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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 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 Quarterly Report on 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 2022 Form 10-K, 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 2022 Form 10-K.

 

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 September 30, 2023, funds held by cedents were $422.4 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 September 30, 2023, deposit assets and liabilities were $3.0 million and $5.2 million, respectively (December 31, 2022: $3.1 million and $10.7 million, respectively). For the three and nine months ended September 30, 2023 and 2022, the interest income (expense) on deposit-accounted contracts were as follows:

For the three and nine months ended September 30, 2023, $(2.0) million and $7.6 million (three and nine months ended September 30, 2022: $(5.0) million and $(10.4) 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 nine months ended September 30, 2023 and 2022 (expressed in thousands of U.S. dollars, except per share and share amounts):

			Three months ended September 30												Nine months ended September 30
			2023						2022						2023						2022
Numerator for earnings per share
Net income (loss) - basic			$	13,477					$	(18,469)					$	69,224					$	(9,408)
Net income (loss) - diluted			$	13,477					$	(18,469)					$	69,224					$	(9,408)
Denominator for earnings per share
Weighted average shares outstanding - basic			34,070,818						33,127,384						34,067,012						33,119,814
Effect of dilutive employee and director share-based awards			731,046						—						636,961						—
Weighted average shares outstanding - diluted			34,801,864						33,127,384						34,703,973						33,119,814
Anti-dilutive stock options outstanding			652,140						690,337						652,140						690,337
Participating securities excluded from calculation of loss per share			—						848,841						—						848,841
Shares potentially issuable in connection with convertible notes excluded from calculation of diluted loss per share			—						5,686,747						—						5,773,889
Earnings (loss) per share:
Basic			$	0.40					$	(0.56)					$	2.03					$	(0.28)
Diluted			$	0.39					$	(0.56)					$	1.99					$	(0.28)

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 September 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 September 30, 2023, the net asset value of the GLRE Limited Partners’ investment in SILP was $229.0 million (December 31, 2022: $178.2 million), representing 70.3% (December 31, 2022: 69.3%) of SILP’s total net assets. DME II held the remaining 29.7% (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 September 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 nine months ended September 30, 2023 was $(1.9) million and $27.8 million, respectively (three and nine months ended September 30, 2022: $8.5 million and $24.5 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 September 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 September 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 September 30, 2023, totaled $43.4 million.

(3) The cumulative downward carrying value changes and impairments from inception to September 30, 2023, totaled $5.9 million.

During three and nine months ended September 30, 2023, the Company realized a loss of $nil and $0.8 million, respectively, (three and nine months ended September 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) for the nine months ended September 30, 2023.

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 September 30, 2023 and December 31, 2022, the Company held $53.7 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 September 30, 2023, for the private and unlisted equities measured at fair value on a nonrecurring basis:

At September 30, 2023 and December 31, 2022, the Company held $11.1 million and $8.9 million, respectively, of private investments and unlisted equities measured at cost.

The Company uses interest rate swaps in connection with its risk management activities to hedge 50% of the interest rate risk relating to the outstanding Term Loans (see Note 7). The interest rate swaps are carried at fair value and are determined using a market approach valuation technique based on significant observable market inputs from third-party pricing vendors. Accordingly, the interest rates swaps are classified as Level 2 within the fair value hierarchy. These derivative instruments are not designated as accounting hedges under U.S. GAAP.

For the three and nine months ended September 30, 2023, the Company recognized unrealized gain for the above derivatives of $0.1 million, which are included in other assets in the Condensed Consolidated Balance Sheets, in interest expense in the Condensed Consolidated Statements of Operations, and in net change in unrealized gains and losses on investments and derivatives in the Condensed Consolidated Statements of Cash Flows.

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.)

The carrying value of debt and convertible debt securities within “Other Investments” (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.

The Term Loans (see Note 7) represent financial instruments that the Company carries at amortized cost. At September 30, 2023, the carrying values of the Term Loans approximate their fair values.

At September 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 nine months ended September 30, 2023 and 2022 is as follows: 

At September 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 nine months ended September 30, 2023, the Company recognized CAT loss, net of reinsurance, of $29.5 million for current year CAT loss events, driven by the Turkey earthquake, Cyclone Gabrielle in New Zealand, the U.S. severe storms, Mexican state-owned oil platform fire, and satellite losses. For the nine months ended September 30, 2022, the Company recognized CAT loss of $39.1 million driven by $13.6 million from the Russian-Ukrainian conflict and $19.5 million from hurricane Ian.

For the nine months ended September 30, 2023, the estimate of net losses incurred relating to prior accident years increased by $10.5 million, primarily due to the following:

•$31.3 million adverse loss development primarily due to reserve strengthening on legacy motor (predominantly 2021 underwriting year), homeowners (primarily deterioration relating to Winter Storm Elliott in December 2022), and workers’ compensation (2021 and prior underwriting years) contracts, coupled with a final claim settlement on a professional liability contract (2008 underwriting year).

•The adverse loss development was partially offset by $20.8 million favorable loss development from various prior years’ property catastrophe events and better than expected loss emergence for marine and energy (predominantly 2020 and 2022 underwriting years), group medical (2022 and prior underwriting years) and cyber contracts (predominantly 2021 underwriting year).

For the nine months ended September 30, 2022, the estimate of net losses incurred relating to prior accident years increased by $1.6 million, primarily due to the following:

• $16.3 million reserve strengthening on motor and health business (2021-2021 underwriting years); a multi-line quota share program (2015, 2016-2019 underwriting years); marine and energy contracts (2020 underwriting year); and a cyber contract (2020 underwriting year).

•Offsetting the above adverse loss development, the Company had favorable loss experience driven mostly by mortgage business (2018 underwriting year), excess of loss workers’ compensation contract (2020 underwriting year) as well as favorable CAT loss development relating to small catastrophe events (mainly 2020 and 2021 underwriting years) and COVID-19 (2020 underwriting year) based on updated claims reporting received from cedents.

 

For the three and nine months ended September 30, 2023, the Company’s earned ceded premiums were $15.3 million and $35.2 million, respectively (three and nine months ended September 30, 2022: $4.4 million and $8.4 million, respectively). For the three and nine months ended September 30, 2023, loss and loss adjustment expenses recovered and changes in losses recoverable were $9.1 million and $24.8 million, respectively (three and nine months ended September 30, 2022: $2.5 million and $2.5 million, 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 September 30, 2023, the Company’s loss reserves recoverable consisted of (i) $20.2 million (December 31, 2022: $9.5 million) recoverable from unrated retrocessionaires, of which $14.7 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) $8.1 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 September 30, 2023, the Company’s allowance for expected credit losses was $0.1 million (December 31, 2022: $0.1 million).

The following table summarizes the Company’s debt.

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. Outstanding loans (“Term 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 (“SOFR”) plus 3.5% per annum. The Company posted $10.0 million of collateral as security for the Facility. The Facility matures on August 1, 2026.

During the three and nine months ended September 30, 2023, the Company borrowed $75.0 million from the Facility, of which $63.4 million was used to repay all of the outstanding Convertible Senior Notes (see below), with the remaining proceeds for general corporate purposes. On August 31, 2023, the Company hedged 50% of the floating interest rate on the Term Loans (see Note 4). The interest rate on the outstanding Terms Loans was 8.9% at September 30, 2023.

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

On August 7, 2018, the Company issued $100.0 million of senior unsecured convertible notes (the “Convertible Notes”), with a maturity date of August 1, 2023. The Convertible Notes bear interest at 4.0%, payable semiannually on February 1 and August 1 of each year beginning February 1, 2019. The conversion price was $17.19 per ordinary share of the Company.

As noted above, the Company fully repaid the remaining outstanding Convertible Notes on August 1, 2023, from the proceeds of the new Term Loans.

During the three and nine months ended September 30, 2023 the Company repurchased and canceled $nil and $17.2 million of the Convertible 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. As noted above, the Company fully repaid the remaining outstanding Convertible Notes on August 1, 2023, from the proceeds of the new Term Loans.

The Company incurred $0.9 million of issuance costs relating to the Credit Agreement, which are deferred and amortized through the maturity of the Facility. The remaining unamortized deferred finance costs are reported separately in the above table.

For the three and nine months ended September 30, 2023, the Company recognized interest expense of $1.6 million and $3.1 million, respectively (three and nine months ended September 30, 2022: $1.1 million and $3.4 million, respectively) for the above total debt, which included the interest coupon, the amortization of issuance costs and the change in fair value of the interest rate swap (see Note 4).

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

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 Ordinary shares or securities convertible into 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.

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.

 

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

On July 25, 2023, at the Company’s Annual General Meeting the shareholders approved the Greenlight Capital Re, Ltd. 2023 Omnibus Incentive Plan, or the 2023 Incentive Plan. The 2023 Incentive Plan replaces the Greenlight Capital Re, Ltd. Amended and Restated 2004 Stock Incentive Plan, or the 2004 Stock Incentive Plan, and its subsequent amendments. As a result, the 2004 Stock Incentive Plan share reserve was transferred to the 2023 Incentive Plan and any forfeitures under the 2004 Stock Incentive Plan will become available for grant under the 2023 Incentive Plan. Further, the shareholders approved to increase the maximum number of ordinary shares for which awards may be granted by 2 million ordinary shares. At September 30, 2023, 3,296,771 (December 31, 2022: 2,011,426) Ordinary shares remained available for future issuance under the Company’s 2023 Incentive Plan. The Compensation Committee of the Board of Directors administers the stock incentive plan.

For the nine months ended September 30, 2023, the Company granted 535,329 (nine months ended September 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 nine months ended September 30, 2023, the Company granted 65,394 (nine months ended September 30, 2022: 107,763) restricted Ordinary shares to non-employees directors as part of their remuneration for services to the Company. These restricted shares contain similar restrictions to those issued to employees. They will vest on the earlier of (i) the first anniversary of the date of the share issuance and (ii) the Company’s next annual general meeting, subject to the grantee’s continued service with the Company.

During the vesting period, non-employee directors holding these restricted shares retain voting rights and are entitled to any dividends declared by the Company only upon vesting.

For the nine months ended September 30, 2023, the total fair value of restricted shares vested was $2.5 million (nine months ended September 30, 2022: $2.0 million).

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

For the nine months ended September 30, 2023, the Company granted 113,932 (nine months ended September 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 nine months ended September 30, 2023, the Company issued 77,695 ordinary shares for the vested RSUs.

For the nine months ended September 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 $3.5 million and $3.3 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 nine months ended September 30, 2023 and 2022 (see Note 3).

 

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 September 30, 2023, SILP, along with certain affiliates of DME Advisors, collectively owned 29.1% 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 September 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 September 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 September 30, 2023, an aggregate amount of $268.2 million (December 31, 2022: $203.9 million) in letters of credit was issued under both the committed and uncommitted credit facilities. At September 30, 2023, the Company had pledged total cash and cash equivalents with a fair value in the aggregate of $269.0 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 September 30, 2023.

The Company has also established regulatory trust arrangements for certain cedents. At September 30, 2023, collateral of $342.0 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) “Worldwide” is composed of contracts that reinsure risks in more than one geographic area and may include risks in the U.S. 

(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.

 

 

The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear in our 2022 Form 10-K.

The following is a discussion and analysis of our results of operations for the three and nine months ended September 30, 2023 and 2022 and financial condition at September 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, which was re-affirmed by A.M. Best on September 29, 2023.

We operate in a business where we expect volatility in our underwriting result. In 2023, we have witnessed one of the costliest on record for U.S. severe storms, which contributed to our CAT losses during the first half of the year. In the third quarter we incurred additional CAT losses from a Mexican state-owned oil platform fire and two satellite loss events. Accordingly, our CAT incurred losses were $13.1 million and $29.5 million, net of reinsurance, for the three and nine months ended September 30, 2023, respectively.

While the global inflationary pressures have abated from their recent highs, we believe inflation continues to be a significant concern within 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. Our term loan is partially exposed to fluctuations in the SOFR interest rate. 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 significant loss events, continued social inflation, and rising interest rates led to a significant reduction in the amount of reinsurance capital available for deployment, which in turn led to attractive market conditions for 2023. We expect these conditions to continue into the 2024 January renewals. We are also encouraged by the growth of our innovations portfolio and continue to find innovative ways to foster our insurtech partnerships as part of our long term strategy.

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 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: