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Washington, D.C. 20549 

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(Mark One)

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(Exact name of registrant as specified in its charter)

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(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

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

Large accelerated filer ☐         Accelerated filer ☒          Non-accelerated filer ☐          Smaller reporting company ☐          Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) 

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

This Quarterly Report on Form 10-Q of Greenlight Capital Re, Ltd. (“Greenlight Capital Re,” “Company,” “us,” “we,” or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended , and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts included in this report, including statements regarding estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States (“U.S.”) federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “predict,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are not historical facts, and are based on current expectations, estimates and projections, and various assumptions, many of which, are inherently uncertain and beyond management’s control. Accordingly, actual results may differ materially from the forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

We undertake no obligation to publicly update or revise any forward-looking statements, whether due to new information, future events, or otherwise. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only to the dates they were made.

We intend to communicate certain events that we believe may have a material adverse impact on our operations or financial position, including property and casualty catastrophic events and material losses in our investment portfolio, in a timely manner through a public announcement. Other than as required by the Exchange Act, we do not intend to make public announcements regarding reinsurance or investment events that we do not believe, based on management’s estimates and current information, will have a material adverse impact on our operations or financial position.

 

 

 

  

 

Greenlight Capital Re, Ltd. (“GLRE” and, together with its wholly-owned subsidiaries, the “Company”) was incorporated as an exempted company under the Companies Law of the Cayman Islands on July 13, 2004. The Company’s wholly-owned subsidiaries are described below:

•Greenlight Reinsurance, Ltd. (“Greenlight Re”), domiciled in the Cayman Islands, is a Class D insurer license issued in accordance with the terms of The Insurance Act, 2010 (as amended) and underlying regulations thereto (the “Act”) and is subject to regulation by the Cayman Islands Monetary Authority. Greenlight Re commenced underwriting in April 2006.

•Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”), domiciled in Ireland since 2010, is authorized as a non-life reinsurance undertaking in accordance with the provisions of the European Union (Insurance and Reinsurance) Regulations 2015. GRIL provides multi-line property and casualty reinsurance capacity to the European broker market and provides GLRE with an additional platform to serve clients located in Europe and North America.

• Greenlight Re Marketing (UK) Limited, domiciled in the United Kingdom (“U.K.”) since 2020, is a U.K. company formed to expand GLRE’s presence in the Lloyd’s of London market (“Lloyd’s”).

•Greenlight Re Corporate Member Ltd., domiciled in the U.K. since 2014, is a corporate member that became a wholly-owned subsidiary of GLRE in 2023 and provides underwriting capacity for various Lloyd’s syndicates, including Syndicate 3456.

•Verdant Holding Company, Ltd., domiciled in the United States since 2008, is an investment holding company.

 

Additionally, through Greenlight Innovation Syndicate 3456 (“Syndicate 3456”), Greenlight Re provides a (re)insurance platform to its growing portfolio of insurtech partnerships. Domiciled in the U.K. since 2022, Syndicate 3456 is authorized to underwrite under the Lloyd’s syndicate-in-a-box model.

The Class A ordinary shares of GLRE are listed on Nasdaq Global Select Market under the symbol “GLRE.”

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the U.S. Securities and Exchange Commission’s (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 8, 2023. These unaudited condensed consolidated financial statements include GLRE and its wholly-owned subsidiaries and all significant intercompany transactions and balances have been eliminated on consolidation.

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year.

 

There have been no material changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2022.

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from these estimates. The significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, loss and loss adjustment expense reserves, premiums written, earned, and receivable, variability underlying risk transfer assessments, allowances for credit losses, share-based compensation, valuation allowances associated with deferred tax assets and investment impairments.

 

The Company maintains cash and cash equivalent balances to collateralize regulatory trusts and letters of credit issued to cedents (see Note 11). The following table reconciles the cash, cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets to the total presented in the unaudited condensed consolidated statements of cash flows:

The caption “Reinsurance balances receivable” in the Company’s unaudited condensed consolidated balance sheets includes financial assets held by cedents. At June 30, 2023, funds held by cedents were $404.9 million (December 31, 2022: $337.4 million). Such amounts include premiums withheld by Lloyd’s syndicates and funds contributed by the Company to Lloyd's as security for members’ underwriting activities. The Lloyd’s syndicates invest a portion of the premiums withheld in investment funds and fixed-maturity securities. The Company records its share of income (or expense) from these assets, in its unaudited condensed consolidated statements of operations under the caption “Other income (expense)” as reported by the syndicates on a quarterly lag basis due to the timing of the availability of these quarterly financial reports.

 

At June 30, 2023, deposit assets and liabilities were $3.0 million and $6.9 million, respectively (December 31, 2022: $3.1 million and $10.7 million, respectively). For the three and six months ended June 30, 2023 and 2022, the interest income (expense) on deposit-accounted contracts were as follows:

For the three and six months ended June 30, 2023, $4.7 million and $9.7 million (three and six months ended June 30, 2022: $(4.3) million and $(5.4) million), respectively, of foreign exchange gains (losses) were included in the Company’s net income in the unaudited condensed consolidated statements of operations under the caption of “Other income (expense), net”. 

 

The following table reconciles net income (loss) and weighted average shares used in computing basic and diluted net income (loss) per share for the three and six months ended June 30, 2023 and 2022 (expressed in thousands of U.S. dollars, except per share and share amounts):

The Company has entered into the Second Amended and Restated Exempted Limited Partnership Agreement (the “SILP LPA”) of Solasglas Investments, LP (“SILP”), with DME Advisors II, LLC (“DME II”), as General Partner, Greenlight Re, and GRIL, (together, the “GLRE Limited Partners”). SILP has entered into a SILP investment advisory agreement (“IAA”) with DME Advisors. LP (“DME Advisors”), pursuant to which DME Advisors is the investment manager for SILP. DME II and DME Advisors are related to the Company, and each is an affiliate of David Einhorn, Chairman of the Company’s Board of Directors (the “Chairman”).

At June 30, 2023, the SILP LPA included the following proviso: “The Investment Portfolio of each Partner will not exceed the product of (a) such Partner’s surplus (Greenlight Re Surplus or GRIL Surplus, as the case may be) multiplied by (b) the Investment Cap (60%), and the General Partner will designate any portion of a Partner’s Investment Portfolio as Designated Securities to effectuate such limit.”

The Company has concluded that SILP qualifies as a variable interest entity (“VIE”) under U.S. GAAP. In assessing its interest in SILP, the Company noted the following:

•DME II serves as SILP’s general partner and has the power to appoint the investment manager. The Company does not have the power to appoint, change or replace the investment manager or the general partner except “for cause.” Neither of the GLRE Limited Partners can participate in the investment decisions of SILP as long as SILP adheres to the investment guidelines provided within the SILP LPA. For these reasons, the GLRE Limited Partners are not considered to have substantive participating rights or kick-out rights.

•DME II holds an interest in excess of 10% of SILP’s net assets, which the Company considers to represent an obligation to absorb losses and a right to receive benefits of SILP that are significant to SILP.

Consequently, the Company has concluded that DME II’s interests, not the Company’s, meet both the “power” and “benefits” criteria associated with VIE accounting guidance. Therefore DME II is SILP’s primary beneficiary. The Company presents its investment in SILP in its unaudited condensed consolidated balance sheets in the caption “Investment in related party investment fund.”

The Company’s maximum exposure to loss relating to SILP is limited to the net asset value of the GLRE Limited Partners’ investment in SILP. At June 30, 2023, the net asset value of the GLRE Limited Partners’ investment in SILP was $216.8 million (December 31, 2022: $178.2 million), representing 68.9% (December 31, 2022: 69.3%) of SILP’s total net assets. DME II held the remaining 31.1% (December 31, 2022: 30.7%) of SILP’s total net assets. The investment in SILP is recorded at the GLRE Limited Partners’ share of the net asset value of SILP as reported by SILP’s third-party administrator. The GLRE Limited Partners can redeem their assets from SILP for operational purposes by providing 3 business days’ notice to DME II. At June 30, 2023, the majority of SILP’s long investments were composed of cash and publicly traded equity securities, which could be readily liquidated to meet the GLRE Limited Partners’ redemption requests.

The Company’s share of the change in the net asset value of SILP for the three and six months ended June 30, 2023 was $32.8 million and $29.6 million, respectively (three and six months ended June 30, 2022: $11.9 million and $16.0 million, respectively), and shown in the caption “Income (loss) from investment in related party investment fund” in the Company’s unaudited condensed consolidated statements of operations.

The summarized financial statements of SILP are presented below.

(1) Net income (loss) is net of management fees and performance allocation presented below:

See Note 10 for further details on related party management fees and performance allocation.

 

At June 30, 2023, the Company included the following private investments and unlisted securities without readily determinable fair values in the caption “Other investments”:

At December 31, 2022, the Company included the following private investments and unlisted securities without readily determinable fair values in the caption “Other investments”:

The following table presents the carrying values of the private investments and unlisted equity securities carried under the measurement alternative at June 30, 2023 and 2022, and the related adjustments recorded during the periods then ended.

(1) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.

(2) The cumulative upward carrying value changes from inception to June 30, 2023, totaled $43.4 million.

(3) The cumulative downward carrying value changes and impairments from inception to June 30, 2023, totaled $3.3 million.

During three and six months ended June 30, 2023, the Company realized a loss of $nil and $0.8 million, respectively, (three and six months ended June 30, 2022: $nil), and a corresponding reversal of unrealized loss relating to an investment which was previously fully impaired at December 31, 2022, resulting in no impact to the Company’s net income (loss).

The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on the extent to which the inputs are observable in the market. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

At June 30, 2023 and December 31, 2022, the Company held $54.1 million and $53.6 million, respectively, of private investments and unlisted equities measured at fair value on a nonrecurring basis. The Company classifies these assets as Level 3 within the fair value hierarchy. The following table summarizes the periods between the most recent fair value measurement dates and June 30, 2023, for the private and unlisted equities measured at fair value on a nonrecurring basis:

At June 30, 2023 and December 31, 2022, the Company held $11.8 million and $8.9 million, respectively, of private investments and unlisted equities measured at cost.

At June 30, 2023 and December 31, 2022, the Company did not carry any other investments at fair value with an assigned Level within the fair value hierarchy. The Company’s investment in the related party investment fund is measured at fair value using the net asset value practical expedient.Therefore, this investment is not classified within the fair value hierarchy. (See Note 3 for further details on the related party investment fund.)

During the six months ended June 30, 2023 and 2022, there were no transfers between Level 2 and Level 3 of the fair value hierarchy.

The caption “Convertible senior notes payable” represents financial instruments that the Company carries at amortized cost. The fair value of the convertible senior notes payable is estimated based on the bid price observed in an inactive market for the identical instrument (Level 2 input) (see Note 7).

The carrying value of debt and convertible debt securities (see “Private investments and unlisted equity securities without readily determinable fair values” above) and certificates of deposit with original maturities of one year or less approximates their fair values. The Company classifies these assets as Level 2 within the fair value hierarchy.

At June 30, 2023 and December 31, 2022, loss and loss adjustment expense reserves were composed of the following:

A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated for the six months ended June 30, 2023 and 2022 is as follows: 

At June 30, 2023, the Company’s net reserves for losses and loss expenses include estimated amounts for several catastrophe and weather-related events (“CAT loss”). The magnitude and volume of losses arising from these events is inherently uncertain and, consequently, actual losses for these events may ultimately differ, potentially materially, from current estimates.

During the six months ended June 30, 2023, the Company recognized CAT loss, net of reinsurance, of $19.6 million related mostly to $16.4 million for current year CAT loss events (the Turkey earthquake, Cyclone Gabrielle in New Zealand, and the U.S. severe storms), coupled with prior year net adverse loss development principally from Winter Storm Elliott in 2022. For the six months ended June 30, 2022, the Company recognized CAT loss of $13.6 million related to the Russian-Ukrainian conflict and $2.8 million of losses related to Tennessee wildfires.

For the six months ended June 30, 2023, the estimate of net losses incurred relating to prior accident years increased by $13.8 million, primarily due to the following:

•$4.1 million relating to Winter Storm Elliott; offset partially by $0.9 million net favorable loss development on CAT loss events from 2018-2022 underwriting years; and

•$10.6 million of additional attritional losses, driven mainly by $7.1 million on casualty contracts (mostly 2018, 2019 and 2021 underwriting years) and $4.3 million on property contracts (mostly 2020 and 2021 underwriting years).

For the six months ended June 30, 2022, the estimate of net losses incurred relating to prior accident years decreased by $0.6 million, primarily due to favorable development on mortgage contracts. This favorable development was partially offset by adverse development on motor and health business driven by the inflationary increase in claim costs and additional losses from the COVID-19 pandemic.

 

For the three and six months ended June 30, 2023, the Company’s earned ceded premiums were $11.3 million and $19.9 million, respectively (three and six months ended June 30, 2022: $2.7 million and $3.9 million, respectively).

For the three and six months ended June 30, 2023, loss and loss adjustment expenses recovered and changes in losses recoverable were $9.5 million and $15.7 million, respectively (three and six months ended June 30, 2022: $0.7 million and $nil, respectively).

Retrocession contracts do not relieve the Company from its obligations to its cedents. Failure of retrocessionaires to honor their obligations could result in losses to the Company. At June 30, 2023, the Company’s loss reserves recoverable consisted of (i) $15.7 million (December 31, 2022: $9.5 million) recoverable from unrated retrocessionaires, of which $15.5 million (December 31, 2022: $9.2 million) were secured by cash, letters of credit and collateral held in trust accounts for the benefit of the Company and (ii) $5.9 million (December 31, 2022: $3.8 million) recoverable from retrocessionaires rated A- or above by A.M. Best.

The Company regularly evaluates its net credit exposure to assess the ability of the retrocessionaires to honor their respective obligations. At June 30, 2023, the Company’s allowance for expected credit losses was $0.1 million (December 31, 2022: $0.1 million).

On August 7, 2018, the Company issued $100.0 million of senior unsecured convertible notes (the “Notes”), which mature on August 1, 2023. The Notes bear interest at 4.0%, payable semiannually on February 1 and August 1 of each year beginning February 1, 2019.

Noteholders have the option, under certain conditions, to redeem the Notes prior to maturity. At June 30, 2023, the Company’s share price was lower than the conversion price of $17.19 per share. If a holder redeems the Notes, the Company shall have the option to settle the conversion obligation in cash, ordinary shares of the Company, or a combination thereof pursuant to the terms of the indenture governing the Notes.

The Company’s effective borrowing rate for non-convertible debt at the time of issuance of the Notes was estimated to be 6.0%. The Company incurred issuance costs in connection with the issuance of the Notes. At June 30, 2023, the unamortized portion of these costs was $0.04 million (December 31, 2022: $0.4 million), which the Company expects to amortize through the maturity date.

During the three and six months ended June 30, 2023 the Company repurchased and canceled $nil and $17.5 million of the Notes, respectively, resulting in realized gains of $nil and $0.3 million, respectively, which is included in “Other income (expense), net”, in the unaudited condensed consolidated statements of operations. The carrying value of the Notes outstanding at June 30, 2023, including accrued interest of $1.0 million, was $63.1 million (December 31, 2022: $80.5 million). At June 30, 2023, the Company estimated the fair value of the Notes (excluding accrued interest) to be $61.5 million (December 31, 2022: $77.1 million) (see Note 4 Financial Instruments).

For the three and six months ended June 30, 2023, the Company recognized interest expense of $0.7 million and $1.5 million, respectively (three and six months ended June 30, 2022: $1.2 million and $2.3 million, respectively), which included the interest coupon and the amortization of issuance costs.

The Company was in compliance with all covenants relating to the Notes at June 30, 2023.

See Notes 13 (b), Subsequent Events - New Term Loan Facility.

The following table is a summary of the Company’s ordinary shares issued and outstanding:

Under the $25.0 million share repurchase plan approved by the Board of Directors, expired on June 30, 2023, the Company repurchased no Class A ordinary shares during the six months ended June 30, 2023 and 2022. On May 2, 2023, the Board of Directors re-approved the share repurchase plan effective from July 1, 2023 until June 30, 2024, authorizing the Company to repurchase up to $25.0 million of Class A ordinary shares or securities convertible into Class A ordinary shares in the open market, through privately negotiated transactions or Rule 10b5-1 stock trading plans. Any shares repurchased are canceled immediately upon repurchase.

Under the Company’s stock incentive plan (see Note 9), the number of Class A ordinary shares authorized for issuance is 8.0 million shares. At June 30, 2023, 1,362,165 (December 31, 2022: 2,011,426) Class A ordinary shares remained available for future issuance under the Company’s stock incentive plan. The Compensation Committee of the Board of Directors administers the stock incentive plan. 

 

The following table summarizes the activity for unvested outstanding restricted share awards during the six months ended June 30, 2023 and 2022:

For the six months ended June 30, 2023, the Company granted 535,329 (six months ended June 30, 2022: 849,872) restricted shares to employees pursuant to the Company’s stock incentive plan. The restricted shares granted to employees in 2023 and 2022 include (i) restricted shares with both performance and service-based vesting conditions (“Performance RSs”) and (ii) restricted shares with only service-based vesting conditions (“Service RSs”). The Service RSs vest evenly each year on January 1, subject to the grantee’s continued service with the Company. If performance goals are achieved, the Performance RSs will cliff vest at the end of a three-year performance period within a range of 25% and 100% of the awarded Performance RSs, with a target of 50%.

During the vesting period, the holder of the Service RSs and Performance RSs retains voting rights but is entitled to any dividends declared by the Company only upon vesting.

For the six months ended June 30, 2023, the total fair value of restricted shares vested was $1.7 million (six months ended June 30, 2022: $2.0 million).

The following table summarizes the activity for unvested outstanding restricted stock units (“RSUs”) during the six months ended June 30, 2023 and 2022:

For the six months ended June 30, 2023, the Company granted 113,932 (six months ended June 30, 2022: 159,215) RSUs to employees pursuant to the Company’s stock incentive plan. The RSUs include (i) RSUs with both performance and service-based vesting conditions (“Performance RSUs”) and (ii) RSUs with only service-based vesting conditions (“Service RSUs”). The Service RSUs vest evenly each year on January 1, subject to the grantee’s continued service with the Company. If performance goals are achieved, the Performance RSUs will cliff vest at the end of a three-year performance period within a range of 25% and 100% of the awarded Performance RSUs, with a target of 50%. Prior to 2022, the RSUs issued to employees cliff vested three years after the date of issuance, subject to the grantee’s continued service with the Company.

For the six months ended June 30, 2023, the Company issued 77,695 Class A ordinary shares for the vested RSUs.

For the six months ended June 30, 2023 and 2022, the combined stock compensation expense (net of forfeitures) which was included in the caption “General and administrative expenses” in the Company’s unaudited condensed consolidated statements of operations was $2.3 million and $2.1 million, respectively.

 

 

Each of DME, DME II, and DME Advisors is an affiliate of the Chairman and, therefore, is a related party to the Company.

The Company has entered into the SILP LPA (as described in Note 3 of the unaudited condensed consolidated financial statements). DME II receives a performance allocation equal to (with capitalized terms having the meaning provided under the SILP LPA) (a) 10% of the portion of the Positive Performance Change for each limited partner’s capital account that is less than or equal to the positive balance in such limited partner’s Carryforward Account, plus (b) 20% of the portion of the Positive Performance Change for each limited partner’s capital account that exceeds the positive balance in such limited partner’s Carryforward Account. The Carryforward Account for Greenlight Re and GRIL includes the amount of investment losses to be recouped, including any loss generated on the assets invested in SILP, subject to adjustments for redemptions. The loss carry-forward provision in the SILP LPA allows DME II to earn a reduced performance allocation of 10% of profits in years subsequent to any year in which SILP has incurred a loss until all losses are recouped, and an additional amount equal to 150% of the loss is earned.

In accordance with the SILP LPA, DME Advisors constructs a levered investment portfolio as agreed by the Company (the “Investment Portfolio”, as defined in the SILP LPA). On September 1, 2018, SILP entered into the IAA with DME Advisors, which entitles DME Advisors to a monthly management fee equal to 0.125% (1.5% on an annual basis) of each limited partner’s Investment Portfolio. The IAA has an initial term ending on August 31, 2023, subject to an automatic extension for successive three-year terms.

For a detailed breakdown of management fees and performance compensation for the three and six months ended June 30, 2023 and 2022, refer to Note 3 of the unaudited condensed consolidated financial statements.

 

Pursuant to the SILP LPA and the IAA, the Company has agreed to indemnify DME, DME II, and DME Advisors for any expense, loss, liability, or damage arising out of any claim asserted or threatened in connection with DME Advisors serving as the Company’s or SILP’s investment advisor. The Company will reimburse DME, DME II, and DME Advisors for reasonable costs and expenses of investigating and defending such claims, provided such claims were not caused due to gross negligence, breach of contract, or misrepresentation by DME, DME II, or DME Advisors. The Company incurred no indemnification amounts during the periods presented.

David Einhorn also serves as the Chairman of the Board of Directors of Green Brick Partners, Inc. (“GRBK”), a publicly-traded company. At June 30, 2023, SILP, along with certain affiliates of DME Advisors, collectively owned 38.3% of the issued and outstanding common shares of GRBK. Under applicable securities laws, DME Advisors may sometimes be limited in its ability to trade GRBK shares held in SILP. At June 30, 2023, SILP held 2.7 million shares of GRBK.

 

The Company has entered into a service agreement with DME Advisors, pursuant to which DME Advisors provides certain investor relations services to the Company for compensation of five thousand dollars per month (plus expenses). The agreement automatically renews annually until terminated by either the Company or DME Advisors for any reason with 30 days prior written notice to the other party. 

Effective January 1, 2019, the Company (and its subsidiaries) entered into a collateral assets investment management agreement (the “CMA”) with DME Advisors, pursuant to which DME Advisors manages certain assets of the Company that are not subject to the SILP LPA and are held by the Company to provide collateral required by the cedents in the form of trust accounts and letters of credit. In accordance with the CMA, DME Advisors receives no fees and is required to comply with the collateral investment guidelines. The CMA can be terminated by any of the parties upon 30 days’ prior written notice to the other parties.

 

 

At June 30, 2023, the Company had the following committed letter of credit facility:

In addition, the Company has a $14.0 million uncommitted letter of credit facility with Citibank Europe plc.

At June 30, 2023, an aggregate amount of $280.9 million (December 31, 2022: $203.9 million) in letters of credit was issued under both the committed and uncommitted credit facilities. At June 30, 2023, the Company had pledged total cash and cash equivalents with a fair value in the aggregate of $281.7 million (December 31, 2022: $204.7 million) as collateral against the letters of credit issued and included in the caption “Restricted cash and cash equivalents” in the Company’s unaudited condensed consolidated balance sheets. The Company was in compliance with all the covenants of these facilities at June 30, 2023.

The Company has also established regulatory trust arrangements for certain cedents. At June 30, 2023, collateral of $346.0 million (December 31, 2022: $463.7 million) was provided to cedents in the form of regulatory trust accounts and included in the caption “Restricted cash and cash equivalents” in the Company’s unaudited condensed consolidated balance sheets.

From time to time, in the ordinary course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation. The outcomes of these procedures determine the rights and obligations under the Company’s reinsurance contracts and other contractual agreements. In some disputes, the Company may seek to enforce its rights under an agreement or collect funds owed. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. While the Company cannot predict the outcome of legal disputes with certainty, the Company does not believe that any existing dispute, when finally resolved, will have a material adverse effect on the Company’s business, financial condition, or operating results.

 

The Company has one operating segment, Property & Casualty (Re)insurance.

The following tables provide a breakdown of the Company’s gross premiums written by line and class of business, and by geographic area of risks insured for the periods indicated:

(1) During the three months ended June 30, 2023, the Company reclassified certain reinsurance contracts within Property, Casualty and Other resulting in a presentation change to the previously reported gross premiums written for the three months ended March 31, 2023, to conform with the current quarter’s presentation. This resulted in reclassifying $8.1 million from Casualty (mostly multi-line class) to $7.9 million Other (mostly marine and other specialty classes) and $0.2 million Property for the three months ended March 31, 2023. Accordingly, the gross premiums written for the six months ended June 30, 2023 reflects this presentation change.

(2) The negative balance represents the reversal of premiums due to premium adjustments, termination of contracts, or premium returned upon novation or commutation of contracts.

(1) “Worldwide” is composed of contracts that reinsure risks in more than one geographic area and may include risks in the U.S. 

13.    SUBSEQUENT EVENTS

On July 25, 2023, at the Company’s Annual General Meeting the shareholders approved the re-designation of Class B ordinary shares as Class A ordinary shares, and then reclassified Class A ordinary shares as “ordinary shares,” resulting in the elimination of the dual-class share structure.

On June 16, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with a group of banks (the “Banks”), for which CIBC Bank USA is acting as administrative agent (the “Administrative Agent”). The Credit Agreement provides, subject to certain customary conditions, for a delayed draw term loan facility (the “Facility”), in an aggregate amount of $75.0 million. The Facility matures on August 1, 2026. At June 30, 2023, the outstanding loan balance from this Facility was nil.

The Company drew $75.0 million from the Facility during July 2023, of which $63.4 million was used to repay all of the outstanding Convertible Senior Notes, including accrued interest of $1.2 million, with the remaining proceeds for general corporate purposes. The Company posted $10.0 million of collateral as security for the Facility.

Outstanding loans under the Facility will (i) amortize in equal quarterly installments in an aggregate annual amount equal to 5.0% of the outstanding loans and (ii) accrue interest at a rate equal to an adjusted Term Secured Overnight Financing Rate plus 3.50% per annum.

 

 

The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The following is a discussion and analysis of our results of operations for the three and six months ended June 30, 2023 and 2022 and financial condition at June 30, 2023 and December 31, 2022.

  

We are a global specialty property and casualty (re)insurer headquartered in the Cayman Islands, with an underwriting and investment strategy that we believe differentiates us from most of our competitors. Our goal is to build long-term shareholder value by providing risk management solutions to the insurance, reinsurance, and other risk marketplaces. We focus on delivering risk solutions to clients and brokers who value our expertise, analytics, and customer service offerings.

 

We aim to complement our underwriting activities with a non-traditional investment approach designed to achieve higher rates of return over the long term than reinsurance companies that exclusively employ more traditional investment strategies. Our investment portfolio is managed according to a value-oriented philosophy, in which our investment advisor takes long positions in perceived undervalued securities and short positions in perceived overvalued securities.

Through Greenlight Re Innovations (“Innovations”), we support technology innovators in the (re)insurance market by providing investment capital, risk capacity, and access to a broad insurance network.

Because we seek to capitalize on favorable market conditions and opportunities, period-to-period comparisons of our underwriting results may not be meaningful. Also, our historical investment results are not necessarily indicative of future performance. Due to the nature of our reinsurance and investment strategies, our operating results will likely fluctuate from period to period.

The Company’s reinsurance subsidiaries hold an A.M. Best Financial Strength Rating of A- (Excellent) with a stable outlook.

We operate in a business where we expect volatility in our underwriting results.

We have witnessed one of the costliest first half of the year on record for U.S. severe storms with insured loss of at least $29 billion, according to Gallagher Re’s Natural Catastrophe Report Q1 2023. These severe storms contributed to our CAT losses for the three and six months ended June 30, 2023. These losses relate to a single homeowners program, with the majority of premiums written in 2022 (from our Innovation platform). We reduced our participation level for the 2023 program renewal in light of the higher than anticipated volatility from these storms. Our total CAT incurred losses were $10.2 million and $16.4 million for the three and six months ended June 30, 2023, respectively.

While there are signs that global inflationary pressures may be abating, this continues to be a significant concern to the (re)insurance industry, as it can add uncertainty to the cost of claims, particularly for classes of business with long payout tails. As a result, it creates pricing challenges for new business and valuation challenges in claims reserves. We continue to manage these concerns and risks in multiple ways:

•Our underwriting strategy focuses on relatively short-tailed business, which is inherently less exposed to inflation than long-tailed lines. We estimate the payout duration of our existing reserves at less than three years.

•We incorporate inflation assumptions in all our pricing and reassess these assumptions frequently.

•We are minimizing our exposure to classes that are experiencing severe supply-chain-driven inflation.

The rising interest rate environment has had a mixed impact on our financial results. While in 2022 we experienced losses driven by fixed-income securities held by the Lloyd’s syndicates in which we participate, we have seen a reversal of this in 2023 as maturing fixed-income securities are reinvested at higher yields. In addition, the higher interest rates have improved the yield on our restricted cash and cash equivalents. To the extent interest rates continue to increase, we expect to see these trends continue. The SILP portfolio is positioned to also benefit from an inflationary environment.

The combination of the recent loss events, continued inflation, and rising interest rates led to a significant reduction in the amount of reinsurance capital available for deployment, which in turn has led to attractive market conditions that we consider more favorable than any we have experienced in more than a decade. We have seen widespread pricing improvements in the aviation, war and terror, and marine classes and even higher increases in property catastrophe rates. These improvements continued into the July 1 renewal seasons. These short-tailed specialty and property catastrophe classes represent a significant portion of our 2023 business plan. For the six months ended June 30, 2023, we grew our property line by 48.1% over the same period in 2022 to $61.7 million (representing 18.1% of total gross premiums written). Elsewhere in our portfolio, almost all our active lines of business showed rate improvements albeit at a more modest rate.

Management uses certain key financial measures, some of which are not prescribed under U.S. GAAP rules and standards (“non-GAAP financial measures”), to evaluate our financial performance, financial position, and the change in shareholder value. Generally, a non-GAAP financial measure, as defined in SEC Regulation G, is a numerical measure of a company’s historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented under U.S. GAAP. We believe that these measures, which may be calculated or defined differently by other companies, provide consistent and comparable metrics of our business performance to help shareholders understand performance trends and facilitate a more thorough understanding of the Company’s business. Non-GAAP financial measures should not be viewed as substitutes for those determined under U.S. GAAP.

The non-GAAP financial measures used in this report are:

•Basic book value per share and fully diluted book value per share; and

•Net underwriting income (loss)

These non-GAAP financial measures are described below.

We believe that long-term growth in fully diluted book value per share is the most relevant measure of our financial performance because it provides management and investors a yardstick to monitor the shareholder value generated. Fully diluted book value per share may also help our investors, shareholders, and other interested parties form a basis of comparison with other companies within the property and casualty reinsurance industry. Basic book value per share and fully diluted book value per share should not be viewed as substitutes for the comparable U.S. GAAP measures.

We calculate basic book value per share as (a) ending shareholders' equity, divided by (b) aggregate of Class A and Class B ordinary shares issued and outstanding, including all unvested service-based restricted shares, and the earned portion of performance-based restricted shares granted after December 31, 2021. We exclude shares potentially issuable in connection with convertible notes if the conversion price exceeds the share price. We repaid all outstanding convertible notes on August 1, 2023 without issuing any shares.

Fully diluted book value per share represents basic book value per share combined with any dilutive impact of in-the-money stock options, unvested service-based RSUs, and the earned portion of unvested performance-based RSUs granted. Fully diluted book value per share also includes the dilutive effect, if any, of ordinary shares expected to be issued upon settlement of the convertible notes.

Our primary financial goal is to increase fully diluted book value per share over the long term. We use fully diluted book value per share as a financial measure in our annual incentive compensation.

The following table presents a reconciliation of the non-GAAP financial measures basic and fully diluted book value per share to the most comparable U.S. GAAP measure:

(1) For periods prior to January 1, 2022, all unvested restricted shares are included in the “basic” and “fully diluted” denominators. Restricted shares with performance-based vesting conditions granted after December 31, 2021, are included in the “basic” and “fully diluted” denominators to the extent that the Company has recognized the corresponding share-based compensation expense. At June 30, 2023, the aggregate number of unearned restricted shares with performance conditions not included in the “basic” and “fully diluted” denominators was 982,645 (March 31, 2023: 1,014,317, December 31, 2022: 709,638, September 30, 2022: 732,310, June 30, 2022: 754,076).

One way that we evaluate the Company’s underwriting performance is by measuring net underwriting income (loss). We do not use premiums written as a measure of performance. Net underwriting income (loss) is a performance measure used by management to evaluate the fundamentals underlying the Company’s underwriting operations. We believe that the use of net underwriting income (loss) enables investors and other users of the Company’s financial information to analyze our performance in a manner similar to how management analyzes performance. Management also believes this measure follows industry practice and allows the users of financial information to compare the Company’s performance with that of our industry peer group.

Net underwriting income (loss) is considered a non-GAAP financial measure because it excludes items used to calculate net income before taxes under U.S. GAAP. We calculate net underwriting income (loss) as net premiums earned less net loss and loss adjustment expenses, acquisition costs, underwriting expenses, and deposit interest expense. The measure excludes, on a recurring basis: (1) investment income (loss); (2) other income (expense) not related to underwriting, including foreign exchange gains or losses, and Lloyd’s interest income and expense; (3) corporate general and administrative expenses; and (4) interest expense.