout the year that was consistently better
than expected, partially offset by increases of
$0.4 million related to accident year 2008.
Professional Liability:
The increase to
the professional liability lines primarily consisted of
increases of $10.1 million related to accident years 2007
and 2008 due to an increase in severity, partially offset by net
reductions of $5.4 million primarily related to accident
years 2006 and prior.
The current accident year property loss ratio increased 5.9
points from 55.3% in 2009 to 61.2% in 2010, which consisted of a
6.1 point increase in the non-catastrophe loss ratio from 51.4%
in 2009 to 57.5% in 2010, offset by a 0.1 point decrease in the
catastrophe loss ratio from 3.9% in 2009 to 3.8% in 2010. There
was very little significant catastrophe activity during 2010 and
2009. Catastrophe losses were $2.8 million and
$4.0 million in 2010 and 2009, respectively. The property
loss ratio was impacted by rate decreases of approximately 3.4%
as well as higher reinsurance costs in 2010 when compared to
2009. Property net premiums earned for 2010 and 2009 were
$75.2 million and $103.5 million, respectively.
The current accident year casualty loss ratio increased 2.1
points from 66.8% in 2009 to 68.9% in 2010 primarily due to rate
decreases of approximately 2.7% and higher reinsurance costs in
2010. Casualty net premiums earned for 2010 and 2009 were
$119.0 million and $146.9 million, respectively.
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The decrease in acquisition costs is primarily due to a decrease
in commissions resulting from a decrease in net premiums earned.
The increase in acquisition costs related to prior accident
years is primarily due to an increase in contingent commissions
related to the prior accident year loss reserve releases noted
above.
The decrease in other underwriting expenses is primarily due to
decreases in compensation related expenses and decreases in
legal fees, partially offset by one-time charges of
$3.9 million related to the Profit Enhancement Initiative.
See Note 3 of the notes to the consolidated financial
statements in Item 8 of Part II of this report for a
discussion on the Profit Enhancement Initiative.
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Increase/(Decrease)
(Dollars in thousands)
2010
2009
$
%
$
100,282
$
73,007
$
27,275
37.4
%
$
100,439
$
72,731
$
27,708
38.1
%
$
92,607
$
51,265
$
41,342
80.6
%
59,184
23,185
35,999
155.3
%
26,713
13,632
13,081
96.0
%
$
6,710
$
14,448
$
(7,738
)
(53.6
)%
61.0
45.2
15.8
2.9
2.9
63.9
45.2
18.7
27.2
26.6
0.6
1.6
1.6
28.8
26.6
2.2
92.7
71.8
20.9
63
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In 2010, we increased our prior accident year loss reserves by
$2.7 million. The increase in our prior accident year loss
reserves primarily consisted of a $2.6 million increase in
our automobile liability lines, a $0.5 million increase in
our workers compensation lines, offset partially by a
decrease of $0.5 million in our property lines:
Automobile Liability:
The increase in
the automobile liability lines was primarily due to increases of
$2.5 million related to higher frequency within accident
year 2009 from a non-standard auto treaty.
Workers Compensation:
The
increase in our workers compensation lines is related to
an accident year 2009 structured excess of loss treaty where we
increased our loss estimates based on industry workers
compensation results.
Property:
The reduction in the property
lines primarily consisted of reductions of $0.7 million
related to accident year 2009, partially offset by increases of
$0.2 million related to accident year 2008. These changes
are due to continuing emergence of loss trends on our
catastrophe treaty.
In 2009, we increased our prior accident year loss reserves by
$0.03 million, which primarily consisted of increases in
our general liability lines. The increase to the general
liability lines was related to accident years 2007 and 2008.
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Increase/(Decrease)
2010
2009
$
%
(Dollars in thousands)
$
56,623
$
70,214
$
(13,591
)
(19.4
)%
26,437
15,862
10,575
66.7
%
(21,127
)
(16,752
)
4,375
26.1
%
(7,020
)
(7,216
)
(196
)
(2.7
)%
(8,892
)
(4,310
)
4,582
106.3
%
(22
)
5,276
(5,298
)
(100.4
%)
Gross investment income was $62.6 million for 2010,
compared with $74.9 million for 2009, a decrease of
$12.3 million or 16.4%. There was no investment income
generated by our limited partnership investments in 2010, but
$8.6 million generated from these investments in 2009.
Excluding distributions from our limited partnership
investments, gross investment income for 2010 decreased
$3.6 million or 5.5% compared to 2009. The remaining
decrease was primarily due to continuing declines in our yield
as interest rates declined throughout 2010. We reduced the
average duration of our investment portfolio in 2010 in order to
maintain a defensive posture in the current low interest rate
environment. We continue to increase our investments in equity
securities and corporate loans, which generally have a higher
yield than traditional fixed income securities to offset the
increased credit risk.
Investment expenses were $6.0 million for 2010, compared
with $4.7 million for 2009, an increase of
$1.3 million or 28.2%. The increase was primarily due to
additional fees related to our investments in corporate loans.
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66
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Increase/(Decrease)
(Dollars in thousands)
2009
2008
$
%
$
267,992
$
353,130
$
(85,138
)
(24.1
)%
$
218,264
$
305,479
$
(87,215
)
(28.6
)%
$
250,409
$
374,174
$
(123,765
)
(33.1
)%
146,197
293,820
(147,623
)
(50.2
)%
106,297
137,294
(30,997
)
(22.6
)%
$
(2,085
)
$
(56,940
)
$
54,855
(96.3
)%
62.0
69.7
(7.7
)
(3.6
)
8.8
(12.4
)
58.4
78.5
(20.1
)
42.4
36.7
5.7
100.8
115.2
(14.4
)
(2)
Includes excise tax of $1,342 and $1,871 related to cessions
from our U.S. Insurance Companies to Wind River Reinsurance for
2009 and 2008, respectively.
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In 2009, we reduced our prior accident year loss reserves by
$8.4 million and reduced our allowance for uncollectible
reinsurance by $0.7 million. The reduction of our prior
accident year loss reserves primarily consisted of a
$5.5 million reduction in our property lines, a
$2.9 million reduction in our general liability lines, and
a $4.7 million reduction in our umbrella lines, offset by a
$4.7 million increase in our professional liability lines:
Property:
The reduction in the property
lines primarily consisted of reductions related to accident
years 2006 through 2008 due to better than expected loss
emergence in Diamond State brokerage.
General Liability:
The reduction in the
general liability lines primarily consisted of net reductions of
$13.5 million related to accident years 2006 and prior due
to loss emergence that had been consistently lower than expected
during those years, partially offset by increases of
$10.6 million related to accident years 2007 and 2008 that
were driven by a large claim and an increase in our construction
defect provisions for
Penn-America.
Umbrella:
The reduction in the umbrella
lines primarily consisted of net reductions of $5.1 million
related to accident years 2007 and prior that were driven by
loss emergence throughout the year that was consistently better
than expected, partially offset by increases of
$0.4 million related to accident year 2008.
Professional Liability:
The increase to
the professional liability lines primarily consisted of
increases of $10.1 million related to accident years 2007
and 2008 due to an increase in severity, partially offset by net
reductions of $5.4 million primarily related to accident
years 2006 and prior.
In 2008, we increased our prior accident year loss reserves by
$29.9 million and increased our allowance for uncollectible
reinsurance by $3.1 million. The loss reserves increase of
$29.9 million consisted of increases of $15.9 million
in our general liability lines and $15.7 million in our
professional liability lines, offset by reductions of
$1.2 million in our property lines and $0.5 million in
our umbrella lines.
General Liability:
The increase to the
general liability lines consisted of increases of
$20.5 million related to accident years 2006, 2007 and 2001
and prior, offset by reductions of $4.6 million related to
accident years 2002 through 2005. The increases in 2006 and 2007
are primarily related to greater severity.
Professional Liability:
The increase to
the professional liability lines consisted of increases of
$17.7 million related to accident years 2006 and 2007,
offset by reductions of $2.0 million related to accident
years 2005 and prior. The increases in 2006 and 2007 are
primarily related to greater severity.
Property:
The reduction in property
lines consisted of reductions of $2.6 million related to
accident years 2008 and 2003 and prior, offset by increases of
$1.4 million primarily related to accident years 2004
through 2006.
Umbrella:
The reduction in umbrella
lines was primarily related to accident years 2004 and prior.
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The current accident year property loss ratio decreased 13.9
points from 69.2% in 2008 to 55.3% in 2009, which consists of an
11.4 point decrease in the catastrophe loss ratio from 15.3% in
2008 to 3.9% in 2009 and a 2.5 point decrease in the
non-catastrophe loss ratio from 53.9% in 2008 to 51.4% in 2009.
Catastrophe losses were $4.0 million and $21.1 million
in 2009 and 2008, respectively. Catastrophe losses in 2008
included net loss and loss adjustment expenses related to
Hurricanes Ike and Gustav, which occurred in September 2008, and
storms in the Midwest that occurred in the first half of 2008.
Property net premiums earned for 2009 and 2008 were
$103.5 million and $137.9 million, respectively.
The current accident year casualty loss ratio decreased 3.2
points from 70.0% in 2008 to 66.8% in 2009 primarily due to
changes in our mix of business. Casualty net premiums earned for
2009 and 2008 were $146.9 million and $236.3 million,
respectively.
The decrease in acquisition costs is primarily due to a decrease
in commissions resulting from a decrease in net premiums earned.
The increase in other underwriting expenses is primarily due to
the incurrence of infrastructure costs related to new product
development, information technology upgrades, and additional
office locations.
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Increase/(Decrease)
(Dollars in thousands)
2009
2008
$
%
$
73,007
$
25,570
$
47,437
185.5
%
$
72,731
$
3,601
$
69,130
1,919.7
%
$
51,265
$
8,334
$
42,931
515.1
%
23,185
11,354
11,831
104.2
%
13,632
5,473
8,159
149.1
%
$
14,448
$
(8,493
)
$
22,941
N/M
45.2
112.8
(67.6
)
23.4
(23.4
)
45.2
136.2
(91.0
)
26.6
65.7
(39.1
)
71.8
201.9
(130.1
)
70
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In 2009, we increased our prior accident year loss reserves by
$0.03 million, which primarily consisted of increases in
our general liability lines. The increase to the general
liability lines was related to accident years 2007 and 2008.
In 2008, we increased our prior accident year loss reserves by
$1.9 million, which primarily consisted of an increase of
$2.6 million in our professional liability lines, offset by
reductions of $0.6 million in our general liability lines
and $0.1 million in our property lines. The increase to the
professional liability lines was related to accident year 2008.
The reduction to the general liability lines was related to
accident years 2004 through 2006. The reduction in the property
lines was related to accident year 2007.
The increase in acquisition costs is primarily due to an
increase in commissions resulting from an increase in net
premiums earned.
The increase in other underwriting expenses is primarily due to
an increase in property and office costs, legal fees, and
professional services, partially offset by reductions in total
compensation expenses.
71
Table of Contents
Increase/(Decrease)
(Dollars in thousands)
2009
2008
$
%
$
70,214
$
67,830
$
2,384
3.5
%
15,862
(50,259
)
66,121
N/M
(16,752
)
(13,918
)
(2,834
)
20.4
%
(7,216
)
(8,657
)
1,441
(16.6
)%
(96,449
)
96,449
100.0
%
(4,310
)
29,216
(33,526
)
N/M
5,276
(3,890
)
9,166
N/M
Gross investment income, excluding realized gains and losses,
was $74.9 million for 2009, compared with
$72.8 million for 2008, an increase of $2.1 million or
2.8%. The increase was primarily due to gross investment income
of $8.6 million generated by liquidating some of our
limited partnership investments, offset by reductions due to
decreases in interest rates. There was no investment income
generated by our limited partnership investments for 2008.
Excluding distributions from our limited partnership
investments, gross investment income for 2009 decreased 9.0%
compared to 2008. This decrease is due to reductions in interest
rates. Cash and invested assets, net of payable for securities
purchased of $37.3 million, increased to
$1,694.1 million as of December 31, 2009 from
$1,598.8 million as of December 31, 2008, an increase
of $95.3 million or 6.0%. This increase was primarily due
to proceeds from the Rights Offering. A portion of these
proceeds were invested in a limited partnership which resulted
in $1.7 million of equity in net income of partnerships in
the consolidated statement of operations. This ownership was
redeemed in December 2009. The remaining portion of the proceeds
were invested short-term investments until later in the year at
which time they were invested in assets which are expected to
produce higher yields in 2010.
Investment expenses were $4.7 million for 2009, compared
with $5.0 million for 2008, a decrease of $0.3 million
or 6.3%. The decrease was primarily due to the decrease in trust
fees and a change in fee structure resulting from a change in
investment managers.
72
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73
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74
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75
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the fact that we collect premiums, net of commission, in advance
of losses paid;
the timing of our settlements with our reinsurers; and
the timing of our loss payments.
2010
2009
Change
$
300,175
$
270,512
$
29,663
(214,850
)
(282,144
)(1)
67,294
(139,906
)
(128,725
)
(11,181
)
61,765
76,791
(15,026
)
(1,832
)
18,311
(20,143
)
(6,961
)
(7,292
)
331
583
(96
)
679
$
(1,026
)
$
(52,643
)
$
51,617
(1)
Includes an
out-of-period
adjustment of $(18.6) million. See Note 4 in
Item 8 of Part II of this report for details
concerning this adjustment.
2009
2008
Change
$
270,512
$
324,785
$
(54,273
)
(282,144
)(1)
(261,553
)
(20,591
)
(128,725
)
(145,810
)
17,085
76,791
76,827
(36
)
18,311
(5,670
)
23,981
(7,292
)
(9,016
)
1,724
(96
)
2,206
(2,302
)
$
(52,643
)
$
(18,231
)
$
(34,412
)
(1)
Includes an
out-of-period
adjustment of $(18.6) million. See Note 4 in
Item 8 of Part II of this report for details
concerning this adjustment.
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Group Capital Trust I (UNG
Trust I)
$10.0 million issued
September 30, 2003
September 30, 2033
Payable quarterly at the
three month London
Interbank Offered Rate
(LIBOR) plus 4.05%
At par after
September 30, 2008
Group Capital Statutory
Trust II (UNG Trust II)
$20.0 million issued
October 29, 2003
October 29, 2033
Payable quarterly at the
three month LIBOR
plus 3.85%
At par after
October 29, 2008
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Payment Due by Period
1 Year
2 to 3 Years
4 to 5 Years
6 Years
(Dollars in thousands)
Total
1/1/11-12/31/11
1/1/12-12/31/13
1/1/14-12/31/15
and Later
$
9,594
$
3,168
$
6,035
$
372
$
19
2,569
2,569
106,794
23,598
43,836
39,360
60,809
1,304
2,608
2,608
54,289
356
285
71
1,052,744
324,875
368,108
175,874
183,887
$
1,232,866
$
355,799
$
420,658
$
218,214
$
238,195
(1)
We lease office space and equipment as part of our normal
operations. The amounts shown above represent future commitments
under such operating leases, net of expected
sub-lease
income from abandoned space.
(2)
On July 20, 2005, we sold $90.0 million of guaranteed
senior notes, due July 20, 2015. These notes have an
interest rate of 6.22%, payable semi-annually. On July 20,
2011 and on each anniversary thereafter to and including
July 20, 2014, we are required to prepay $18.0 million
of the principal amount. On July 20, 2015, we are required
to pay any remaining outstanding principal amount on the notes.
The notes are guaranteed by Global Indemnity (Cayman), Ltd.
Proceeds from the notes were used to prepay $72.8 million
in principal together with related interest due as of
July 20, 2005 under senior notes issued by Wind River to
the Ball family trusts in September 2003.
(3)
See discussion in Capital Resources.
(4)
These amounts represent the gross future amounts needed to pay
losses and related loss adjustment expenses and do not reflect
amounts that are expected to be recovered from our reinsurers.
See discussion in Liability for Unpaid Losses and Loss
Adjustment Expenses for more details.
79
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80
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Item 7A.
Quantitative
and Qualitative Disclosures About Market Risk
Change in
(Dollars in thousands)
Market Value
Market Value
$
%
$
1,488,590
$
44,198
3.1
%
1,473,135
28,743
2.0
%
1,444,392
0.0
%
1,406,404
(37,988
)
(2.6
)%
1,368,273
(76,119
)
(5.3
)%
81
Table of Contents
Hypothetical
Estimated Fair Value
Percentage Increase
(Dollars in thousands)
after Hypothetical
(Decrease) in
Change in Prices
Shareholders Equity(1)
$
118,021
(2.1
)%
132,773
(1.0
)%
147,526
162,279
1.0
%
177,031
2.1
%
(1)
Net of 35% tax
82
Table of Contents
83
Item 8.
Financial
Statements and Supplementary Data
85
86
87
88
89
90
91
84
Table of Contents
85
Table of Contents
86
Table of Contents
Consolidated Statements of Operations
Years Ended December 31,
2010
2009
2008
(In thousands, except shares and per share data)
$
345,763
$
340,999
$
378,700
$
296,504
$
290,995
$
309,080
$
286,774
$
301,674
$
382,508
56,623
70,214
67,830
(511
)
(5,689
)
(32,141
)
43
115
26,905
21,436
(18,118
)
26,437
15,862
(50,259
)
653
370,487
387,750
400,079
130,359
169,382
305,174
118,164
119,929
142,767
21,127
16,752
13,918
7,020
7,216
8,657
96,449
93,817
74,471
(166,886
)
8,892
4,310
(29,216
)
84,925
70,161
(137,670
)
(22
)
5,276
(3,890
)
$
84,903
$
75,437
$
(141,560
)
$
2.81
$
2.92
$
(7.74
)
$
2.80
$
2.91
$
(7.74
)
30,237,787
25,856,049
18,278,094
30,274,259
25,881,382
18,278,094
(1)
In 2008, Diluted loss per share is the same as
Basic loss per share since there was a net loss for
the year ended December 31, 2008.
(2)
In computing the basic and diluted weighted share counts the
number of shares outstanding prior to May 5, 2009 (the date
that the ordinary stock was issued in conjunction with the
Stockholders Rights Offering) was adjusted by a factor of
1.114 to reflect the impact of a bonus element associated with
the Stockholders Rights Offering in accordance with GAAP.
(3)
Shares outstanding and per share amounts have been
retrospectively restated to reflect the
1-for-2
stock exchange effective July 2, 2010 when the Company
completed its re-domestication to Ireland.
87
Table of Contents
Consolidated Statements of Comprehensive
Income
Years Ended December 31,
2010
2009
2008
(In thousands)
$
84,903
$
75,437
$
(141,560
)
28,085
40,532
(49,111
)
88
150
(19,400
)
(11,129
)
34,144
(43
)
140
(97
)
8,730
29,693
(15,064
)
$
93,633
$
105,130
$
(156,624
)
88
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Consolidated Statements of Changes in
Shareholders Equity
Years Ended December 31,
2010
2009
2008
(In thousands, except share amounts)
21,243,345
12,516,309
12,385,253
20,828
36,064
126,124
76,648
101,762
4,932
8,589,210
21,340,821
21,243,345
12,516,309
12,061,370
6,343,750
6,343,750
5,717,620
12,061,370
12,061,370
6,343,750
$
2
$
2
$
2
$
1
$
1
$
1
$
619,473
$
524,346
$
519,981
3,252
3,294
4,365
91,833
$
622,725
$
619,473
$
524,346
$
48,481
$
25,108
$
40,172
8,703
29,554
(14,967
)
(43
)
140
(97
)
8,660
29,694
(15,064
)
70
(1
)
(6,320
)
$
57,211
$
48,481
$
25,108
$
264,739
$
182,982
$
324,542
84,903
75,437
(141,560
)
6,320
$
349,642
$
264,739
$
182,982
3,028,106
3,009,578
1,227,044
12,171
18,528
1,782,534
3,040,277
3,028,106
3,009,578
$
(100,720
)
$
(100,446
)
$
(48,422
)
(192
)
(274
)
(52,024
)
$
(100,912
)
$
(100,720
)
$
(100,446
)
$
928,669
$
831,976
$
631,993
89
Table of Contents
Consolidated Statements of Cash Flows
Years Ended December 31,
2010
2009
2008
(In thousands)
$
84,903
$
75,437
$
(141,560
)
83
83
173
4,466
73
1,008
96,449
3,510
4,588
3,415
3,484
9,655
(14,944
)
3,450
1,995
2,638
(26,437
)
(15,862
)
50,259
22
(5,276
)
3,890
13,054
(12,594
)
11,460
120,507
135,926
40,429
(204,998
)
(248,688
)
3,192
4,290
(18,095
)
(78,686
)
(3,633
)
(9,156
)
9,427
(8,676
)
2,867
(5,543
)
(1,909
)
4,474
(2,925
)
3,576
12,966
(19,942
)
(2,160
)
1,550
17,771
5,442
7,414
5,258
(1,026
)
(52,643
)
(18,231
)
650,386
499,857
222,345
49,537
86,376
24,611
45,020
49,260
94,060
68
60,191
(684,635
)
(728,075
)
(177,732
)
(109,802
)
(80,778
)
(29,565
)
(31,334
)
(277
)
(14,970
)
(64,396
)
(144,503
)
133,442
91,833
1,041
(258
)
(794
)
(91
)
(192
)
(274
)
(52,024
)
(15,464
)
(284
)
(276
)
(293
)
(734
)
90,489
(66,831
)
(43
)
140
(97
)
(66,199
)
(106,517
)
48,283
186,087
292,604
244,321
$
119,888
$
186,087
$
292,604
90
Table of Contents
1.
Principles
of Consolidation and Basis of Presentation
91
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2.
Re-domestication
3.
Profit
Enhancement Initiative
Employee
Operating
Asset
Workers
Termination
Leases
Impairments
Compensation
Total
(Dollars in thousands)
$
1,711
$
1,532
$
631
$
2,907
$
6,781
(758
)
(985
)
(1,743
)
176
(631
)
(1,430
)
(1,885
)
$
1,129
$
1,532
$
$
492
$
3,153
92
Table of Contents
Year Ended
December 31,
2010
(Dollars in thousands)
$
1,477
3,874
1,430
$
6,781
4.
Summary
of Significant Accounting Policies
93
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94
Table of Contents
95
Table of Contents
96
Table of Contents
97
Table of Contents
98
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5.
Investments
Other Than
Gross
Gross
Temporary
Amortized
Unrealized
Unrealized
Estimated
Impairments
Cost
Gains
Losses
Fair Value
Recognized in AOCI(1)
(Dollars in thousands)
$
192,746
$
9,948
$
(4
)
$
202,690
$
239,872
5,756
(616
)
245,012
239,265
9,864
(49
)
249,080
(19
)
112,626
2,548
(75
)
115,099
(41
)
38,963
9
(239
)
38,733
511,754
21,594
(564
)
532,784
(134
)
58,429
2,570
(5
)
60,994
1,393,655
52,289
(1,552
)
1,444,392
(194
)
120,674
25,300
(700
)
145,274
930
1,322
2,252
5,367
13
5,380
$
1,520,626
$
78,924
$
(2,252
)
$
1,597,298
$
(194
)
(1)
Represents the total amount of other than temporary impairment
losses recognized in accumulated other comprehensive income
(AOCI) due to the adoption of the recent guidance on
other than temporary impairments in 2009. Per the accounting
guidance, these items were not included in earnings as of
December 31, 2010.
99
Table of Contents
Other Than
Gross
Gross
Temporary
Amortized
Unrealized
Unrealized
Estimated
Impairments
Cost
Gains
Losses
Fair Value
Recognized in AOCI(2)
(Dollars in thousands)
$
228,386
$
7,936
$
(234
)
$
236,088
$
217,713
8,255
(370
)
225,598
349,287
15,219
(506
)
364,000
(72
)
112,287
2,322
(446
)
114,163
(10
)
446,570
15,419
(1,259
)
460,730
68,809
2,354
(170
)
70,993
(698
)
1,423,052
51,505
(2,985
)
1,471,572
(780
)
50,709
12,473
(125
)
63,057
1,509
1,090
2,599
5,468
2,531
7,999
$
1,480,738
$
67,599
$
(3,110
)
$
1,545,227
$
(780
)
(2)
Represents the amount of other than temporary impairment losses
recognized in accumulated other comprehensive income
(AOCI) since the date of adoption of the recent
guidance on other than temporary impairments. Per the accounting
guidance, these items were not included in earnings as of
December 31, 2009.
Amortized
Estimated
Cost
Fair Value
(Dollars in thousands)
$
88,836
$
90,076
638,537
665,633
205,439
212,990
24,335
26,339
45,654
46,442
239,265
249,080
112,626
115,099
38,963
38,733
$
1,393,655
$
1,444,392
Table of Contents
Less Than 12 months
12 Months or Longer(1)
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
(Dollars in thousands)
$
1,015
$
(4
)
$
$
$
1,015
$
(4
)
38,601
(553
)
1,651
(63
)
40,252
(616
)
2,298
(29
)
561
(20
)
2,859
(49
)
7,021
(17
)
880
(58
)
7,901
(75
)
32,889
(239
)
32,889
(239
)
35,063
(559
)
1,014
(5
)
36,077
(564
)
1,990
(5
)
1,990
(5
)
118,877
(1,406
)
4,106
(146
)
122,983
(1,552
)
12,580
(700
)
12,580
(700
)
$
131,457
$
(2,106
)
$
4,106
$
(146
)
$
135,563
$
(2,252
)
(1)
Fixed maturities in a gross unrealized loss position for twelve
months or longer is 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
impaired.
Less Than 12 Months
12 Months or Longer(2)
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
(Dollars in thousands)
$
56,445
$
(234
)
$
$
$
56,445
$
(234
)
26,488
(239
)
6,403
(131
)
32,891
(370
)
23,612
(217
)
5,020
(289
)
28,632
(506
)
31,255
(246
)
1,625
(200
)
32,880
(446
)
87,286
(1,166
)
3,556
(93
)
90,842
(1,259
)
11,835
(170
)
11,835
(170
)
236,921
(2,272
)
16,604
(713
)
253,525
(2,985
)
3,184
(73
)
1,107
(52
)
4,291
(125
)
$
240,105
$
(2,345
)
$
17,711
$
(765
)
$
257,816
$
(3,110
)
101
Table of Contents
(2)
Fixed maturities in a gross unrealized loss position for twelve
months or longer is 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
impaired.
102
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Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
121
$
4,449
$
13,811
(43
)
(115
)
78
4,334
13,811
647
2,130
390
593
16,200
$
468
$
5,574
$
32,141
103
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As of
(Dollars in thousands)
December 31, 2010
$
50
63
15
(13
)
$
115
As of
(Dollars in thousands)
December 31, 2009
$
50
$
50
December 31,
2010
2009
(Dollars in thousands)
$
50,737
$
48,521
1,322
1,090
24,600
12,348
13
2,531
44
(19,461
)
(16,053
)
$
57,211
$
48,481
104
Table of Contents
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
17,915
$
21,777
$
2,553
(557
)
(12,751
)
(26,003
)
17,358
9,026
(23,450
)
9,905
11,753
1,972
(829
)
(6,118
)
(18,513
)
9,076
5,635
(16,541
)
3
2,490
(1,289
)
(10,268
)
3
1,201
(10,268
)
$
26,437
$
15,862
$
(50,259
)
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
650,386
$
499,857
$
222,345
49,537
86,376
24,611
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
60,262
$
62,099
$
63,223
2,177
1,752
3,059
161
2,382
6,529
4
8,647
62,604
74,880
72,811
(5,981
)
(4,666
)
(4,981
)
$
56,623
$
70,214
$
67,830
105
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Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
48,322
$
56,745
$
55,689
19,400
11,129
(34,142
)
(22
)
5,276
(3,890
)
8,773
29,553
(14,969
)
28,151
45,958
(53,001
)
$
76,473
$
102,703
$
2,688
4.5
%
6.2
%
0.2
%
$
1,703,237
$
1,646,437
$
1,682,316
(1)
Average of total cash and invested assets, net of payable for
securities purchased, as of the beginning and ending of the
period.
Ratings
Ratings
(Dollars in thousands)
with
without
Insurance
Insurance
$
1,352
$
30,334
10,041
1,415
20,620
2,440
1,895
1,895
$
34,996
$
34,996
106
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Exposure Net of
Pre-refunded
Government
& Government
(Dollars in thousands)
Pre-refunded
Guaranteed
Guaranteed
Total
Securities
Securities
Securities
$
11,345
$
5,773
$
$
5,572
2,475
2,475
43,932
16,271
27,661
40,190
10,173
30,017
2,294
2,294
4,134
884
3,250
3,313
1,956
1,357
107,683
37,532
6,901
63,250
10,320
10,320
$
118,003
$
47,852
$
6,901
$
63,250
Estimated Fair Value
December 31,
December 31,
2010
2009
(Dollars in thousands)
$
43,656
$
41,336
609,242
653,500
68,900
29,884
5,871
6,169
$
727,669
$
730,889
107
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6.
Fair
Value Measurements
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
(22
)
$
5,276
$
(3,890
)
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 the 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.
108
Table of Contents
As of December 31, 2010
Fair Value Measurements
Level 1
Level 2
Level 3
Total
$
89,187
$
113,503
$
$
202,690
245,012
245,012
249,080
249,080
38,733
38,733
115,099
115,099
532,784
532,784
60,994
60,994
89,187
1,355,205
1,444,392
2,252
2,252
145,274
145,274
5,380
5,380
$
234,461
$
1,357,457
$
5,380
$
1,597,298
As of December 31, 2009
Fair Value Measurements
Level 1
Level 2
Level 3
Total
$
82,021
$
154,067
$
$
236,088
225,598
225,598
364,000
364,000
114,163
114,163
460,730
460,730
70,993
70,993
82,021
1,389,551
1,471,572
579
2,020
2,599
63,057
63,057
7,999
7,999
$
145,657
$
1,391,571
$
7,999
$
1,545,227
109
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Other
Invested Assets
(Dollars in thousands)
$
7,999
(33
)
(2,518
)
(68
)
$
5,380
$
(33
)
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Other
Invested Assets
(Dollars in thousands)
$
46,672
7,184
(8,336
)
31,334
(68,855
)
$
7,999
$
181
December 31, 2010
December 31, 2009
Future
Future
Funding
Funding
(Dollars in thousands)
Fair Value
Commitment
Fair Value
Commitment
$
4,268
$
2,569
$
5,625
$
2,500
1,229
1,112
1,145
$
5,380
$
2,569
$
7,999
$
2,500
(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
111
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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 as of December 31, 2010.
(3)
This limited partnership is a registered mutual fund which
invests in a portfolio of high yield convertible securities
issued by companies with small to medium market capitalizations
and lower credit ratings (generally below investment grade). In
accordance with the partnership agreement, the Company has
exercised its right to submit a capital withdrawal request
effective December 31, 2009. As of December 31, 2009,
the Company was unable to redeem a portion of its ownership
interest in this limited partnership with a fair market value of
$1.1 million. This is related to convertible preferred
securities of one company which were subject to an Appraisal
Action in Delaware Court. In February, 2011, the Companys
remaining interest of $1.1 million was liquidated.
Equity prices are received from all primary and secondary
exchanges.
Corporate bonds are individually evaluated on a nominal spread
or an option adjusted spread basis depending on how the market
trades a security or sector. Spreads are updated each day and
compared with those from the broker/dealer community and
contributing firms. Issues are generally benchmarked off of the
U.S. treasuries or LIBOR.
For CMOs, which are categorized with mortgage-backed securities
in the tables listed above, a volatility-driven,
multi-dimensional single cash flow stream model or
option-adjusted spread model is used. For ABSs, a single
expected cash flow stream model is utilized. For both asset
classes, evaluations utilize standard inputs plus new issue
data, monthly payment information, and collateral performance.
The evaluated pricing models incorporate security
set-up,
prepayment speeds, cash flows, treasury, swap curves and spread
adjustments.
For municipals, a series of matrices are used to evaluate
securities within this asset class. The evaluated pricing models
for this asset class incorporate security
set-up,
sector curves, yield to worst, ratings updates, and adjustments
for material events notices.
U.S. Treasuries are priced on the bid side by a market
maker.
For MBSs, the pricing vendor utilizes a matrix model correlation
to TBA (a forward MBS trade) or benchmarking to value a security.
Corporate loans are priced using averages of bids and offers
obtained from the broker/dealer community involved in trading
such loans.
112
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Reviewing periodic reports provided by the Investment Manager
that provides information regarding rating changes and
securities placed on watch. This procedure allows the Company to
understand why a particular securitys market value may
have changed.
Understanding and periodically evaluating the various pricing
methods and procedures used by the Companys pricing
vendors to ensure that investments are properly classified
within the fair value hierarchy.
7.
Goodwill
and Intangible Assets
113
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(Dollars in thousands)
$
84,246
(84,246
)
4,800
$
4,800
(1)
Goodwill of $84,246 related to the merger with
Penn-America
Group, Inc.
(Dollars in thousands)
Accumulated
Useful Life
Cost
Amortization
Net Value
Indefinite
$
4,800
$
$
4,800
Indefinite
4,200
4,200
Indefinite
5,000
5,000
15 years
5,300
250
5,050
2 years
50
18
32
$
19,350
$
268
$
19,082
(Dollars in thousands)
Accumulated
Useful Life
Cost
Amortization
Net Value
Indefinite
$
4,200
$
$
4,200
Indefinite
5,000
5,000
5 years
400
364
36
$
9,600
$
364
$
9,236
114
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115
Table of Contents
(Dollars in thousands)
$
378
361
353
353
353
8.
Reinsurance
116
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Reinsurance
A.M. Best Ratings
(Dollars in millions)
Receivables
(As of December 31, 2010)
$
40.7
A+
117
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Written
Earned
(Dollars in thousands)
$
245,482
$
248,995
100,281
92,478
(49,259
)
(54,699
)
$
296,504
$
286,774
$
267,981
$
298,427
73,018
60,667
(50,004
)
(57,420
)
$
290,995
$
301,674
$
353,168
$
429,164
25,532
28,221
(69,620
)
(74,877
)
$
309,080
$
382,508
9.
Income
Taxes
118
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Non-U.S.
U.S.
Subsidiaries
Subsidiaries
Eliminations
Total
(Dollars in thousands)
$
202,639
$
245,481
$
(102,357
)
$
345,763
$
202,797
$
93,707
$
$
296,504
$
194,719
$
92,055
$
$
286,774
44,427
30,636
(18,440
)
56,623
6,639
19,798
26,437
653
653
245,785
143,142
(18,440
)
370,487
100,125
30,234
130,359
76,111
42,053
118,164
10,471
10,656
21,127
25,460
(18,440
)
7,020
$
59,078
$
34,739
$
$
93,817
Non-U.S.
U.S.
Subsidiaries
Subsidiaries
Eliminations
Total
(Dollars in thousands)
$
191,138
$
267,993
$
(118,132
)
$
340,999
$
190,862
$
100,133
$
$
290,995
$
185,471
$
116,203
$
$
301,674
41,764
46,890
(18,440
)
70,214
2,338
13,524
15,862
229,573
176,617
(18,440
)
387,750
95,730
73,652
169,382
75,185
44,744
119,929
10,014
6,738
16,752
25,656
(18,440
)
7,216
$
48,644
$
25,827
$
$
74,471
119
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Non-U.S.
U.S.
Subsidiaries
Subsidiaries
Eliminations
Total
(Dollars in thousands)
$
178,310
$
353,130
$
(152,740
)
$
378,700
$
156,341
$
152,739
$
$
309,080
$
195,421
$
187,087
$
$
382,508
41,157
45,113
(18,440
)
67,830
(4,215
)
(46,044
)
(50,259
)
232,363
186,156
(18,440
)
400,079
151,643
153,531
305,174
83,540
59,227
142,767
9,168
4,750
13,918
27,097
(18,440
)
8,657
96,449
96,449
$
(11,988
)
$
(154,898
)
$
$
(166,886
)
Years Ended December 31,
2010
2009
2008
% of Pre-
% of Pre-
% of Pre-
Amount
Tax Income
Amount
Tax Income
Amount
Tax Income
(Dollars in thousands)
$
11,993
12.8
%
$
9,110
12.2
%
$
(54,182
)
(32.4
)%
(1,988
)
(2.1
)
(2,571
)
(3.5
)
(2,994
)
(1.8
)
(436
)
(0.5
)
(375
)
(0.5
)
(653
)
(0.4
)
29,486
17.7
(677
)
(0.7
)
(1,854
)
(2.4
)
(920
)
(0.6
)
$
8,892
9.5
%
$
4,310
5.8
%
$
(29,263
)
(17.5
)%
120
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Years Ended December 31,
(Dollars in thousands)
2010
2009
2008
$
5,408
$
(5,345
)
$
(14,319
)
3,484
9,655
(14,944
)
$
8,892
$
4,310
$
(29,263
)
(Dollars in thousands)
2010
2009
$
12,382
$
17,316
3,330
3,215
6,479
3,240
3,435
2,005
4,362
2,273
1,977
417
7,139
4,662
33,608
38,624
3,220
3,233
19,461
16,053
204
2,714
586
1,463
1,875
158
193
250
1,339
737
26,681
24,805
$
6,927
$
13,819
121
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122
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10.
Liability
for Unpaid Losses and Loss Adjustment Expenses
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
1,257,741
$
1,506,429
$
1,503,237
514,466
656,929
691,811
743,275
849,500
811,426
184,460
178,492
270,242
(54,101
)
(9,110
)
34,932
130,359
169,382
305,174
49,863
44,815
55,315
178,223
230,792
211,785
228,086
275,607
267,100
645,548
743,275
849,500
407,197
514,466
656,929
$
1,052,745
$
1,257,741
$
1,506,429
General Liability:
The
$43.7 million reduction primarily consisted of net
reductions of $45.5 million related to accident years 2002
through 2009 due to lower than anticipated frequency and
severity. Incurred losses for these years have developed at a
rate lower than the Companys historical averages. This
reduction was partially offset by net increases of
$3.8 million related to accident years 1998 through 2001
where the Company increased the loss and loss adjustment expense
estimates related to construction defect claims.
Umbrella:
The $5.4 million
reduction in the umbrella lines related to all accident years
2009 and prior due to less than anticipated severity. As these
accident years have matured, more weight has been given to
experience based methods which continue to develop favorably
compared to our initial indications.
Professional Liability:
The
$4.8 million reduction primarily consisted of net
reductions of $9.6 million related to accident years 2001
through 2008 driven by lower than expected paid and incurred
activity. This reduction was partially offset by increases of
$4.7 million related to accident year 2009 where the
Company experienced higher than expected claim frequency and
severity.
123
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Property:
The reduction in the property
lines primarily consisted of reductions of $2.7 million
related to accident years 2002 and 2004 through 2008 driven by
lower than anticipated severity, partially offset by increases
of $0.2 million primarily related to accident year 2009
where the Company experienced higher than expected claim
frequency and severity.
Auto Liability:
The increase in the
automobile liability lines was primarily due to increases of
$2.5 million related to accident year 2009 from a
non-standard auto treaty in our Reinsurance Operations.
Workers Compensation:
The
increase in our workers compensation lines is related to
an accident year 2009 structured excess of loss treaty at our
Reinsurance Operations where we increased our loss estimates
based on industry workers compensation results.
Property:
The $5.5 million
reduction primarily consisted of reductions related to accident
years 2006 through 2008 due to better than expected loss
emergence in brokerage.
General liability:
The
$2.9 million reduction primarily consisted of reductions of
$13.5 million related to accident years 2006 and prior due
to loss emergence that had been consistently lower than expected
during the year, partially offset by increases of
$10.6 million related to accident years 2007 and 2008 that
were driven by a large claim and an increase in our construction
defect provisions for the
Penn-America
book of business.
Umbrella:
The $4.7 million
reduction primarily consisted of net reductions of
$5.1 million related to accident years 2007 and prior that
were driven by loss emergence throughout the year that was
consistently better than expected, partially offset by increases
of $0.4 million related to accident year 2008.
Professional liability:
The
$4.7 million increase primarily consisted of increases of
$10.1 million related to accident years 2007 and 2008 due
to an increase in severity, partially offset by net reductions
of $5.4 million primarily related to accident years 2006
and prior.
General Liability:
The
$15.3 million increase primarily consisted of increases of
$20.4 million related to accident years 2006, 2007, and
2001 and prior, offset by reductions of $5.1 million
related to accident years 2002 through 2005.
Professional Liability:
The
$18.3 million increase primarily consisted of increases of
$20.3 million related to accident years 2006 and 2007,
offset by reductions of $2.0 million related to accident
years 2005 and prior.
124
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Property:
The $1.2 million
reduction primarily consisted of reductions of $2.6 million
related to accident years 2007 and 2003 and prior, offset by
increases of $1.4 million related to accident years 2004
through 2006.
Umbrella:
The $0.6 million
reduction was primarily related to accident years 2004 and prior.
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
51,170
$
60,601
$
65,116
896
9,212
6,592
(1,648
)
(5,716
)
1,469
1,267
12,927
12,576
$
49,151
$
51,170
$
60,601
125
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Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
31,677
$
36,926
$
30,144
238
9,989
4,150
(1,376
)
(5,564
)
7,988
206
9,674
5,356
$
30,333
$
31,677
$
36,926
11.
Debt
December 31,
2010
2009
$
90,000
$
90,000
10,310
10,310
20,619
20,619
356
640
$
121,285
$
121,569
126
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AIS through its wholly owned subsidiary UNG Trust I
$10.0 million issued September 30, 2003
September 30, 2033
Payable quarterly at the three month London Interbank Offered
Rate (LIBOR) plus 4.05%
At par after September 30, 2008
AIS through its wholly owned subsidiary UNG Trust II
$20.0 million issued October 29, 2003
October 29, 2033
Payable quarterly at the three month LIBOR plus 3.85%
At par after October 29, 2008
12.
Shareholders
Equity
127
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128
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Approximate
Total Number of
Dollar Value
Shares Purchased
of Shares That
Total Number
Average
as Part of Publicly
May Yet Be
of Shares
Price Paid
Announced Plan
Purchased Under the
Purchased
Per Share
or Program
Plan or Program(2)
5,045
(3)
$
15.98
$
3,033
(3)
$
13.96
$
59
(4)
$
7.00
$
89
(3)
$
19.60
$
2,037
(3)
$
15.79
$
370
(3)
$
15.00
$
419
(3)
$
16.65
$
592
(3)
$
19.29
$
503
(3)
$
19.84
$
12,147
$
15.74
N/A
(1)
Based on settlement date.
(2)
Approximate dollar value of shares is as of the last date of the
applicable month.
(3)
Surrendered by employees as payment of taxes withheld on the
vesting of restricted stock.
(4)
Includes 59 shares repurchased as part of the Rights
Offering.
129
Table of Contents
Approximate
Total Number of
Dollar Value
Shares Purchased
of Shares That
Total Number
Average
as Part of Publicly
May Yet Be
of Shares
Price Paid
Announced Plan
Purchased Under the
Purchased
Per Share
or Program
Plan or Program(2)
4,622
(3)
$
24.25
$
2,163
(3)
$
21.00
$
1,198
(3)
$
9.78
$
8,651
(4)
$
9.02
$
796
(3)
$
14.91
$
1,095
(3)
$
13.89
$
18,525
$
14.81
N/A
(1)
Based on settlement date.
(2)
Approximate dollar value of shares is as of the last date of the
applicable month.
(3)
Surrendered by employees as payment of taxes withheld on the
vesting of restricted stock.
(4)
Includes 3,651 shares surrendered by employees as payment
of taxes withheld on the vesting of restricted stock and
5,000 shares repurchased as part of the Rights Offering.
13.
Related
Party Transactions
130
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$100.0 million in excess of $10.0 million, which
expired on May 31, 2008;
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
(3,682
)
$
2,518
$
10,634
(309
)
2,314
8,075
131
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14.
Commitments
and Contingencies
(Dollars in thousands)
$
3,168
2,980
3,055
316
75
$
9,594
132
Table of Contents
15.
Share-Based
Compensation Plans
133
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Weighted
Average
Time-Based
Performance-
Tranche A
Exercise Price
Options
Based Options
Options
Total Options
Per Share
370,196
98,736
28,037
496,969
$
35.50
124,709
124,709
249,418
$
40.10
(27,102
)
(27,102
)
$
25.96
(49,371
)
(49,371
)
$
21.08
(161
)
(161
)
$
16.98
(98,736
)
(98,736
)
(197,472
)
$
50.64
319,535
124,709
28,037
472,281
$
33.66
124,709
124,709
249,418
$
23.80
(7,500
)
(7,500
)
$
43.74
(102,726
)
(28,037
)
(130,763
)
$
22.44
(124,709
)
(124,709
)
(249,418
)
$
40.10
209,309
124,709
334,018
$
25.65
(4,000
)
(4,000
)
$
34.00
205,309
124,709
330,018
$
25.55
142,954
142,954
$
27.84
NOTE:
The above table excludes 27,500 warrants that were issued, at an
exercise price of $20.00 per share, on September 5, 2003
and which expired on September 11, 2008. In addition, the
Tranche A options were granted outside of the Plan.
134
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Weighted
Number
Average
of Shares
Strike Price
Intrinsic Value
330,018
$
25.55
$
0.01 million
142,954
27.84
0.01 million
NOTE:
The intrinsic value of the Exercised Options is the difference
between the fair market value at time of exercise and the strike
price of the option.
Number of
Options
Exercisable
207
19,293
62,354
5,000
41,100
2,500
12,500
142,954
2009
2008
0.0%
0.0%
48.40%
31.4%
3.0%
3.1%
6.1 years
6.6 years
135
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Outstanding at
Weighted Average
Weighted Average
December 31, 2010
Per Share Exercise Price
Remaining Life
207
$
16.98
1.0 years
273,711
$
23.63
8.2 years
56,100
$
34.95
3.0 years
330,018
Outstanding at
Weighted Average
Weighted Average
December 31, 2009
Per Share Exercise Price
Remaining Life
207
$
16.98
2.0 years
273,711
$
23.63
9.2 years
60,100
$
34.89
4.0 years
334,018
Outstanding at
Weighted Average
Weighted Average
December 31, 2008
Per Share Exercise Price
Remaining Life
28,244
$
13.03
0.4 years
93,942
$
20.49
2.3 years
90,677
$
34.90
3.6 years
259,418
$
40.24
8.4 years
472,281
Restricted Stock Awards
Employees
Directors
Total
309,820
46,522
356,342
111,327
23,698
135,025
65,568
101,755
167,323
47,610
76,648
124,258
534,325
248,623
782,948
(1)
Includes 122,603 shares that were purchased by key
employees in 2003.
136
Table of Contents
Weighted
Average
Number of
Price
Shares
Per Share
76,612
$
44.56
135,025
$
31.94
(54,726
)
$
38.14
(19,427
)
$
43.55
137,484
$
34.87
167,323
$
15.30
(146,497
)
$
20.78
(39,311
)
$
27.84
118,999
$
27.04
124,258
$
15.76
(119,292
)
$
20.38
(58,020
)
$
24.59
65,945
$
20.26
137
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16.
401(k)
Plan
17.
Earnings
(Loss) Per Share
138
Table of Contents
Years Ended December 31,
2010
2009
2008
(Dollars in thousands, except share and per share data)
$
84,903
$
75,437
$
(141,560
)
30,237,787
25,246,171
16,413,189
609,878
1,864,905
30,237,787
25,856,049
18,278,094
$
2.81
$
2.92
$
(7.74
)
30,274,259
25,271,504
16,413,189
609,878
1,864,905
30,274,259
25,881,382
18,278,094
$
2.80
$
2.91
$
(7.74
)
Years Ended December 31,
2010
2009
2008
30,237,787
25,856,049
18,278,094
36,472
2,961
22,372
30,274,259
25,881,382
18,278,094
139
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18.
Statutory
Financial Information
Under SAP, investments in debt securities are primarily carried
at amortized cost, while under GAAP the Company records its debt
securities at estimated fair value.
Under SAP, policy acquisition costs, such as commissions,
premium taxes, fees and other costs of underwriting policies are
charged to current operations as incurred, while under GAAP such
costs are deferred and amortized on a pro rata basis over the
period covered by the policy.
Under SAP, certain assets designated as Non-admitted
assets (such as prepaid expenses) are charged against
surplus.
Under SAP, net deferred income tax assets are admitted following
the application of specified criteria, with the resulting
admitted deferred tax amount being credited directly to surplus.
Under SAP, certain premium receivables are non-admitted and are
charged against surplus based upon aging criteria.
Under SAP, the costs and related receivables for guaranty funds
and other assessments are recorded based on managements
estimate of the ultimate liability and related receivable
settlement, while under GAAP such costs are accrued when the
liability is probable and reasonably estimable and the related
receivable amount is based on future premium collections or
policy surcharges from in-force policies.
Under SAP, unpaid losses and loss adjustment expenses and
unearned premiums are reported net of the effects of reinsurance
transactions, whereas under GAAP, unpaid losses and loss
adjustment expenses and unearned premiums are reported gross of
reinsurance.
Under SAP, a provision for reinsurance is charged to surplus
based on the authorized status of reinsurers, available
collateral, and certain aging criteria, whereas under GAAP, an
allowance for uncollectible reinsurance is established based on
managements best estimate of the collectability of
reinsurance receivables.
140
Table of Contents
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
467,526
$
461,756
$
440,157
55,526
55,811
(45,363
)
19.
Segment
Information
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
245,481
$
267,992
$
353,130
100,282
73,007
25,570
$
345,763
$
340,999
$
378,700
141
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Insurance
Reinsurance
2010:
Operations(1)
Operations(2)
Total
(Dollars in thousands)
$
245,481
$
100,282
$
345,763
$
196,065
$
100,439
$
296,504
$
194,167
$
92,607
$
286,774
653
653
194,820
92,607
287,427
71,175
59,184
130,359
91,451
(3)
26,713
118,164
$
32,194
$
6,710
38,904
56,623
26,437
(21,127
)
(7,020
)
93,817
8,892
84,925
(22
)
$
84,903
$
1,651,525
$
643,158
(4)
$
2,294,683
(1)
Includes business ceded to the Companys Reinsurance
Operations.
(2)
External business only, excluding business assumed from
affiliates.
(3)
Includes excise tax of $1,021 related to cessions from U.S.
Insurance Companies to Wind River Reinsurance.
(4)
Comprised of Wind River Reinsurances total assets less its
investment in subsidiaries.
142
Table of Contents
Insurance
Reinsurance
2009:
Operations(1)
Operations(2)
Total
(Dollars in thousands)
$
267,992
$
73,007
$
340,999
$
218,264
$
72,731
$
290,995
$
250,409
$
51,265
$
301,674
146,197
23,185
169,382
106,297
(3)
13,632
119,929
$
(2,085
)
$
14,448
12,363
70,214
15,862
(16,752
)
(7,216
)
74,471
4,310
70,161
5,276
$
75,437
$
1,805,273
$
640,507
(4)
$
2,445,780
(1)
Includes business ceded to the Companys Reinsurance
Operations.
(2)
External business only, excluding business assumed from
affiliates.
(3)
Includes excise tax of $1,342 related to cessions from U.S.
Insurance Companies to Wind River Reinsurance.
(4)
Comprised of Wind River Reinsurances total assets less its
investment in subsidiaries.
Table of Contents
Insurance
Reinsurance
2008:
Operations(1)
Operations(2)
Total
(Dollars in thousands)
$
353,130
$
25,570
$
378,700
$
305,479
$
3,601
$
309,080
$
374,174
$
8,334
$
382,508
293,820
11,354
305,174
137,294
(3)
5,473
142,767
$
(56,940
)
$
(8,493
)
(65,433
)
67,830
(50,259
)
(13,918
)
(8,657
)
(96,449
)
(166,886
)
(29,216
)
(137,670
)
(3,890
)
$
(141,560
)
$
1,870,030
$
607,029
(4)
$
2,477,059
(1)
Includes business ceded to the Companys Reinsurance
Operations.
(2)
External business only, excluding business assumed from
affiliates.
(3)
Includes excise tax of $1,871 related to cessions from U.S.
Insurance Companies to Wind River Reinsurance.
(4)
Comprised of Wind River Reinsurances total assets less its
investment in subsidiaries.
20.
Supplemental
Cash Flow Information
Years Ended December 31,
2010
2009
2008
(Dollars in thousands)
$
1,829
$
18,019
$
5,763
6,962
7,292
9,015
Table of Contents
21.
New
Accounting Pronouncements
22.
Subsequent
Events
145
Table of Contents
23.
Summary
of Quarterly Financial Information
(Unaudited)
Year Ended December 31, 2010
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
(Dollars in thousands, except per share data)
$
70,788
$
74,702
$
70,089
$
71,195
14,579
13,941
14,089
14,014
14,204
5,597
1,818
4,818
41,789
32,675
29,789
26,106
30,148
29,008
28,541
30,467
20,999
26,003
20,908
25,907
18,901
24,512
19,762
21,728
$
0.62
(2)
$
0.81
$
0.65
$
0.72
Year Ended December 31, 2009
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
(Dollars in thousands, except per share data)
$
78,540
$
74,732
$
72,893
$
75,509
22,177
16,605
15,267
16,165
(8,596
)
5,398
6,613
12,447
47,740
44,047
38,887
38,708
30,814
29,972
27,564
31,579
7,738
17,221
21,870
27,642
7,150
16,261
27,352
24,674
$
0.46
(1),(2)
$
0.64
(2)
$
0.90
(2)
$
0.82
(2)
(1)
In computing the basic and diluted weighted share counts the
number of shares outstanding prior to May 5, 2009 (the date
that the ordinary stock was issued in conjunction with the
Stockholders Rights Offering) was adjusted by a factor of
1.114 to reflect the impact of a bonus element associated with
the Stockholders Rights Offering in accordance with GAAP.
(2)
Per share amounts have been restated to reflect the
1-for-2
stock exchange effective July 2, 2010 when the Company
completed its re-domestication to Ireland.
146
Table of Contents
Item 9.
Changes
In And Disagreements With Accountants On Accounting And
Financial Disclosure
Item 9A.
Controls
and Procedures
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures are being made
only in accordance with authorizations of the Companys
management and directors; and
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
assets that could have a material effect on the financial
statements.
147
Table of Contents
Item 9B.
Other
Information
148
Table of Contents
149
Table of Contents
150
Table of Contents
Item 10.
Directors,
Executive Officers, and Corporate Governance
Item 11.
Executive
Compensation
Item 12.
Security
Ownership of Certain Beneficial Owners and Management, and
Related Stockholder Matters
Item 13.
Certain
Relationships and Related Transactions, and Director
Independence
Item 14.
Principal
Accounting Fees and Services
151
Table of Contents
153
154
Item 15.
Exhibits,
Financial Statement Schedules
3
.1
Memorandum and Articles of Association of Global Indemnity pic
(incorporated by reference to Exhibit 3.1 of our Current
Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809))
3
.2
Certificate of Incorporation of Global Indemnity pic, an Irish
public limited company (incorporated by reference to
Exhibit 3.2 of our Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809)).
4
.1
Form of 6.22% Guaranteed Senior Note due 2015 (incorporated
herein by reference to Exhibit 4.1 of our Current Report on
Form 8-K
filed on July 21,2005(File
No. 000-50511)).
4
.2
Assumption Agreement relating to the 6.22% Guaranteed Senior
Notes, dated June 1, 2010 (incorporated by reference to
Exhibit 4.1 of our Current Report on
Form 8-K12B
dated July 2, 2010 (File No. 001 -34809)).
10
.1*
Global Indemnity plc Share Incentive Plan, amended and restated
effective July 2, 2010 (incorporated herein by reference to
Exhibit 10.1 of our Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809)).
10
.2*
Amendment to Global Indemnity plc Share Incentive Plan dated
July 2,2010 (incorporated herein by reference to
Exhibit 10.2 of our Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809)).
10
.3*
Deed Poll of Assumption for United America Indemnity, Ltd. Share
Incentive Plan by Global Indemnity plc, dated July 2, 2010
(incorporated herein by reference to Exhibit 10.3 or
Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809)).
10
.4*
Global Indemnity plc Annual Incentive Award Program, amended and
restated effective July 2, 2010 (incorporated herein by
reference to Exhibit 10.4 of Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809)).
10
.5*
Deed Poll of Assumption for United America Indemnity, Ltd.
Annual Incentive Award Program by Global Indemnity plc, dated
July 2,2010 (incorporated herein by reference to
Exhibit 10.5 of our Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809)).
10
.6*
Amended and Restated Shareholders Agreement, dated
July 2,2010, by and among Global Indemnity plc (as
successor to United America Indemnity, Ltd.) and the signatories
thereto (incorporated by reference to Exhibit 10.6 of our
Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809)).
10
.7*
Assignment and Assumption Agreement relating to the Amended and
Restated Shareholders Agreement, dated July 2, 2010
(incorporated herein by reference to Exhibit 10.7 of our
Current Report on
Form 8-K12B
dated July 2, 2010 (File
No. 001-34809))
10
.8*
Indemnification Agreement between United America Indemnity, Ltd.
and Fox Paine Capital Fund II International L.P., dated
July 2,2010 (incorporated herein by reference to
Exhibit 10.8 of our Current Report on
Form 8-K12b
dated July 2, 2010 (File
No. 001-34809)).
152
Table of Contents
10
.9*
Form of Indemnification Agreement between United America
Indemnity, Ltd. and certain directors and officers of Global
Indemnity plc, dated July 2,2010 (incorporated herein by
reference to Exhibit 10.9 of our Current Report on
form 8-K12B
dated July 2,2010 (File
No. 001-34809)).
10
.10*
Employment Agreement for Larry A. Frakes, dated May 10,
2007 (incorporated herein by reference to Exhibit 10.1 of
our Quarterly Report on
Form 10-Q
filed on May 10,2007 (File
No. 000-50511)).
10
.11*
Amended and Restated Employment Agreement for Larry A. Frakes,
dated February 5, 2008 (incorporated herein by reference to
Exhibit 10.1 of our Current Report on
Form 8-K
filed on February 8,2008 (File
No. 000-50511)).
10
.12*
Amended and Restated Employment Agreement for Larry A. Frakes,
dated August 14, 2009 (incorporated herein by reference to
Exhibit 10.1 of our Current Report on
Form 8-K
filed on August 17,2009 (File
No. 000-50511)).
10
.13+
Amendment to the Amended and Restated Employment Agreement for
Larry A. Frakes, entered into on March 15, 2011 and
effective as of July 2, 2010.
10
.14*
Executive Employment Agreement, dated as of April 1, 2006,
between Wind River Insurance Company (Bermuda), Ltd. and David
R. Whiting (incorporated herein by reference to
Exhibit 10.1 of our Current Report on
Form 8-K
filed on May 17,2006 (File
No. 000-50511)).
10
.15*
Executive Employment Agreement, dated August 9, 2007,
between
Penn-America
Insurance Company and Raymond H. McDowell (incorporated herein
by reference to Exhibit 10.1 of our Current Report on
Form 8-K
filed on August 15, 2007 (File
No. 000-50511)).
10
.16*
Executive Employment Agreement, dated July 28, 2008,
between United National Insurance Company and J. Scott Reynolds
(incorporated herein by reference to Exhibit 10.22 to our
annual report on
Form 10-K
for the fiscal year ended December 31, 2008 (File
No. 000-50511)).
10
.17*
Amendment No. 1 to Executive Employment Agreement, dated as
of July 30, 2008, between United National Insurance Company
and J. Scott Reynolds (incorporated herein by reference to
Exhibit 10.23 to our annual report on
Form 10-K
for the fiscal year ended December 31,2008 (File
No. 000-50511)).
10
.18*
Executive Employment Agreement, dated as of June 8, 2009,
between
Penn-America
Insurance Company and Matthew B. Scott (incorporated herein by
reference to Exhibit 10.25 to our annual report on
Form 10-K
for the fiscal year ended December 31,2009 (File
No. 000-50511)).
10
.19+
Retention Agreement between
Penn-America
Insurance Company and Matthew B. Scott, dated March 15,
2011.
10
.20*
Executive Employment Agreement, dated as of
November 15,2009, between Wind River Reinsurance Company,
Ltd. and Troy W. Santora (incorporated herein by reference to
Exhibit 10.26 to our annual report on
Form 10-K
for the fiscal year ended December 31,2009 (File
No. 000-50511)).
10
.21+
Retention Agreement between Wind River Reinsurance Company, Ltd.
and Troy W. Santora, dated March 15,2011.
10
.22*
Executive Employment Agreement, dated as of December 8,
2009, between United America Indemnity, Ltd. and Thomas M.
McGeehan (incorporated herein by reference to Exhibit 10.27
to our annual report on
Form 10-K
for the fiscal year ended December 31,2009 (File
No. 000-50511)).
10
.23+
Retention Agreement between United America Indemnity, Ltd. and
Thomas M. McGeehan, dated March 15,2011.
10
.24+
Retention Agreement between Diamond State Insurance Company and
David J. Myers, dated March 15,2011.
10
.25*
Subscription and Backstop Agreement, dated as of
March 16,2009, between United America Indemnity, Ltd., U.N.
Holdings (Cayman) II, Ltd., and Fox Paine & Company,
LLC (incorporated herein by reference to Exhibit 10.1 to
our Current Report on
Form 8-K
filed on March 17, 2009 (File
No. 000-50511)).
10
.26+
Letter Agreement, dated March 16, 2011, assigning the 2003
Management Agreement (as amended) and related indemnity
agreement, by and among United America Indemnity, Ltd., Global
Indemnity (Cayman) Ltd. and Fox Paine & Company, LLC.
Table of Contents
10
.27+
Guaranties, dated March 15, 2011, provided by each of
United America Indemnity, Ltd., Wind River Reinsurance Company,
Ltd., and Global Indemnity Group, Inc., in each case in favor of
Fox Paine & Company, LLC, relating to the obligations
of Global Indemnity (Cayman) Ltd. under the Letter Agreement,
dated March 15, 2011.
10
.28*
Management Agreement, dated as of September 5, 2003, by and
among United National Group, Ltd., Fox Paine & Company, LLC
and The AMC Group, L.P., with related Indemnity Letter
(incorporated herein by reference to Exhibit 10.3 of Amendment
No. 1 to our Registration Statement on Form S-1 (Registration
No. 333-108857) filed on October 28, 2003)(File No. 000-50511)).
10
.29*
Amendment No. 1 to the Management Agreement, dated as of May 25,
2006, by and among United America Indemnity, Ltd., Fox Paine
& Company, LLC and Wind River Holdings, L.P., formerly The
AMC Group, L.P. (incorporated herein by reference to Exhibit
10.3 of our Current Report on Form 8-K filed on June 1, 2006)
(File No. 000-50511)).
21
.1+
List of Subsidiaries.
23
.1+
Consent of PricewaterhouseCoopers LLP.
31
.1+
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31
.2+
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32
.1+
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32
.2+
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
+
Filed herewith.
*
Management contract or compensatory plan or arrangement required
to be filed as an exhibit to this
Form 10-K.
Table of Contents
By:
Title:
Chief Executive
Officer
Chairman and Director
President, Chief Executive Officer, and Director
Principal Financial and Accounting Officer
Director
Director
Director
Director
Director
Director
155
Table of Contents
As of December 31,
|
||||||||||||
2010 | ||||||||||||
Amount
|
||||||||||||
Included in the
|
||||||||||||
Cost* | Value | Balance Sheet | ||||||||||
Type of Investment:
|
||||||||||||
Fixed maturities:
|
||||||||||||
United States Government and government agencies and authorities
|
$ | 192,746 | $ | 202,690 | $ | 202,690 | ||||||
States, municipalities, and political subdivisions
|
239,872 | 245,012 | 245,012 | |||||||||
Mortgage-backed and asset-backed securities
|
390,854 | 402,912 | 402,912 | |||||||||
Public utilities
|
38,317 | 41,061 | 41,061 | |||||||||
All other corporate bonds
|
531,866 | 552,717 | 552,717 | |||||||||
Redeemable preferred stock
|
930 | 2,252 | 2,252 | |||||||||
Total fixed maturities
|
1,394,585 | 1,446,644 | 1,446,644 | |||||||||
Equity securities:
|
||||||||||||
Common stocks:
|
||||||||||||
Public utilities
|
3,302 | 3,570 | 3,570 | |||||||||
Banks, trusts and insurance companies
|
26,201 | 31,239 | 31,239 | |||||||||
Industrial and miscellaneous
|
91,171 | 110,465 | 110,465 | |||||||||
Total equity securities
|
120,674 | 145,274 | 145,274 | |||||||||
Other long-term investments
|
5,367 | 5,380 | 5,380 | |||||||||
Total investments
|
$ | 1,520,626 | $ | 1,597,298 | $ | 1,597,298 | ||||||
* | Original cost of equity securities; original cost of fixed maturities adjusted for amortization of premiums and accretion of discounts. All amounts are shown net of impairment losses. |
S-1
(1) | This item has been eliminated in the Companys Consolidated Financial Statements. |
S-2
(1) | This item has been eliminated in the Companys Consolidated Financial Statements. |
S-3
Year Ended
|
||||
December 31, 2010 | ||||
Revenues
:
|
||||
Total revenues
|
$ | | ||
Expenses:
|
||||
Other expenses
|
(727 | ) | ||
Loss before equity in earnings of unconsolidated subsidiaries
|
(727 | ) | ||
Equity in earnings of unconsolidated subsidiaries(1)
|
85,630 | |||
Net income
|
84,903 | |||
Other comprehensive income, net of tax:
|
||||
Equity in other comprehensive income of unconsolidated
subsidiaries(1)
|
8,730 | |||
Other comprehensive income, net of tax
|
8,730 | |||
Comprehensive income, net of tax
|
$ | 93,633 | ||
(1) | This item has been eliminated in the Companys Consolidated Financial Statements. |
S-4
Year Ended
|
||||
December 31, 2009 | ||||
Revenues
:
|
||||
Total revenues
|
$ | 877 | ||
Expenses:
|
||||
Other expenses
|
12,167 | |||
Loss before equity in earnings of unconsolidated subsidiaries
|
(11,290 | ) | ||
Equity in earnings of partnerships
|
1,732 | |||
Equity in earnings of unconsolidated subsidiaries(1)
|
84,995 | |||
Net income
|
75,437 | |||
Other comprehensive income, net of tax:
|
||||
Unrealized holding gains arising during the period
|
1,145 | |||
Equity in other comprehensive income of unconsolidated
subsidiaries(1)
|
28,548 | |||
Other comprehensive income, net of tax
|
29,693 | |||
Comprehensive income, net of tax
|
$ | 105,130 | ||
(1) | This item has been eliminated in the Companys Consolidated Financial Statements. |
S-5
Year Ended
|
||||
December 31, 2010 | ||||
Net cash used for operating activities
|
$ | (30 | ) | |
Cash flows from investing activities:
|
||||
Investment in subsidiaries(1)
|
(872,715 | ) | ||
Net cash used for investing activities
|
(872,715 | ) | ||
Cash flows from financing activities:
|
||||
Issuance of ordinary shares
|
973,708 | |||
Purchases of Class A ordinary shares
|
(100,912 | ) | ||
Net cash provided by financing activities
|
872,796 | |||
Net change in cash and equivalents
|
51 | |||
Cash and cash equivalents at beginning of period
|
| |||
Cash and cash equivalents at end of period
|
$ | 51 | ||
(1) | This item has been eliminated in the Companys Consolidated Financial Statements. |
S-6
Year Ended
|
||||
December 31, 2009 | ||||
Net cash used for operating activities
|
$ | (5,889 | ) | |
Cash flows from investing activities:
|
||||
Proceeds from sale of fixed maturities
|
13,473 | |||
Purchases of fixed maturities
|
(55,999 | ) | ||
Purchases of other invested assets
|
(10,000 | ) | ||
Net cash used for investing activities
|
(52,526 | ) | ||
Cash flows from financing activities:
|
||||
Issuance of ordinary shares
|
91,833 | |||
Excess tax expense from share-based compensation plans
|
(794 | ) | ||
Purchase of Class A ordinary shares
|
(274 | ) | ||
Net cash provided by financing activities
|
90,765 | |||
Net change in cash and equivalents
|
32,350 | |||
Cash and cash equivalents at beginning of period
|
203 | |||
Cash and cash equivalents at end of period
|
$ | 32,553 | ||
S-7
Future
|
||||||||||||||||
Policy Benefits,
|
||||||||||||||||
Deferred Policy
|
Losses, Claims And
|
Unearned
|
Other Policy and
|
|||||||||||||
Segment
|
Acquisition Costs | Loss Expenses | Premiums | Benefits Payable | ||||||||||||
At December 31, 2010:
|
||||||||||||||||
Insurance Operations
|
$ | 27,108 | $ | 978,746 | $ | 104,837 | $ | ___ | ||||||||
Reinsurance Operations
|
8,237 | 73,997 | 31,035 | ___ | ||||||||||||
At December 31, 2009:
|
||||||||||||||||
Insurance Operations
|
$ | 26,345 | $ | 1,221,516 | $ | 108,352 | $ | ___ | ||||||||
Reinsurance Operations
|
6,839 | 36,225 | 23,230 | ___ | ||||||||||||
At December 31, 2008:
|
||||||||||||||||
Insurance Operations
|
$ | 33,737 | $ | 1,481,793 | $ | 138,796 | $ | ___ | ||||||||
Reinsurance Operations
|
997 | 24,636 | 10,881 | ___ |
Benefits, Claims,
|
||||||||||||||||
Losses And
|
Amortization of
|
|||||||||||||||
Premium
|
Settlement
|
Deferred Policy
|
Net Written
|
|||||||||||||
Segment
|
Revenue | Expenses | Acquisition Costs | Premium | ||||||||||||
For the year ended December 31, 2010:
|
||||||||||||||||
Insurance Operations
|
$ | 194,167 | $ | 71,175 | $ | (61,726 | ) | $ | 196,065 | |||||||
Reinsurance Operations
|
92,607 | 59,184 | (23,582 | ) | 100,439 | |||||||||||
Total
|
$ | 286,774 | $ | 130,359 | $ | (85,308 | ) | $ | 296,504 | |||||||
For the year ended December 31, 2009:
|
||||||||||||||||
Insurance Operations
|
$ | 250,409 | $ | 146,197 | $ | (73,437 | ) | $ | 218,264 | |||||||
Reinsurance Operations
|
51,265 | 23,185 | (10,659 | ) | 72,731 | |||||||||||
Total
|
$ | 301,674 | $ | 169,382 | $ | (84,096 | ) | $ | 290,995 | |||||||
For the year ended December 31, 2008:
|
||||||||||||||||
Insurance Operations
|
$ | 374,174 | $ | 293,820 | $ | (105,492 | ) | $ | 305,479 | |||||||
Reinsurance Operations
|
8,334 | 11,354 | (3,390 | ) | 3,601 | |||||||||||
Total
|
$ | 382,508 | $ | 305,174 | $ | (108,882 | ) | $ | 309,080 | |||||||
Corporate
|
||||||||
Net
|
and Other
|
|||||||
Investment
|
Operating
|
|||||||
Unallocated Corporate Items
|
Income | Expenses | ||||||
For the year ended December 31, 2010
|
$ | 56,623 | $ | 21,127 | ||||
For the year ended December 31, 2009
|
70,214 | 16,752 | ||||||
For the year ended December 31, 2008
|
67,830 | 13,918 |
S-8
Percentage
|
||||||||||||||||||||
Gross
|
Ceded to Other
|
Assumed from
|
of Amount
|
|||||||||||||||||
Amount(1) | Companies | Other Companies | Net Amount | Assumed to Net | ||||||||||||||||
For the year ended December 31, 2010:
|
||||||||||||||||||||
Property & Liability Insurance
|
$ | 248,995 | $ | 54,699 | $ | 92,478 | $ | 286,774 | 32.2 | % | ||||||||||
For the year ended December 31, 2009:
|
||||||||||||||||||||
Property & Liability Insurance
|
$ | 298,427 | $ | 57,420 | $ | 60,667 | $ | 301,674 | 20.1 | % | ||||||||||
For the year ended December 31, 2008:
|
||||||||||||||||||||
Property & Liability Insurance
|
$ | 429,164 | $ | 74,877 | $ | 28,221 | $ | 382,508 | 7.4 | % |
(1) | Includes direct premiums written. |
S-9
Balance at
|
Charged
|
|||||||||||||||||||
Beginning of
|
(Credited) to Costs
|
Charged (Credited)
|
Other
|
Balance at End
|
||||||||||||||||
Description
|
Period | and Expenses | to Other Accounts | Deductions | of Period | |||||||||||||||
For the year ended December 31, 2010:
|
||||||||||||||||||||
Investment asset valuation reserves:
|
||||||||||||||||||||
Mortgage loans
|
$ | | $ | | $ | | $ | | $ | | ||||||||||
Real estate
|
| | | | | |||||||||||||||
Allowance for doubtful accounts:
|
||||||||||||||||||||
Premiums, accounts and notes receivable
|
$ | 2,221 | $ | (984 | ) | $ | | $ | | $ | 1,237 | |||||||||
Deferred tax asset valuation allowance
|
| | | | | |||||||||||||||
Reinsurance receivables
|
12,947 | (204 | ) | | | 12,743 | ||||||||||||||
For the year ended December 31, 2009:
|
||||||||||||||||||||
Investment asset valuation reserves:
|
||||||||||||||||||||
Mortgage loans
|
$ | | $ | | $ | | $ | | $ | | ||||||||||
Real estate
|
| | | | | |||||||||||||||
Allowance for doubtful accounts:
|
||||||||||||||||||||
Premiums, accounts and notes receivable
|
$ | 2,655 | $ | (434 | ) | $ | | $ | | $ | 2,221 | |||||||||
Deferred tax asset valuation allowance
|
| | | | | |||||||||||||||
Reinsurance receivables
|
13,661 | (714 | ) | | | 12,947 | ||||||||||||||
For the year ended December 31, 2008:
|
||||||||||||||||||||
Investment asset valuation reserves:
|
||||||||||||||||||||
Mortgage loans
|
$ | | $ | | $ | | $ | | $ | | ||||||||||
Real estate
|
| | | | | |||||||||||||||
Allowance for doubtful accounts:
|
||||||||||||||||||||
Premiums, accounts and notes receivable
|
$ | 3,910 | $ | (1,255 | ) | $ | | $ | | $ | 2,655 | |||||||||
Deferred tax asset valuation allowance
|
| | | | | |||||||||||||||
Reinsurance receivables
|
10,542 | 3,119 | | | 13,661 |
S-10
Reserves for
|
||||||||||||||||
Deferred
|
Unpaid Claims
|
|||||||||||||||
Policy
|
and Claim
|
|||||||||||||||
Acquisition
|
Adjustment
|
Discount If
|
Unearned
|
|||||||||||||
Costs | Expenses | Any Deducted | Premiums | |||||||||||||
Consolidated Property & Casualty Entities:
|
||||||||||||||||
As of December 31, 2010
|
$ | 35,344 | $ | 1,052,743 | $ | 12,000 | $ | 135,872 | ||||||||
As of December 31, 2009
|
33,184 | 1,257,741 | 17,500 | 131,582 | ||||||||||||
As of December 31, 2008
|
34,734 | 1,506,429 | 17,500 | 149,677 |
Claims and Claim
|
Paid Claims
|
|||||||||||||||||||||||||||
Net
|
Adjustment Expense
|
Amortization of
|
and Claim
|
|||||||||||||||||||||||||
Earned
|
Investment
|
Incurred Related To |
Deferred Policy
|
Adjustment
|
Premiums
|
|||||||||||||||||||||||
Premiums | Income | Current Year | Prior Year | Acquisition Costs | Expenses | Written | ||||||||||||||||||||||
Consolidated Property &
Casualty Entities: |
||||||||||||||||||||||||||||
For the year ended December 31, 2010
|
$ | 286,774 | $ | 56,623 | $ | 184,460 | $ | (54,101 | ) | $ | (85,309 | ) | $ | 235,587 | $ | 296,504 | ||||||||||||
For the year ended December 31, 2009
|
301,674 | 70,214 | 178,492 | (9,110 | ) | (84,096 | ) | 279,923 | 290,995 | |||||||||||||||||||
For the year ended December 31, 2008
|
382,508 | 67,830 | 270,242 | 34,932 | (108,882 | ) | 270,220 | 309,080 |
S-11
COORDINATION WITH GI: | Executive and the Company agree and intend that this Agreement is coordinated Executives employment with GI, such that any termination of employment under this Agreement shall also constitute a termination of Executives employment with GI, and that any termination of employment with GI shall also constitute a termination of employment under this Agreement. |
Base Salary: | The Company agrees to pay Executive an annual base salary of $413,000 (Base Salary) or $34,416.67 per month (Monthly Base Salary), commencing as of the Effective Date, in accordance with the Companys normal payroll practices for executives; provided, however, that for the period from the Effective Date through December 31, 2010, the Company, by |
2
agreement with GI, pays Executive at a rate equal to an annual salary of $600,000, of which $187,000 is paid on behalf of GI for services rendered by Executive to GI and which GI has agreed to reimburse the Company. Effective on and after January 1, 2011, the Company shall pay executive his annual base salary as first set forth above, and GI (or its designee) shall pay Executive his compensation for services rendered to GI. Following a termination by the Company of Executives employment without Cause (as defined below) or a resignation by Executives from his employment with the Company for Good Reason (as defined below), Executive will receive severance payments equal to the Monthly Base Salary Multiplied by Months Served (as hereafter defined), less any amounts paid during the relevant notice period and any taxes and withholdings, subject to the conditions described in the Termination Section below. For purposes of the foregoing sentence, Months Served shall equal the sum of the full calendar months (capped at 18) of the Term that elapsed prior to a notice of termination without Cause or the event giving rise to the resignation with Good Reason, as the case may be. |
Annual Bonus: | Commencing with 2010, and each calendar year thereafter during the Term (each calendar year being a Bonus Year), the Company shall provide Executive with a bonus opportunity of $1,500,000 (Annual Bonus), subject to the following and determined, awarded and paid as follows: |
3
F. | Additional Matters: Notwithstanding anything contained herein to the contrary, all bonus payments provided for hereunder are intended to comply with Sections 162(m) of the Internal Revenue Code of 1986, as amended (the Code). As a consequence, all bonus payments shall be made only if permitted, and at such time and manner as is consistent with, and subject in all regards to, the provisions of the Companys shareholder approved performance-based compensation bonus plan (the Section 162(m) Plan) and shall be paid in a manner and at such time so as to result in tax deductibility to the Company. In this regard, to the extent required, all discretionary actions required to be taken by the Section 162(m) Committee shall be taken by that committee alone and any references herein to determinations, input or other action by the Board, the board of directors of GI or any other person shall be interpreted solely as providing guidance to the Section 162(m) Committee to seek to obtain information or assistance that it deems to be necessary or appropriate, at its sole discretion, to act as required in connection with the proper administration of the Section 162(m) Plan and shall not be interpreted as granting the authority to any person other than the Section 162(m) Committee take any discretionary action with regard to the Section 162(m) Plan to the extent such authority would violate the requirements of the performance-based compensation requirements set out in Treasury Regulation Section 1.162-27. |
4
5
6
7
Compliance with
Section 409A: |
The parties intend that any payments provided for in this Agreement that constitute benefits in the nature of nonqualified deferred compensation subject to Code Section 409A are to be paid in a time and manner that is permitted under that section of the Code. In connection with this intent, and notwithstanding any provision of the Agreement to the contrary, payments of severance that are treated as deferred compensation subject to Code Section 409A shall be made in installments over the relevant period of months corresponding to the number of months used to determine the amount of severance payable and paid on the basis of the Companys normal, periodic payroll practices, and any payments of deferred compensation that would violate the prohibition on certain nonqualified deferred compensation payments being made to specified employees during the six (6) month period following separation from service under Code Section 409A(a)(2)(B)(i) shall be paid on the date that is six months following Executives separation from service. In addition, any payments hereunder that are payable by reason of Executives termination of employment shall only be paid upon Executives separation from service (as that term is defined in regulations issued pursuant to Code Section 409A), and any payments that are in the nature of reimbursements or payments of a tax gross-up shall be paid at the time and in the manner provided in applicable Treasury Regulations pursuant to which reimbursements or tax gross-up payments may be treated as being paid at a specified time or on a fixed schedule so as to be compliant with Code Section 409A. |
8
Notwithstanding anything to the contrary herein, to the extent any payments following Executives termination of employment are, under the terms of this Agreement, payable only if Executive executes (and does not revoke) a general release, such payments shall not be paid immediately upon satisfaction of these conditions, but rather shall be paid ninety (90) days following Executives termination of employment. In all events, the Company shall provide Executive with the appropriate release within a time frame that permits Executive to sign such release (and not thereafter revoke such release during any applicable revocation period) so that such release becomes irrevocable prior to the ninetieth (90th) day following Executives termination of employment. |
Notwithstanding the foregoing, the term Affiliate(s) shall not include any entity that is not treated as a United States person for purposes of federal income taxes. |
9
GLOBAL INDEMNITY (CAYMAN) LIMITED | ||||
|
||||
By:
|
/s/ Thomas M. McGeehan | |||
|
||||
Title: Director | ||||
|
||||
UNITED AMERICA INDEMNITY LIMITED | ||||
|
||||
By:
|
/s/ Thomas M. McGeehan | |||
|
||||
Title: Director | ||||
|
||||
EXECUTIVE | ||||
|
||||
/s/ Larry A. Frakes | ||||
Larry Frakes |
By: | /s/ Linda C. Hohn | |||
Name: | Linda C. Hohn | |||
Title: | Vice President | |||
/s/ Matthew B. Scott | ||||
Matthew B. Scott | ||||
WIND RIVER REINSURANCE COMPANY, LTD.
|
||||
By: | /s/ Larry A. Frakes | |||
Name: | Larry A. Frakes | |||
Title: | Director | |||
EMPLOYEE
|
||||
/s/ Troy W. Santora | ||||
Troy W. Santora | ||||
UNITED AMERICA INDEMNITY, LTD. | ||||
|
||||
By:
|
/s/ Larry A. Frakes
|
|||
|
Title: Director | |||
|
||||
EMPLOYEE | ||||
|
||||
/s/ Thomas M. McGeehan | ||||
Thomas M. McGeehan |
By: | /s/ Linda C. Hohn | |||
Name: | Linda C. Hohn | |||
Title: | Vice President | |||
EMPLOYEE
|
||||
/s/ David J. Myers | ||||
David Myers | ||||
2
3
4
5
Very truly yours,
FOX PAINE & COMPANY, LLC |
||||
By: | /s/ Saul A. Fox | |||
Name: | Saul A. Fox | |||
Title: | Managing Member | |||
UNITED AMERICA INDEMNITY, LTD. | GLOBAL INDEMNITY (CAYMAN) LIMITED | |||||||||
|
||||||||||
By:
|
/s/ Larry A. Frakes
|
By: |
/s/ Thomas M. McGeehan
|
|||||||
|
Title: Director | Title: Director |
-3-
-4-
UNITED AMERICA INDEMNITY, LTD. | ||||||||
|
||||||||
By: | /s/ Larry A. Frakes | |||||||
Name: Larry A. Frakes | ||||||||
Title: Director | ||||||||
|
Address: |
Walker House, 87 Mary Street
George Town, Grand Cayman KY1-9002, Cayman Islands |
||||||
Attn: Larry A. Frakes
Telephone: +1 345 949 0100 Telecopier: +1 345 949 7886 |
-8-
-9-
WIND RIVER REINSURANCE COMPANY, LTD. | ||||||||
|
||||||||
By: | /s/ Troy W. Santora | |||||||
Name: Troy W. Santora | ||||||||
Title: President | ||||||||
|
Address: |
Purvis House, Victoria Place
29 Victoria Street, PO Box HM 716 Hamilton HM CX, Bermuda |
||||||
Attn: Troy W. Santora
Telephone: 441-292-6400 Telecopier: 441-296-9580 |
-10-
-11-
-12-
-13-
-14-
GLOBAL INDEMNITY GROUP, INC. | ||||
|
||||
|
By: | /s/ Thomas M. McGeehan | ||
|
||||
|
Name: Thomas M. McGeehan | |||
|
Title: Senior Vice President and CFO | |||
|
Address: Three Bala Plaza East, Suite 300 | |||
|
Bala Cynwyd, PA 19004 | |||
Attn: Thomas M. McGeehan | ||||
Telephone: 610-664-1500 | ||||
Telecopier: 610-668-3355 |
-15-
Name | State/Country of Domicile | |
Global Indemnity Services Ltd.
|
Ireland | |
United America Indemnity, Ltd.
|
Cayman Islands | |
Global Indemnity (Luxembourg) S.à.r.l.
|
Luxembourg | |
Global Indemnity (Gibraltar) Ltd.
|
Gibraltar | |
Global Indemnity (Cayman) Ltd.
|
Cayman Islands | |
Wind River Reinsurance Company, Ltd.
|
Bermuda | |
U.A.I. (Luxembourg) I S.à.r.l.
|
Luxembourg | |
U.A.I. (Luxembourg) II S.à.r.l.
|
Luxembourg | |
U.A.I. (Luxembourg) III S.à.r.l.
|
Luxembourg | |
U.A.I. (Luxembourg) IV S.à.r.l.
|
Luxembourg | |
U.A.I. (Luxembourg) Investment S.à r.l.
|
Luxembourg | |
Wind River (Luxembourg) S.à r.l.
|
Luxembourg | |
U.A.I. (Ireland) Limited
|
Ireland | |
Global Indemnity Group, Inc.
|
Delaware | |
American Insurance Service, Inc.
|
Pennsylvania | |
Global Indemnity Group Services, LLC
|
Pennsylvania | |
Global Indemnity Collectibles Insurance Services, LLC
|
Maryland | |
United National Insurance Company
|
Pennsylvania | |
Diamond State Insurance Company
|
Indiana | |
United National Specialty Insurance Company
|
Wisconsin | |
United National Casualty Insurance Company
|
Indiana | |
J.H. Ferguson & Associates, LLC
|
Illinois | |
United America Insurance Services, LLC
|
Pennsylvania | |
American Insurance Adjustment Agency, Inc.
|
Pennsylvania | |
United National Group Capital Trust I
|
Delaware | |
United National Group Capital Statutory Trust II
|
Connecticut | |
Penn Independent Corporation
|
Pennsylvania | |
Penn-America Group, Inc
|
Pennsylvania | |
Penn-America Insurance Company
|
Pennsylvania | |
Penn-Star Insurance Company
|
Pennsylvania | |
Penn-Patriot Insurance Company
|
Virginia | |
PIC Holdings, Inc.
|
Delaware |
1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2010 of Global Indemnity plc (the Company); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. | The Companys other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and |
5. | The Companys other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and | ||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
/s/ Larry A. Frakes | ||||
Larry A. Frakes | ||||
Chief Executive Officer | ||||
1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2010 of Global Indemnity plc (the Company); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. | The Companys other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and |
5. | The Companys other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and | ||
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
/s/ Thomas M. McGeehan | ||||
Thomas M. McGeehan | ||||
Chief Financial Officer | ||||
/s/ Larry A. Frakes | ||||
Larry A. Frakes | ||||
Chief Executive Officer | ||||
/s/ Thomas M. McGeehan | ||||
Thomas M. McGeehan | ||||
Chief Financial Officer | ||||