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Global Indemnity weighing sale of $500mn E&S arm Penn-America

GBLI Global indemity logo 2 boardroom.jpg

Global Indemnity is exploring the sale of its SME-focused E&S platform Penn-America, Inside P&C can reveal.

Sources said the Pennsylvania-based insurer is working with Merger & Acquisition Services, but the driving force behind the work is controlling shareholder Fox Paine.

Sources said that Saul Fox – who controls Global Indemnity – is looking to retain the holding company and its stock exchange listing, along with the run-off and reinsurance books. But market sources suggested he could be open to a whole company sale if his valuation expectations were met.

Penn-America wrote almost $400mn gross written premium last year and recorded a combined ratio in the mid-80s. The firm’s book value is ~$500mn, according to sources.

In addition, it is understood that the company has a $900mn investment portfolio focused on fixed income investments.

Global Indemnity has long been perceived as a takeover target due to its relatively small scale, specialty focus, significant excess capital and challenges around performance. However, approaches in the past have been frustrated by Fox’s insistence on a significant premium valuation. Global Indemnity currently trades at just over 0.6x book value.

The share price spiked 13% yesterday to $28.54 before easing slightly today, suggesting the news leaked to traders.

Penn-America offers P&C as well as some specialty products, including inland marine, crime insurance and miscellaneous professional liability, among others.

The sale process comes after Global Indemnity appointed board director Joseph Brown as CEO last October to succeed David Charlton.

Following the appointment, the carrier began a restructuring plan that included the withdrawal from four divisions – professional liability, excess casualty, environmental and mid-market property.

The insurer booked $5.6mn of restructuring costs as it ceased writing new business for those four segments while existing renewals were placed in run-off.

In 2022, Global Indemnity reported total GWP of $727.6mn, up from $682.1mn in 2021, while its CoR dropped to 98.8% from 102.1%.

The turnaround also followed the departure of activist shareholder Harbert Fund, as Inside P&C reported earlier this year.

The investor began an activist campaign in 2021 with an open letter to Global Indemnity chairman Saul Fox calling on the firm to return $250mn of excess capital to shareholders through a special dividend or stock buybacks.

Yet, as this publication previously discussed, Harbert chose a challenging target as the firm has a dual class stock structure which gives Fox Paine – which owns over 43% of Global Indemnity – wide-ranging control over the group. (See: Global Indemnity and activism – Saul’s fortress)

Prior sales

Global Indemnity has sold other assets in recent years, including the break-up of its subsidiary American Reliable Insurance Company.

Last August, the carrier reached a deal to sell the remaining American Reliable, including renewal rights for its farm, ranch and equine book, to Everett Cash Mutual for ~$85m.

That divesture followed the sale of American Reliable’s specialty property business to the Californian MGA K2 Insurance Services.

Global Indemnity declined to comment.