Newswires
GREENLIGHT CAPITAL RE, LTD. – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to "we," "us," "our," "our company," or "the Company" refer toGreenlight Capital Re, Ltd. ("GLRE") and its wholly-owned subsidiaries,Greenlight Reinsurance, Ltd , ("Greenlight Re"), Greenlight Reinsurance Ireland,Designated Activity Company ("GRIL"),Greenlight Re Marketing (UK) Limited ("Greenlight ReUK "), andVerdant Holding Company, Ltd. ("Verdant"), and Greenlight Innovation Syndicate 3456 ("Syndicate 3456"), unless the context dictates otherwise. References to our "Ordinary Shares" refer collectively to our Class A Ordinary Shares and Class B Ordinary Shares.
The following discussion should be read in conjunction with the audited
consolidated financial statements and accompanying notes, which appear elsewhere
in this filing.
The following is a discussion and analysis of our results of operations for the years endedDecember 31, 2022 and 2021 and financial condition atDecember 31, 2022 and 2021. We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report because we included that disclosure in our Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onMarch 8, 2022 . You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for the fiscal year endedDecember 31, 2021 , compared to the fiscal year endedDecember 31, 2020 .
General
We are a global specialty property and casualty reinsurer headquartered in theCayman Islands , with a reinsurance 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, 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 subsidiaries hold an A.M. Best Financial Strength Rating of A-
(Excellent) with a stable outlook.
Outlook and Trends
We operate in a business where we expect volatility in our underwriting results. Hurricane Ian, which struck the southeastU.S. inSeptember 2022 , is likely to prove one of the costliest natural disasters ever in terms of insured losses. This storm, the Russian-Ukraine conflict, and several smaller events have combined to make 2022 another challenging year for companies that participate in the global reinsurance market. We were not immune from these events; our combined ratio for the year endedDecember 31, 2022 , was 102.3%. Further, the ongoing Russian-Ukrainian conflict has resulted in theU.S. ,United Kingdom ,European Union , and other countries imposing financial and economic sanctions, which have caused disruption in the global economy and have increased economic and geopolitical uncertainty. If this conflict is prolonged, we and other reinsurers may incur additional losses in future periods. 51
--------------------------------------------------------------------------------
Link to Table of Contents
The continuing widespread inflation is a significant concern to the 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 are addressing these concerns 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 approximately two 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 we have experienced losses driven by fixed-income securities held by Lloyd's syndicates in which we participate, 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 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 market conditions that we consider more favorable than any we have experienced in more than a decade. TheJanuary 1 renewal season saw widespread pricing improvements in the aviation, war and terror, and marine classes and even higher increases in the property catastrophe rates. These short-tailed specialty and property catastrophe classes represents a significant portion of our 2023 business plan. Elsewhere in our portfolio, average percentage rate improvements were in the single digits. Additionally, we continue to be encouraged by our Innovations unit, whose central objective is to enhance our underwriting return and risk profile by establishing a range of strategic partnerships. Our Innovations-related premiums, included premiums written by Syndicate 3456, accounted for approximately 18% of our net premiums written in 2022. We see the potential for significant growth from Innovations-derived underwriting opportunities in the future. SILP generated a net return of 25.3% in 2022, compared to an 18.1% loss for the S&P 500 index. EffectiveJanuary 1, 2023 , the Company increased its allocation to SILP to a maximum of 60% of surplus.
Segments
We have one operating segment, Property & Casualty reinsurance, and we analyze
our business based on the following categories:
? Property
? Casualty
? Other
Property business covers personal lines, commercial lines exposures and
automobile physical damage. Property business includes both catastrophe and
non-catastrophe coverage. We expect property business to account for a small
portion of our overall catastrophe exposure.
Casualty business covers general liability, motor liability, professional
liability, and workers' compensation exposures. The Company's multi-line
business includes the Funds at Lloyd's business. As our Lloyd's syndicate
contracts incorporate property (including incidental catastrophe), casualty, and
other exposures, we categorize them as multi-line (and therefore casualty)
business. However, these contracts are composed of primarily short-tailed risks.
Other business covers accident and health, financial (including transactional liability, mortgage insurance, surety, and trade credit), marine, energy, as well as other specialty business such as aviation, crop, cyber, political, and terrorism exposures. Revenues
We derive our revenues from two principal sources:
? premiums from reinsurance on property and casualty business assumed (net of any
premiums ceded); and
? income from investments.
52
-------------------------------------------------------------------------------- Link to Table of Contents We recognize premiums written as revenues, net of any applicable underlying reinsurance coverage, over the term of the related policy or contract. Depending on the contract structure, the earnings period could be the same as the reinsurance contract or based on the terms of the underlying insurance policies.
Income from our investments is primarily composed of:
? income (or loss) generated from our investment in SILP;
? gains (or losses) from our other investments, including Innovations and investments
accounted for under the equity method;
? interest income on our restricted cash and cash equivalents and Funds at Lloyd's;
? foreign exchange gains (or losses); and
? interest income and gains (or losses) from promissory notes receivable.
In addition, we may from time to time derive other income from interest on
deposit-accounted contracts, fees generated from advisory services, and fees
relating to overrides, profit commissions, and fees due upon the early
termination of contracts.
Expenses
Our expenses consist primarily of the following:
? underwriting losses and loss adjustment expenses;
? acquisition costs;
? general and administrative expenses;
? interest expense;
? investment-related expenses.
The extent of our loss and LAE is a function of the amount and type of
reinsurance contracts we write and the loss experience of the underlying
coverage. As described below, loss and loss adjustment expenses include an
actuarially determined estimate of losses incurred, including losses incurred
during the period and changes in estimates from prior periods. The period over
which we pay loss and LAE reserves depends on the nature of the coverage
provided and generally extends over multiple years.
Acquisition costs consist primarily of brokerage fees, ceding commissions,
premium taxes, profit commissions, letters of credit and trust fees, and federal
excise taxes. We amortize deferred acquisition costs relating to successfully
bound reinsurance contracts over the related contract term.
General and administrative expenses consist primarily of salaries and benefits
and related costs, including costs associated with our incentive compensation
plan, bonuses, and stock compensation expenses. General and administrative
expenses also include professional fees, travel and entertainment, information
technology, rent, and other general operating costs. General and administrative
expenses reported in our consolidated statements of operations include both
underwriting and corporate expenses.
Interest expense consists of interest paid and accrued on senior convertible
notes and the amortization of issuance expenses. In addition, we incur interest
expenses on some deposit-accounted contracts.
Investment-related expenses primarily consist of management fees and performance
compensation paid to the investment advisor. We net these expenses against
investment income (loss) in our consolidated statements of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements contain certain amounts that are
inherently subjective and have required management to make assumptions and best
estimates to determine reported values. If certain factors, including those
described in "Part I. Item IA. - Risk Factors," cause actual events or results
to differ materially from our underlying assumptions or estimates, there could
be a material adverse effect on our results of operations, financial condition,
or liquidity. We believe the following accounting policies affect the more
significant estimates used to prepare our consolidated financial statements. We
have summarized the descriptions below for clarity. We have included a more
detailed description of our significant accounting policies and recently issued
accounting standards in Note 2 to the consolidated financial statements.
53
--------------------------------------------------------------------------------
Link to Table of Contents
Premium Revenues and Risk Transfer. We record our property and casualty reinsurance premiums as premiums written based on contract terms and information received from ceding companies and their brokers. Excess of loss reinsurance contracts typically state premiums as a percentage of the subject premiums written by the client, subject to a minimum and deposit premium. The minimum and deposit premium is generally based on an estimate of subject premiums expected to be written by the client during the contract term. The minimum and deposit premium is reported initially as premiums written and adjusted, if necessary, in subsequent periods once the actual subject premium is known.
Certain contracts provide for reinstatement premiums in the event of a loss.
Reinstatement premiums are written and earned when a triggering loss event
occurs.
Our clients estimate the gross premiums they expect to write at the contract's
inception for each proportional contract we underwrite. Our underwriters
initially utilize the client's estimate to determine our best estimate. In
subsequent periods, we adjust our estimates based on our client's actual reports
and our expectations of market conditions for the applicable line of
business. As the contract progresses, we monitor premiums received in
conjunction with the client's correspondence to refine our estimate. Variances
from initial gross premiums estimates are generally greater for proportional
contracts than for non-proportional ones. We earn premiums over the risk
coverage period. Unearned premiums represent the unexpired portion of
reinsurance provided.
At the inception of each of our reinsurance contracts, we receive premium
estimates from the client, which we use in conjunction with historical and
industry data to estimate what we believe will be the ultimate premium payable
under each contract. We receive actual premiums written by each client as the
client reports the actual results of the underlying insurance writings to us
monthly or quarterly (depending on the contract). We book the actual premiums
written when we receive them from our client. Each reporting period, we estimate
the premiums written for stub periods that have not yet been reported to us by
the client. For example, at year-end, we may have to estimate December premiums
ceded under certain contracts since the client may not be required to report the
actual results to us until after we have issued our audited consolidated
financial statements. Typically, we only use premium estimates for unreported
stub periods, which account for a small percentage of our total premiums
written.
We confirm the accuracy and completeness of premiums reported by our clients by
reviewing the client's statutory filings, where available, or performing an
audit of the client under the contract terms. Discrepancies between premiums
ceded and reported under a contract are, in our experience, rare. To date, we
have not had any material difference in premiums reported by a client that
required a formal dispute resolution process.
Assessing whether a reinsurance contract meets the conditions for risk transfer
requires judgment. The determination of risk transfer is critical to reporting
premiums written and is based in part on the use of actuarial and pricing models
and assumptions. If we determine that a reinsurance contract does not transfer
sufficient risk to merit reinsurance accounting treatment, we report the premium
we receive as a deposit liability. Similarly, we report the premium we pay as a
deposit asset for ceded contracts that do not transfer sufficient risk to merit
reinsurance accounting. Any income and expense on deposit-accounted contracts is
calculated using the interest method and recorded in the consolidated statements
of operations under the captions "Other income (expense)" and "Deposit interest
expense," respectively.
Investments. We carry our investment in SILP at fair value, based on the most
recent net asset value obtained from SILP's third-party administrator. The
caption "Other investments" in our consolidated balance sheets includes private
and unlisted equity securities that do not have readily determinable fair
values. We determine these private equity securities' carrying value based on
the original cost, less impairment, plus or minus observable price changes in
orderly transactions for an identical or similar investment of the same issuer.
At each reporting date, we qualitatively consider whether the investment is
impaired on the basis of certain impairment indicators. If we determine that the
equity security is impaired on the basis of the qualitative assessment and the
estimated fair value is less than the carrying value, we recognize an impairment
loss in the caption "Net investment income (loss)" in the consolidated
statements of operations. We determine realized gains and losses from other
investments based on the specific identification method (by reference to cost or
amortized cost, as appropriate). These gains and losses are included in the
captions "Net investment income (loss)" in the consolidated statements of
operations.
54
--------------------------------------------------------------------------------
Link to Table of Contents
Loss and Loss Adjustment Expense Reserves. Estimating our loss and LAE reserves
involves a considerable degree of judgment, and our estimates as of any given
date are inherently uncertain. Estimating loss and LAE reserves requires us to
make assumptions regarding reporting and development patterns, frequency and
severity trends, claims settlement practices, potential changes in legal
environments, inflation, loss amplification, foreign exchange movements, and
other factors. These estimates and judgments are based on numerous
considerations and are often revised as (i) we receive changes in loss amounts
reported by ceding companies and brokers; (ii) we obtain additional information,
experience, or other data; (iii) we develop new or improved methodologies; or
(iv) we observe changes in the legal environment.
Our loss and LAE reserves relating to short-tail property risks are typically
reported to us and settled more promptly than those relating to long-tail risks.
However, the timeliness of loss reporting can be affected by such factors as the
nature of the event causing the loss, the location of the loss, whether the loss
is from policies in force with primary insurers or with reinsurers, and where
our exposure falls within the cedent's overall reinsurance program.
Our loss and LAE reserves are composed of case reserves (based on claims
reported to us) and IBNR reserves, including the associated claims handling
costs.
We determine case reserve estimates based on loss reports received. We determine our IBNR reserve estimates using standard actuarial methods and a combination of our own historical and current loss experience, insurance industry loss experience, assessments of pricing adequacy trends, and our professional judgment. In estimating our IBNR reserve, we estimate the total ultimate loss and LAE we expect to incur and subtract paid claims and case reserves. The nature and extent of our judgment in the reserving process depend in part upon the type of business. Some of our property treaty reinsurance contracts represent business with a low frequency of claims occurrence and a high potential loss severity, such as claims arising from natural catastrophes. Given the nature of these events, traditional actuarial reserving methods may not be reliable indicators of the final outcome. As such, for contracts or losses of this type, we estimate the ultimate cost associated with a single loss event rather than perform analysis on the historical development patterns of past events to estimate the ultimate losses for an entire accident year. We estimate our reserves for these large events on a by-contract basis by reviewing policies with known or potential exposure to a particular loss event. For non-catastrophe losses, we apply standard actuarial methodologies in setting reserves, including paid and incurred loss development, Bornheutter-Ferguson, burning cost, and frequency and severity techniques. We supplement our analysis with industry loss ratio and development pattern information in conjunction with our own experience. The weight given to a particular method will depend on many factors, including the homogeneity within the class of business, the volume of losses, the maturity of the accident year, and the length of the expected development tail. For example, the expected loss ratio method assumes that the ratio of premiums and losses remains constant. In contrast, development methods rely on observable patterns within reported losses, both historical and newly reported, to establish a view of the ultimate loss incurred. Therefore, as an accident year matures, we may migrate from an expected loss ratio method to an incurred development method. As a predominantly broker-market reinsurer for both excess-of-loss and proportional contracts, we rely on loss information reported to brokers by primary insurers who, in turn, must estimate their losses at the policy level, often based on incomplete and changing information. The information we receive varies by cedent and may include paid losses, estimated case reserves, and an estimated provision for IBNR reserves. Reserving practices and data-reporting quality differ among ceding companies, which adds further uncertainty to our estimation of ultimate losses. The nature and extent of information received from ceding companies and brokers also vary widely depending on the type of coverage, the contractual reporting terms (which are affected by market conditions and practices), and other factors. Due to the lack of standardization of the terms and conditions of reinsurance contracts, the differences in coverage provided to individual clients, and the tendency of those coverages to change rapidly in response to market conditions, we cannot always reliably measure the ongoing economic impact of such uncertainties and inconsistencies.
Time lags are inherent in loss reporting, especially in the case of
excess-of-loss reinsurance contracts. The time lags, coupled with the combined
characteristics of low claim frequency and high claim severity on such
contracts, make the available data less useful for predicting ultimate losses.
In the case of proportional contracts, we rely on an analysis of a cedent's
historical experience, industry information, and the underwriters' professional
judgment in estimating reserves. We also utilize ultimate loss ratio forecasts
when reported by cedents and brokers, which are ordinarily subject to three to
six-month lags for proportional business. Due to our reliance on ceding
companies for claims reporting, our reserve estimates are highly dependent on
ceding companies' judgment. Furthermore, during the loss settlement period,
which may last several years, additional facts regarding individual claims and
trends will often become known, and case law may change, affecting ultimate
expected losses.
55
--------------------------------------------------------------------------------
Link to Table of Contents
Since we rely on ceding company data in establishing our loss and LAE reserves,
we maintain procedures designed to mitigate the risk that such information is
incomplete or inaccurate. These procedures include: (i) comparisons of expected
premiums to reported premiums, which helps us to identify delinquent client
periodic reports; (ii) ceding company audits to identify inaccurate or
incomplete reporting of claims and ensure that claims are actively and
appropriately managed in line with agreed protocols and settlement authority
limits; and (iii) underwriting reviews to ascertain that the losses ceded are
covered as provided under the contract terms. These procedures are incorporated
in our internal controls and are regularly evaluated and amended as market
conditions, risk factors, and unanticipated areas of exposure develop.
We engage an independent third-party actuarial firm to perform a quarterly
reserve review and annually opine on the reasonableness and adequacy of the
aggregate loss reserves. We provide the third-party actuarial firm with our
pricing models, reserving analysis, and other data. The actuarial firm may also
inquire about the various assumptions and estimates used in the reserving
analysis. The actuarial firm independently creates its own reserving models
based on industry loss information, augmented by client-specific loss
information and independent assumptions and estimates. Based on various
reserving methodologies that the actuarial firm considers appropriate, it
creates a loss reserve estimate for each segment in the portfolio. It recommends
an aggregate loss reserve, including IBNR. In the event of material differences
between our aggregated booked reserves and the actuarial firm's recommended
reserves, the reserving committee would be notified, with the reserves adjusted
as deemed appropriate. To date, there have been no material differences
resulting from the external actuary's reviews requiring adjustments to our
booked reserves.
We monitor the development of our prior-year losses during subsequent calendar
years by comparing the actual reported losses against previous estimates and
current expectations. The analysis of this loss development is important to the
ongoing refinement of our reserving assumptions. Each additional year of loss
experience with a given cedent provides additional insight into the accuracy and
timeliness of previously reported information.
Estimating loss reserves for our book of longer-tail casualty reinsurance
business, which we write on both a proportional and non-proportional basis,
involves further uncertainties. In addition to the uncertainties described
above, casualty business is generally subject to longer reporting lags than
property business, and claims often take several years to settle. During this
period, additional factors and trends will be revealed, and we may adjust our
reserves accordingly. Therefore, any factors that extend the time until our
cedents settle claims add uncertainty to the reserving process.
The uncertainties inherent in the reserving process and the potential for
unforeseen developments, including changes in laws and the prevailing
interpretation of policy terms, may result in our loss and LAE reserves being
materially greater or less than the loss and LAE reserves we initially
established. We reflect adjustments to our loss and LAE reserves in our
financial results during the period they are determined. Changes to our prior
year loss reserves will impact our current underwriting results by improving our
results if the prior year reserves prove redundant or impairing our results if
the prior year reserves prove insufficient.
We believe that our reserves for loss and LAE are sufficient to cover losses
that fall within the terms of our policies and agreements with our insured and
reinsured customers based on the methodologies used to estimate those reserves.
However, we can provide no assurance that actual losses will not (i) be less
than or (ii) exceed our total established reserves.
Please refer to Notes 2 and 7 of our consolidated financial statements for a
more detailed explanation of our loss reserving methodology and the loss
development tables by accident year, respectively, as required under
Share-Based Payments. We have established a stock incentive plan for directors,
employees, and consultants. We recognize share-based compensation transactions
using the fair value at the award's grant date. We calculate the compensation
for restricted stock awards and restricted stock units ("RSUs") based on the
price of the Company's common shares at the grant date. For restricted stock
awards that include both service and performance conditions, we recognize the
associated expense when we determine that it is probable that the performance
conditions will be achieved. For restricted stock awards with only service
conditions, we recognize the associated expense, adjusted for estimated
forfeitures, over the vesting period. We estimate the forfeiture rate for
restricted stock awards and RSUs based on our historical experience and
expectations of future forfeitures. The forfeiture rate reduces the unamortized
grant date fair value of unvested outstanding restricted stock awards and RSUs
and the associated stock compensation expense. As restricted shares and RSUs are
forfeited, we reduce the number of outstanding restricted shares and RSUs and
compare the remaining unamortized grant date fair value to the assumed
forfeiture levels, adjusting the unamortized balance as necessary. For the year
ended December 31, 2022 , we have assumed a forfeiture rate of 8.0% (2021: 9.0%
and 2020: 7.0%) for restricted stock awards and RSUs granted.
If actual results differ significantly from these estimates and assumptions,
particularly concerning our estimation of volatility and forfeiture rates,
share-based compensation expense, primarily relating to future share-based
awards, could be materially impacted.
56 -------------------------------------------------------------------------------- Link to Table of Contents Key Financial Measures and Non-GAAP Measures Management uses certain key financial measures, some of which are not prescribed underU.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 underU.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 underU.S. GAAP.
The key 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.
Basic Book Value Per Share and Fully Diluted Book Value Per Share
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 comparableU.S. GAAP measures. We calculate basic book value per share as (a) ending shareholders' equity, divided by (b) aggregate of Class A and ClassB Ordinary shares issued and outstanding, including all unvested service-based restricted shares, and the earned portion of performance-based restricted shares granted afterDecember 31, 2021 . We exclude shares potentially issuable in connection with convertible notes if the conversion price exceeds the share price. 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 comparableU.S. GAAP measure: 57
--------------------------------------------------------------------------------
Link to Table of Contents
December
31, 2022
($ in thousands, except per share and share amounts)
Numerator for basic and fully diluted book value per share:
Total equity (
book value per share)
$
503,120
Denominator for basic and fully diluted book value per share:
(1)
Ordinary shares issued and outstanding as presented in the
Company's consolidated balance sheets
34,824,061 33,844,446 34,514,790
Less: Unearned performance-based restricted shares granted after
(516,489) - - Denominator for basic book value per share 34,307,572 33,844,446 34,514,790
Add: In-the-money stock options, service-based RSUs granted, and
earned performance-based RSUs granted
187,750 154,134 116,722 Denominator for fully diluted book value per share 34,495,322 33,998,580 34,631,512 Basic book value per share $
14.66 $ 14.05 $ 13.47
Increase (decrease) in basic book value per share ($)
$ 0.61 $ 0.58 $ 0.57 Increase (decrease) in basic book value per share (%) 4.3 % 4.3 % 4.4 % Fully diluted book value per share $
14.59 $ 13.99 $ 13.42
Increase (decrease) in fully diluted book value per share ($) $
0.60 $ 0.57 $ 0.54 Increase (decrease) in fully diluted book value per share (%) 4.3 % 4.2 % 4.2 % (1) For periods prior toJanuary 1, 2022 , all unvested restricted shares are included in the "basic" and "fully diluted" denominators. Restricted shares with performance-based vesting conditions granted afterDecember 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. AtDecember 31, 2022 , the aggregate number of unearned restricted shares with performance conditions not included in the "basic" and "fully diluted" denominators was 709,638 (2021: 193,149; 2020: 193,149).
Net Underwriting Income (Loss)
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 underU.S. GAAP. We calculate net underwriting income (loss) as net premiums earned, plus other income relating to reinsurance and deposit-accounted contracts, less deposit interest expense, less net loss and loss adjustment expenses, acquisition costs, and underwriting expenses. 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, Lloyd's interest income and expense, and adjustments to the allowance for expected credit losses; (3) corporate general and administrative expenses; and (4) interest expense. We exclude total investment income or loss, foreign exchange gains or losses, Lloyd's interest income or expense and expected credit losses as we believe these items are influenced by market conditions and other factors unrelated to underwriting decisions. We exclude corporate and interest expenses because these costs are generally fixed and not incremental to or directly related to our underwriting operations. We believe all of these amounts are largely independent of our underwriting process, and including them could hinder the analysis of trends in our underwriting operations. Net underwriting income (loss) should not be viewed as a substitute forU.S. GAAP net income before income taxes. 58 -------------------------------------------------------------------------------- Link to Table of Contents The reconciliations of net underwriting income (loss) to income (loss) before income taxes (the most directly comparableU.S. GAAP financial measure) on a consolidated basis are shown below: Year ended December 31 2022 2021 2020 ($ in thousands)
Income (loss) before income tax$ 24,526 $ 21,324 $ 4,290 Add (subtract): Total investment (income) loss (68,983) (50,152) (25,532) Other non-underwriting (income) expense 11,777 880 (686) Corporate expenses 17,793 16,489 14,036 Interest expense 4,201 6,263 6,280 Net underwriting income (loss)$ (10,686) $ (5,196) $ (1,612) 59
-------------------------------------------------------------------------------- Link to Table of Contents Results of Operations
The table below summarizes our operating results for the years ended
31, 2022
2022 2021 2020
(in thousands, except percentages)
Underwriting revenue
Gross premiums written $ 563,171 $ 565,393 $ 479,791
Gross premiums ceded (33,429) (41) (2,268)
Net premiums written 529,742 565,352 477,523
Change in net unearned premium reserves (60,265) (26,073) (22,112)
Net premiums earned 469,477 539,279 455,411
Underwriting related expenses
Net loss and loss adjustment expenses incurred
Current year 316,367 389,080 333,096
Prior year * 118 (14,100) 4,737
Net loss and loss adjustment expenses incurred 316,485 374,980 337,833
Acquisition costs 143,148 144,960 109,288
Underwriting expenses 13,813 12,880 12,365
Deposit accounting and other reinsurance
expense (income) 6,717 11,655 (2,463)
Net underwriting income (loss) 1 (10,686) (5,196) (1,612)
Income (loss) from investment in related party
investment fund 54,844 18,087 4,431
Net investment income (loss) 14,139 32,065 21,101
Total investment income (loss) $ 68,983
Net underwriting and investment income (loss)
Corporate expenses$ 17,793 $ 16,489 $ 14,036 Other (income) expense, net 11,777 880 (686) Interest expense 4,201 6,263 6,280 Income tax expense (benefit) (816) 3,746 424 Net income (loss)$ 25,342
Earnings (loss) per share (Class A and Class B) Basic$ 0.75 $ 0.51 $ 0.11 Diluted$ 0.73 $ 0.51 $ 0.11 Underwriting ratios Loss ratio - current year 67.4 % 72.1 % 73.1 % Loss ratio - prior year - % (2.6) % 1.1 % Loss ratio 67.4 % 69.5 % 74.2 % Acquisition cost ratio 30.5 % 26.9 % 24.0 % Composite ratio 97.9 % 96.4 % 98.2 % Underwriting expense ratio 4.4 % 4.5 % 2.2 % Combined ratio 102.3 % 100.9 % 100.4 % * The net financial impacts associated with changes in the estimate of losses incurred in prior years, which incorporate earned reinstatement premiums assumed and ceded, and adjustments to assumed and ceded acquisition costs, were a loss of$12.2 million in 2022, a gain of$8.3 million in 2021, and a loss of$3.7 million in 2020.
1 Net Underwriting income (loss) is a non-GAAP financial measure. See "- Key
Financial Measures and Non-GAAP Measures" above for discussion and
reconciliation of non-GAAP financial measures.
60
--------------------------------------------------------------------------------
Link to Table of Contents
Year ended
For the year endedDecember 31, 2022 , fully diluted book value per share increased by$0.60 , or 4.3%, to$14.59 per share from$13.99 per share atDecember 31, 2021 . For the year endedDecember 31, 2022 , basic book value per share increased by$0.61 , or 4.3%, to$14.66 per share from$14.05 per share atDecember 31, 2021 . The increase in fully diluted book value per share during the year endedDecember 31, 2022 , is net of$0.07 , or 0.5%, adverse impact relating to the adoption of ASU 2020-06 (see Note 2 of the accompanying consolidated financial statements for recently issued accounting standards adopted).
For the year ended
to net income of
The developments that most significantly affected our financial performance
during the year ended
are summarized below:
•Underwriting: The underwriting loss for the year endedDecember 31, 2022 , was$10.7 million , driven primarily by$13.6 million of losses related to the Russian-Ukrainian conflict and$25.7 million of losses related to Hurricane Ian, Typhoon Nanmadol, and wildfires inTennessee . By comparison, the underwriting loss for the equivalent period in 2021 was$5.2 million , driven by losses from Hurricane Ida, the winter storm Uri, the European floods and hailstorms,U.S. tornados, and South African riots. Our combined ratio was 102.3% for the year endedDecember 31, 2022 , compared to 100.9% for the same period in 2021. The Russian-Ukrainian conflict and natural catastrophe losses contributed 8.4 percentage points to the combined ratio for the year endedDecember 31, 2022 . During the comparable period in 2021, catastrophe losses contributed 6.1 percentage points to the combined ratio. •Investments: Our total investment income for the year endedDecember 31, 2022 , was$69.0 million , compared to$50.2 million earned during the equivalent 2021 period. For the year endedDecember 31, 2022 , our investment in SILP reported a gain of$54.8 million , compared to a gain of$18.1 million during the equivalent period in 2021. Other investment income from our Innovations investments and restricted cash and cash equivalents totaled$14.1 million and$32.1 million during the year endedDecember 31, 2022 , and 2021, respectively. •Other income (expense): For the year endedDecember 31, 2022 , other expense of$11.8 million was driven primarily by: •foreign exchange losses, due mainly to the weakening of the pound sterling against theU.S. dollar; and •our share of Lloyd's syndicates' investment losses on Funds at Lloyd's business, which is generally conducted on a funds withheld basis. The Lloyd's syndicates invest a portion of these funds in fixed-maturity securities and investment funds, which were negatively impacted by rising interest rates and market volatility. We record our share of these mark-to-market adjustments when the syndicates report them to us, generally one quarter in arrears.
Underwriting results
We analyze our business based on three categories: "property," "casualty," and
"other."
61 -------------------------------------------------------------------------------- Link to Table of Contents Gross Premiums Written
Details of gross premiums written are provided in the following table:
Year ended December 31
2022 2021
($ in thousands)
Property $ 85,323 15.2 % $ 52,947 9.4 %
Casualty 325,103 57.7 379,113 67.0
Other 152,745 27.1 133,333 23.6
Total $ 563,171 100.0 % $ 565,393 100.0 %
As a result of our underwriting philosophy, the total premiums we write and the
mix of premiums between property, casualty, and other business, may vary
significantly from period to period depending on the market opportunities we
identify.
For the year ended December 31, 2022 , our gross premiums written decreased by
$2.2 million , or 0.4%, compared to the same period in 2021. The changes in gross
premiums written for the year ended December 31, 2022 , were attributable to the
following:
Gross Premiums Written
Year ended December 31, 2022
Increase
(decrease) % change Explanation
($ in millions)
Property $32.4 61.1%
The increase in property gross premiums written during the
year ended
was due primarily to personal lines business, driven by our
Innovations partners. During the 2022 year, we added new
Innovations partners to our portfolio, and one of our
existing partners grew its personal lines premium volume.
Our decision to reduce or terminate our participation in
certain motor business partially offset this increase.
Casualty
$(54.0) (14.2)%
The decrease in casualty premiums written during the year
ended
due primarily to motor and workers' compensation lines which
decreased by
These decreases related to contracts on which we elected to
reduce or not renew our participation.
Growth in general liability and multi-line premiums, driven
primarily by new and renewed Lloyd's and Innovations-related
business, partially offset the decrease in casualty premiums.
Other
$19.4 14.6%
The increase in "other" premiums written during the year
ended
due primarily to the following:
•new marine and energy contracts bound during 2022; and
•new contracts bound during 2022 relating to other specialty
classes, including Innovations business.
The increase was partially offset by a decrease in health
premiums, due primarily to changing certain exposures from a
proportional basis to excess of loss.
Premiums Ceded
For the year endedDecember 31, 2022 , our ceded premiums were$33.4 million compared to insignificant ceded premiums for the year endedDecember 31, 2021 . In 2022, we entered into new retrocession agreements to reduce our exposure to marine, energy, health, and property losses. 62 -------------------------------------------------------------------------------- Link to Table of Contents Net Premiums Written
Details of net premiums written are provided in the following table:
Year ended December 31
2022 2021
($ in thousands)
Property $ 67,680 12.8 % $ 53,014 9.4 %
Casualty 315,935 59.6 379,145 67.0
Other 146,127 27.6 133,193 23.6
Total $ 529,742 100.0 % $ 565,352 100.0 %
For the year ended December 31, 2022 , net premiums written decreased by $35.6
million , or 6.3%, compared to the year ended December 31, 2021 . The movement in
net premiums written resulted from the changes in gross premiums written and
ceded during the periods.
Net Premiums Earned
Details of net premiums earned are provided in the following table:
Year ended December 31
2022 2021
($ in thousands)
Property $ 52,397 11.2 % $ 56,075 10.4 %
Casualty 289,820 61.7 351,390 65.2
Other 127,260 27.1 131,814 24.4
Total $ 469,477 100.0 % $ 539,279 100.0 %
Net premiums earned are primarily a function of the amount and timing of net
premiums written during the current and prior periods.
Loss and Loss Adjustment Expenses Incurred, Net
Details of net losses incurred are provided in the following table:
Year ended December 31
2022 2021
($ in thousands)
Property $ 40,885 12.9 % $ 45,987 12.3 %
Casualty 205,641 65.0 256,830 68.5
Other 69,959 22.1 72,163 19.2
Total $ 316,485 100.0 % $ 374,980 100.0 %
The below table summarizes the loss ratios for the years ended
2022
Year ended December 31
2022 2021 Increase / (decrease) in loss ratio points
Property 78.0 % 82.0 % (4.0) %
Casualty 71.0 73.1 (2.1)
Other 55.0 54.7 0.3
Total 67.4 % 69.5 % (2.1) %
63
--------------------------------------------------------------------------------
Link to Table of Contents
The changes in net losses incurred for the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 , were attributable to the following: Increase (decrease) Increase / ($ in millions) (decrease) in Explanation loss ratio points Property$(5.1) (4.0)%
Our decision to reduce or terminate our participation in
certain motor business was the primary driver of the
decrease in property losses incurred during the year ended
lesser extent, favorable loss development relating to prior
years' catastrophe events also contributed to the decrease
in property losses incurred during the year ended December
31, 2022.
The
offset by the following:
•our growing personal lines portfolio; and
•losses relating to Russian-Ukrainian conflict and natural
catastrophes that occurred during 2022, including Hurricane
Ian, Typhoons Nanmadol and Hinnamnor, and
wildfires.
The property loss ratio decreased 4.0 percentage points
during the year ended
2021 period. This decrease was due primarily to improved
loss ratios within the personal and commercial lines
business, which was partially offset by higher loss ratio on
our shrinking motor business.
Casualty $(51.2) (2.1)%
Our decision to reduce or terminate our participation in
certain motor and workers' compensation business was the
primary driver of the decrease in casualty losses incurred
during the year ended
same period in 2021.
The decreases in motor and workers' compensation losses of
partially offset by higher incurred losses relating to the
following:
•Hurricane Ian; and
•growth in our general liability and multi-line contracts.
The casualty loss ratio decreased 2.1 percentage points
during the year ended
2021 period, due primarily to changes in our business mix.
We increased our general liability and multi-line business,
which generally incorporates lower loss ratios than the
motor and workers' compensation business it replaced.
Adverse loss development on certain motor, workers'
compensation, and multi-line contracts partially offset the
loss ratio decreases.
Other $(2.2) 0.3%
The decrease in "other" losses incurred during the year
ended
2021, was due primarily to certain health contracts on which
we elected to reduce or not renew our participation. To a
lesser extent, the decrease related to the following:
•loss reserves released on certain mortgage contracts; and
•crop losses incurred in the equivalent 2021 period.
The decrease was partially offset by the following:
•losses relating to the Russian-Ukrainian conflict; and.
•growth in transactional liability and marine and energy
business.
The "other" loss ratio increased 0.3 percentage points
during the year ended
2021 period, due primarily due to the decrease in "other"
net earned premiums.
64
--------------------------------------------------------------------------------
Link to Table of Contents
Russian-Ukrainian Conflict
Our loss and loss adjustment expenses from the Russian-Ukrainian conflict relate
primarily to marine, energy, political violence, and terrorism ("MEPVT")
policies and whole account contracts, which are included in our Other -
Specialty book of business. We have purchased excess of loss reinsurance to
reduce our net exposure relating to MEPVT exposures. As of December 31, 2022 , we
have not recorded any reinsurance recoveries, as the estimated losses had not
impacted the excess layers. However, we may generate recoveries under the
retroceded contracts if we recognize significant further MEPVT losses from the
Russian-Ukrainian conflict.
See "Critical Accounting Policies and Estimates, Loss and Loss Adjustment
Expense Reserves" and "Note 7. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES" in our
Notes to the consolidated financial statements for additional discussion of our
reserving techniques and prior year development of net claims and claim
expenses.
Acquisition Costs, Net
Details of acquisition costs are provided in the following table.
Year ended December 31
2022 2021
($ in thousands)
Property $ 11,638 8.1 % $ 11,936 8.2 %
Casualty 83,936 58.7 93,499 64.5
Other 47,574 33.2 39,525 27.3
Total $ 143,148 100.0 % $ 144,960 100.0 %
The acquisition cost ratios for the years ended December 31, 2022 , and 2021,
were as follows:
2022 2021 Increase / (decrease)
Property 22.2 % 21.3 % 0.9 %
Casualty 29.0 26.6 2.4
Other 37.4 30.0 7.4
Total 30.5 % 26.9 % 3.6 %
65
--------------------------------------------------------------------------------
Link to Table of Contents
The changes in the acquisition cost ratios during the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , were attributable to the following: Increase / (decrease) in acquisition cost ratio Explanation points Property 0.9% The increase in
property acquisition cost ratio for the year
ended December 31 ,
2022, over the comparable 2021 period, was
driven by the higher
ceding commissions on our growing portfolio
of personal property
quota share contracts relative to the
reduction in our motor
business.
Casualty 2.4% The increase in the
casualty acquisition cost ratio for the year
ended December 31 ,
2022, over the comparable 2021 period, was
due primarily to
changes in our business mix. The motor and
workers' compensation
premiums, which decreased in 2022,
generally incorporate a
lower ceding commission rate than the
general liability and multi-line business, which grew in 2022.
Other 7.4% The increase in the
"other" acquisition cost ratio for the year
ended December 31 ,
2022, over the comparable 2021 period, was
due primarily to the
following:
•growth in
transactional liability business, which carries
higher ceding
commission rates than most other specialty
business;
•increased profit
commissions on mortgage contracts driven by
favorable loss
development;
•new specialty quota
share contracts bound in 2022, which
incorporate relatively
high acquisition costs; and
•decreases health
business, which generally carries relatively
low ceding commissions. Ratio Analysis
The following table provides our underwriting ratios by line of business:
Year ended December 31 Year ended December 31
2022 2021
Property Casualty Other Total Property Casualty Other Total
Loss ratio 78.0 % 71.0 % 55.0 % 67.4 % 82.0 % 73.1 % 54.7 % 69.5 %
Acquisition cost ratio 22.2 29.0 37.4 30.5 21.3 26.6 30.0 26.9
Composite ratio 100.2 % 100.0 % 92.4 % 97.9 % 103.3 % 99.7 % 84.7 % 96.4 %
Underwriting expense ratio 4.4 4.5
Combined ratio 102.3 % 100.9 %
General and Administrative Expenses
Details of general and administrative expenses are provided in the following
table:
Year ended December 31
2022 2021
($ in thousands)
Underwriting expenses $ 13,813 $ 12,880
Corporate expenses 17,793 16,489
General and administrative expenses $ 31,606 $ 29,369
66
--------------------------------------------------------------------------------
Link to Table of Contents
For the year ended December 31, 2022 , general and administrative expenses
increased by $2.2 million , or 7.6%, compared to the equivalent 2021 period. The
increase was due primarily to (i) a $1.5 million increase in share-based
compensation and (ii) $1.1 million of separation and severance costs incurred in
2022. Lower personnel bonus expense partially offset the increase.
For the year ended
expenses included
to share-based compensation granted to employees and directors.
Total Investment Income (Loss)
Total investment income (loss) incorporates (i) changes in the net asset value of our investment in SILP managed byDME Advisors , (ii) interest income earned on the restricted cash and cash equivalents pledged as collateral to our clients, and (iii) gains (or losses) and interest on our portfolio of strategic and Innovations investments, and investments accounted for under the equity method. We expect our total investment income, including any change in the net asset value of our investment in SILP, to fluctuate from period to period.
A summary of our total investment income (loss) is as follows:
Year ended December 31
2022 2021
($ in thousands)
Interest and dividend income, net of withholding taxes $ 10,865 $ 200
Change in unrealized gains and losses 9,858 19,560
Realized gains (losses) - 14,210
Investment-related foreign exchange gains (losses) (185) (45)
Interest, dividend, and other expenses (6,399) (1,860)
Net investment-related income (loss) $ 14,139 $ 32,065
Income (loss) from investments in related party investment fund 54,844 18,087
Total investment income (loss) $ 68,983 $ 50,152
The caption "Income (loss) from investment in related party investment fund" in
the above table is net of management fees paid by SILP to DME Advisors and
performance compensation, if any, allocated from the Company's investment in
SILP to DME II . No performance compensation is allocated in periods of loss
reported by SILP. For further information about management fees and performance
compensation for the years ended December 31, 2022 , and 2021, please refer to
Note 3 of the consolidated financial statements.
For the year ended December 31, 2022 , the Investment Portfolio managed by DME
Advisors reported a gain of 25.3%, compared to a gain of 7.5% for the year ended
December 31, 2021 . On a gross basis, the long and the short portfolio earned
0.0%, and 26.1%, respectively, while macro and other positions gained 2.0%,
during the year ended December 31, 2022 . For the year ended December 31, 2022 ,
the most significant contributors to SILP's investment return were long
positions in Twitter and Consol Energy, and a short position in a basket of
stocks perceived to be overvalued. The most significant detractors for the year
ended December 31, 2022 , were long positions in Green Brick Partners, Danimer
Scientific, and GoPro.
During the year ended December 31, 2022 , some of our Innovations-related
investees completed new financing rounds. The associated carry-value increases
contributed to a net unrealized gain of $9.9 million (2021: $19.6 million ). The
unrealized gains are net of a $1.7 million valuation allowance recorded on
certain Innovations-related investments during the year ended December 31, 2022
(2021: $0.5 million ).
The increase in interest income for the year ended
primarily related to our restricted cash and cash equivalents, which benefited
from rising
primarily relate to interest payable on funds withheld.
For the year ended
to the sale of a strategic investment.
67 -------------------------------------------------------------------------------- Link to Table of Contents For the years endedDecember 31, 2022 , and 2021, the gross investment return (loss) on our investments managed byDME Advisors (excluding the investment advisor performance allocation) was composed of the following: 2022 2021 Long portfolio gains (losses) - % 24.3 % Short portfolio gains (losses) 26.1 (7.9) Macro gains (losses) 3.8 (6.0) Other income and expenses 1 (1.8) (2.1) Gross investment return 28.1 % 8.3 % Net investment return 1 25.3 % 7.5 %
1 "Other income and expenses" excludes performance compensation but includes
management fees. "Net investment return" incorporates both of these amounts.
For the years endedDecember 31, 2022 , and 2021, the Investment Portfolio was calculated based on 50% of GLRE Surplus, or the Company's shareholders' equity, as reported in the Company's then most recent quarterlyU.S. GAAP financial statements adjusted monthly for our share of the net profits and net losses reported by SILP during any intervening period (the "adjusted GLRE Surplus"). EffectiveJanuary 1, 2023 , the Investment Portfolio is calculated based on 60% of adjusted GLRE Surplus.
Each month, we post on our website (www.greenlightre.com) the returns from our
investment in SILP.
Income Taxes
We are not obligated to pay taxes in the
capital gains. The Governor-In-Cabinet has granted us an exemption from any
income taxes that may be imposed in the
GRIL is incorporated inIreland and is subject to the Irish corporation tax. We expect GRIL to be taxed at 12.5% on its taxable trading income and 25% on its non-trading income, if any. Greenlight ReUK and GCM are incorporated in theUnited Kingdom and therefore are subject to theU.K. corporate tax rate of 19% on their profits. Verdant is incorporated inDelaware and is subject to taxes under theU.S. federal rates and regulations prescribed by the Internal Revenue Service. We expect Verdant's future taxable income to be taxed at 21%. For the year endedDecember 31, 2021 , the income tax expense of$0.8 million was due primarily to the gain on the sale of our investment in AccuRisk. AtDecember 31, 2022 , we have included a gross deferred tax asset of$2.8 million (December 31, 2021 :$3.2 million ) in the caption "Other assets" in the Company's consolidated balance sheets. AtDecember 31, 2022 , a valuation allowance of$2.3 million (2021:$2.7 million ) partially offset this gross deferred tax asset. We have concluded that it is more likely than not that the Company will fully realize the recorded deferred tax asset (net of the valuation allowance) in the future. We have based this conclusion on the expected timing of the reversal of the temporary differences and the likelihood of generating sufficient taxable income to realize the future tax benefit. We have not taken any other tax positions that we believe are subject to uncertainty or reasonably likely to have a material impact on the Company. Financial Condition Total investments The total investments reported in the consolidated balance sheets atDecember 31, 2022 , was$248.5 million , compared to$231.0 million atDecember 31, 2021 , an increase of$17.5 million , or 7.6%. The increase was primarily related to gains on SILP and Innovations-related investments and the purchase of certificates of deposit. The increase was partially offset by net redemptions from SILP. AtDecember 31, 2022 , 91.6% of SILP's portfolio was valued based on quoted prices in actively traded markets (Level 1), 6.3% was composed of instruments valued based on observable inputs other than quoted prices (Level 2), and a nominal amount was composed of instruments valued based on non-observable inputs (Level 3). AtDecember 31, 2022 , 2.1% of SILP's portfolio consisted of private equity funds valued using the funds' net asset values as a practical expedient. 68 -------------------------------------------------------------------------------- Link to Table of Contents AtDecember 31, 2022 , 86% of our Innovations-related portfolio was carried at fair value on a nonrecurring basis, measured as of the investees' most recently completed financing round, and 14% was carried at the original cost.
Other than our investment in SILP (see Notes 3 and 4 of the accompanying
consolidated financial statements), we have not participated in transactions
that created relationships with unconsolidated entities or financial
partnerships, including VIEs, established to facilitate off-balance sheet
arrangements.
Cash and cash equivalents; Restricted cash and cash equivalents
Unrestricted cash and cash equivalents decreased by$38.1 million , or 49.9%, from$76.3 million atDecember 31, 2021 , to$38.2 million atDecember 31, 2022 , primarily due to cash used for operations, repurchase of senior convertible debt, purchase of Innovations-related investments and collateral posted to our ceding insurers. We use our restricted cash and cash equivalents for funding trusts and letters of credit issued to our ceding insurers. Our restricted cash increased by$33.5 million , or 5.3%, from$634.8 million atDecember 31, 2021 , to$668.3 million , atDecember 31, 2022 , primarily due to collateral required by our ceding insurers.
Reinsurance balances receivable
During the year endedDecember 31, 2022 , reinsurance balances receivable increased by$100.2 million , or 24.7%, to$505.6 million from$405.4 million atDecember 31, 2021 . This increase was related primarily to funds withheld by cedents. AtDecember 31, 2022 , funds held by cedents were$337.4 million , compared to$246.9 million atDecember 31, 2021 . Funds withheld predominantly relate to premiums withheld by Lloyd's syndicates and funds contributed by the Company to Lloyd's as security for members' underwriting activities. The remaining increase related to premiums receivable on new contracts bound during the year endedDecember 31, 2022 .
Loss and Loss Adjustment Expense Reserves; Loss and Loss Adjustment Expenses
Recoverable
Reserves for loss and loss adjustment expenses were composed of the following:
December 31, 2022 December 31, 2021
Case Case
Reserves IBNR Total Reserves IBNR Total
($ in thousands)
Property $ 20,354 $ 41,361 $ 61,715 $ 21,357 $ 49,486 $ 70,843
Casualty 146,702 227,979 374,681 151,734 219,949 371,683
Other 17,700 101,372 119,072 17,129 64,355 81,484
Total $ 184,756 $ 370,712 $ 555,468 $ 190,220 $ 333,790 $ 524,010
During the year ended December 31, 2022 , the total gross loss and loss
adjustment expense reserves increased by $31.5 million , or 6.0%, to $555.5
million from $524.0 million at December 31, 2021 . See Note 7 of the accompanying
consolidated financial statements for a summary of changes in outstanding loss
and loss adjustment expense reserves and a description of prior period loss
developments.
During the year ended December 31, 2022 , total loss and loss adjustment expenses
recoverable increased by $2.1 million , or 19.3%, to $13.2 million from $11.1
million at December 31, 2021 . See Note 8 of the accompanying consolidated
financial statements for a description of the credit risk associated with our
retrocessionaires.
For most of the contracts we write, defined limits of liability limit our risk
exposure. Once each contract's limit of liability has been reached, we have no
further exposure to additional losses from that contract. However, certain
contracts, particularly quota share contracts covering first-dollar exposure, do
not contain aggregate limits.
Our property and Lloyd's business, and to a lesser extent our casualty and other
business, incorporate contracts that contain natural peril loss exposure. We
currently monitor our catastrophe loss exposure in terms of our PML.
We anticipate that our PMLs will vary from period to period depending upon the
modeled simulated losses and the composition of our in-force book of business.
69 -------------------------------------------------------------------------------- Link to Table of Contents We monitor our natural peril PMLs on a worldwide basis, with a particular focus on our peak peril regions. When these perils consist of a large geographic area, we split them into sub-regions, where the underlying geographic components can also be considered individual peril zones. For our natural catastrophe PMLs, we utilize the output of catastrophe models at the 1-in-250-year return period. The 1-in-250-year return period PML means that we believe there is a 0.4% probability that, in any given year, an occurrence of a natural catastrophe will lead to losses exceeding the stated estimate. It is important to note that PMLs are best estimates based on the modeled data available for each underlying risk. As a result, we cannot provide assurance that any actual event will align with the modeled event or that actual losses from events similar to the modeled events will not vary materially from the modeled event PML.
Our PML estimates incorporate all significant exposure from our reinsurance
operations, including coverage for property, marine and energy, motor, and
catastrophe workers' compensation exposures.
AtJanuary 1, 2023 , our estimated largest PML (net of retrocession and reinstatement premiums) at a 1-in-250-year return period for a single event and in aggregate was$77.5 million and$83.5 million , respectively, both relating to the peril of North Atlantic Hurricane. The below table contains the expected modeled loss for each of our peak peril regions and sub-regions for both a single event loss and aggregate loss measures at the 1-in-250-year return period. January 1, 2023 Net 1-in-250 Year Return Period Peril Single Event Loss Aggregate Loss ($ in thousands) North Atlantic Hurricane $ 77,503$ 83,521 Southeast Hurricane 64,207 65,714 Gulf of Mexico Hurricane 51,106 55,608 Northeast Hurricane 50,603 50,603 North America Earthquake 66,958 69,979 California Earthquake 61,100 64,216 Other N.A. Earthquake 22,914 24,505 Japan Earthquake 21,137 22,586 Japan Windstorm 17,511 19,549 Europe Windstorm 30,758 35,053 Total shareholders' equity Total equity reported on the consolidated balance sheet increased by$27.5 million to$503.1 million atDecember 31, 2022 , compared to$475.7 million atDecember 31, 2021 . The increase in shareholders' equity during the year endedDecember 31, 2022 , was primarily due to the net income of$25.3 million reported for the year, partially offset by the adoption of ASU 2020-06 (see Note 2 of the accompanying consolidated financial statements). For details of other movements in shareholders' equity, please see the "Consolidated Statements of Changes in Shareholders' Equity" in the accompanying consolidated financial statements.
Liquidity and Capital Resources
General
Greenlight Capital Re is a holding company with no operations of its own. As a holding company,Greenlight Capital Re has minimal continuing cash needs, most of which are related to the payment of corporate and general administrative expenses and interest expenses. We conduct all our underwriting operations through our wholly-owned reinsurance subsidiaries, Greenlight Re and GRIL, which underwrite property and casualty reinsurance. There are restrictions on Greenlight Re's and GRIL's ability to pay dividends described in more detail below. Our current policy is to retain earnings to support the growth of our business. We currently do not expect to pay dividends on our ordinary shares. 70 -------------------------------------------------------------------------------- Link to Table of Contents AtDecember 31, 2022 , Greenlight Re and GRIL were each rated "A- (Excellent)" with a stable outlook byA.M. Best . The ratings reflectA.M. Best's opinion of our reinsurance subsidiaries' financial strength, operating performance, and ability to meet obligations. They are not evaluations directed toward the protection of investors or a recommendation to buy, sell or hold our Class A ordinary shares. IfA.M. Best downgrades our ratings below "A- (Excellent)" or withdraws our rating, we could be severely limited or prevented from writing any new reinsurance contracts, which would significantly and negatively affect our business. OurA.M. Best ratings may be revised or revoked at the sole discretion of the rating agency. Some of our assumed reinsurance contracts contain provisions that permit our clients to cancel the contract or require additional collateral in the event of a downgrade in ourA.M. Best ratings below A- (Excellent) or a reduction of our capital or surplus below specified levels over the course of the agreement. In the periods presented, there were no such cancellations or other adjustments relating to novations, commutations, or similar actions that had a material impact on our premiums written, net income, or liquidity position, either individually or in the aggregate.
Contracts containing such cancellation rights represented approximately 8% of
gross premiums written during 2022. We believe if all additional collateral
requirements had been triggered at
collateral would equal approximately
Sources and Uses of Funds
Our sources of funds consist primarily of premium receipts (net of brokerage and ceding commissions), investment income, and other income. We use cash from our operations to pay losses and loss adjustment expenses, profit commissions, interest, and general and administrative expenses. AtDecember 31, 2022 , all of our investable assets, excluding strategic and Innovations investments and funds required for business operations and capital risk management, are invested byDME Advisors in SILP, subject to our investment guidelines. We can redeem funds from SILP at any time for operational purposes by providing three days' notice to the general partner. AtDecember 31, 2022 , the majority of SILP's long investments were composed of cash and cash equivalents and publicly traded equity securities, which can be readily liquidated to meet our redemption requests. We record all investment income (loss), including any changes in the net asset value of SILP, and any unrealized gains and losses, in our consolidated statements of operations for each reporting period. For the years endedDecember 31, 2022 , and 2021, the net cash used in operating activities was$31.8 million and$56.3 million , respectively. The net cash used in operating activities was used primarily for our underwriting activities and for payment of corporate and general administrative expenses. Generally, if the premiums collected exceed claim payments within a given period, we generate cash from our underwriting activities. Our underwriting activities represented a net use of cash for the years endedDecember 31, 2022 , and 2021, as the losses we paid exceeded the premiums we collected. On our Lloyd's syndicate contracts, we do not receive any premiums until the year of account is settled, net of losses, at the end of three years. Our Lloyd's syndicate business has been growing in recent years. The increase in funds contributed to Lloyd's as security for members' underwriting activities has contributed to the net use of cash for underwriting activities. The cash used in and generated from underwriting activities may vary significantly from period to period depending on the mix of business, the nature of underwriting opportunities available, and the volume of claims submitted to us by our cedents. For the year endedDecember 31, 2022 , our investing activities provided net cash of$47.0 million . We redeemed$60.2 million of cash from SILP (net of contributions) and used$13.2 million for new Innovations and other investments. By comparison, for the same period in 2021, our investing activities provided net cash of$23.1 million . For the year endedDecember 31, 2022 , we used$19.8 million to repurchase our convertible senior notes. During the same period in 2021, we used$10.0 million to repurchase our Class A ordinary shares. AtDecember 31, 2022 , we believe we have sufficient liquidity to meet our foreseeable financial requirements. We do not expect the recent global events, including Hurricane Ian, the Russian-Ukrainian conflict, and the COVID-19 pandemic, to materially impact our operational liquidity needs. These needs will be met by cash, funds generated from underwriting activities, and investment income, including withdrawals from SILP if necessary. AtDecember 31, 2022 , we expect to fund our operations for the foreseeable future from operating and investing cash flows. We are evaluating various alternatives in relation to the convertible senior notes that mature inAugust 2023 . In addition, we may explore various financing options, including debt refinancing and other capital raising alternatives, to fund our business strategy, improve our capital structure, increase surplus, pay claims, or make acquisitions. We can provide no assurances regarding the terms of such transactions or that any such transactions will occur. If we are unable to refinance the convertible senior notes, we will be required to fund settlement at maturity using cash on hand, or withdrawals from SILP, which may negatively affect our ability to implement our business strategy. 71 -------------------------------------------------------------------------------- Link to Table of Contents Although GLRE is not subject to any significant legal prohibitions on the payment of dividends, Greenlight Re and GRIL are each subject to regulatory minimum capital requirements and regulatory constraints that affect their ability to pay dividends to us. In addition, any dividend payment would have to be approved by the relevant regulatory authorities prior to payment. AtDecember 31, 2022 , Greenlight Re and GRIL exceeded their regulatory minimum capital requirements.
Letters of Credit and Trust Arrangements
AtDecember 31, 2022 , neither Greenlight Re nor GRIL was licensed or admitted as a reinsurer in any jurisdiction other than theCayman Islands and the European Economic Area, respectively. Many jurisdictions do not permit domestic insurance companies to take credit on their statutory financial statements for loss recoveries or ceded unearned premiums unless appropriate measures are in place for reinsurance obtained from unlicensed or non-admitted insurers. As a result, we anticipate that all of ourU.S. clients and some non-U.S. clients will require us to provide collateral through funds withheld, trust arrangements, letters of credit, or a combination thereof. AtDecember 31, 2022 , we had one (2021: one) letter of credit facility available with an aggregate capacity of$275.0 million (2021:$275.0 million ). See Note 15 of the accompanying consolidated financial statements for details on the letter of credit facility. We provide collateral to cedents in the form of letters of credit and trust arrangements. AtDecember 31, 2022 , the aggregate amount of collateral provided to cedents under such arrangements was$667.6 million (2021:$633.9 million ). AtDecember 31, 2022 , the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of$668.3 million (2021:$634.8 million ). The letter of credit facility contains customary events of default and restrictive covenants, including but not limited to limitations on liens on collateral, transactions with affiliates, mergers, and sales of assets, as well as solvency and maintenance of certain minimum pledged equity requirements and restricts issuance of any debt without the consent of the letter of credit provider. Additionally, if an event of default exists, as defined in the letter of credit facility, Greenlight Re would be prohibited from paying dividends to its parent company. The Company was in compliance with all the covenants of this facility atDecember 31, 2022 .
Capital
Our capital structure currently consists of senior convertible notes and equity issued in two classes of ordinary shares. We expect that the existing capital base and internally generated funds will be sufficient to implement our business strategy for the foreseeable future. Consequently, we do not presently anticipate that we will incur any additional material indebtedness in the ordinary course of our business. However, to provide us with flexibility and timely access to public capital markets should we require additional capital for working capital, capital expenditures, acquisitions, or other general corporate purposes, we have filed a Form S-3 registration statement, which expires inJuly 2024 . In addition, as noted above, we may explore various financing alternatives, although there can be no assurance that additional financing will be available on acceptable terms when needed or desired. We did not make any significant commitments for capital expenditures during the year endedDecember 31, 2022 . The Board of Directors had previously approved a share repurchase plan 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. OnApril 26, 2022 , the Board of Directors renewed and extended the share repurchase plan untilJune 30, 2023 . The Company is not required to repurchase any Class A ordinary shares, and the repurchase plan may be modified, suspended, or terminated at the election of our Board of Directors at any time without prior notice. During the year endedDecember 31, 2022 , the Company repurchased 4,933 Class A ordinary shares at an average share price of$7.04 . The Company may, from time to time, repurchase some of its 4.00% convertible senior notes due 2023 (the "Notes") in privately negotiated transactions, in open market repurchases, or pursuant to one or more tender offers. During the year endedDecember 31, 2022 , the Company repurchased and retired Notes with a face value of$20.4 million . Subsequent toDecember 31, 2022 , the Company repurchased and retired an additional$13.8 million of Notes. Under the Company's stock incentive plan, the number of Class A ordinary shares authorized for issuance is 8.0 million shares. AtDecember 31, 2022 , 2,011,426 Class A ordinary shares were available for future issuance under the Company's stock incentive plan. The Compensation Committee of the Board of Directors administers the stock incentive plan. 72 -------------------------------------------------------------------------------- Link to Table of Contents Contractual Obligations and Commitments Due to the nature of our reinsurance operations, the amount and timing of the cash flows associated with our reinsurance contractual liabilities will fluctuate, perhaps materially, and, therefore, are highly uncertain. AtDecember 31, 2022 , we estimate that we will pay the loss and loss adjustment expense reserves as follows: Less than More than 1 year 1-3 years 3-5 years 5 years Total ($ in thousands) Loss and loss adjustment expense reserves (1) 275,512 164,974 62,768 52,214 555,468
(1) Due to the nature of our reinsurance operations, the amount and timing of
the cash flows associated with our reinsurance contractual liabilities will
fluctuate, perhaps materially, and, therefore, are highly uncertain.
Greenlight Re entered into a lease agreement for office space in theCayman Islands commencingJuly 1, 2021 and expiringJune 30, 2026 , unless Greenlight Re exercises its right to renew it for another five years. GRIL entered into a lease agreement for office space inDublin, Ireland commencingOctober 1, 2021 , and expiringSeptember 30, 2031 , unless GRIL exercises the break clause by providing a notice of termination at least nine months prior toSeptember 30, 2026 . The aggregate annual lease obligation ranges from$0.5 million to$0.6 million . AtDecember 31, 2022 , the Company has$79.6 million of senior convertible notes payable, which mature onAugust 1, 2023 . The Company is obligated to make semiannual interest payments of$2.0 million at an interest rate of 4.0% per annum. The Company has received regulatory approval to declare dividends from Greenlight Re to meet the interest payments obligation. Pursuant to the IAA betweenSILP and DME Advisors ,DME Advisors is entitled to a monthly management fee equal to 0.125% (1.5% on an annual basis) of each limited partner's Investment Portfolio, as provided in the SILP LPA. The IAA has an initial term ending onAugust 31, 2023 , subject to automatic extension for successive three-year terms. Pursuant to the SILP LPA,DME II is entitled to a performance allocation equal to 20% of the net profit, calculated per annum, of each limited partner's share of the capital account managed byDME Advisors , subject to a loss carry-forward provision.DME II is not entitled to earn a performance allocation in a year in which SILP incurs a loss. The loss carry-forward provision contained in the SILP LPA allowsDME II to earn a reduced performance allocation of 10% of net profits in years subsequent to the year in which the capital accounts of the limited partners incur a loss until all losses are recouped, and an additional amount equal to 150% of the loss is earned. AtDecember 31, 2022 , we estimate the reduced performance allocation of 10% to continue to be applied until SILP achieves additional investment returns of 148.5%, at which point the performance allocation will revert to 20%. For detailed breakdowns of management fees and performance compensation for the year endedDecember 31, 2022 , and 2021, please refer to Note 3 of the consolidated financial statements. The Company has entered into a service agreement withDME Advisors pursuant to whichDME Advisors will provide investor relations services to us for compensation of$5,000 per month plus expenses. The service agreement had an initial term of one year and continues for sequential one-year periods until terminated by us orDME Advisors . Either party may terminate the service agreement for any reason with 30 days prior written notice to the other party.
Our related party transactions are presented in Note 14 to the accompanying
consolidated financial statements.
Effects of Inflation
Inflation generally affects the cost of claims and claim expenses. Long-tailed lines of business generally have greater exposure to inflation than short-tailed lines, with this differential becoming more pronounced as the severity of inflation increases. Our underwriting portfolio is predominantly short-tailed, and we actively manage our exposures to classes that experience significant inflation. Our pricing and reserving models incorporate the anticipated effects of inflation on our claim costs, and we regularly review and update our assumptions. However, we cannot predict or estimate the onset, duration, and severity of an inflationary period with precision. The actual effect of inflation may differ significantly from our assumptions. Inflation can also affect the asset values in SILP's investment portfolio.DME Advisors regularly monitors and re-positions SILP's investment portfolio to deal with the impact of inflation on its underlying investments, and holds macro positions to benefit from a rising inflationary environment. 73
--------------------------------------------------------------------------------
Link to Table of Contents
TIPTREE INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
Patent Issued for System for uploading information into a metadata repository (USPTO 11580096): Hartford Fire Insurance Company
Advisor News
- SEC manual shake-up: What every insurance advisor needs to know now
- Retirement moves to make before April 15
- Millennials are inheriting billions and they want to know what to do with it
- What Trump Accounts reveal about time and long-term wealth
- Wellmark still worries over lowered projections of Iowa tax hike
More Advisor NewsAnnuity News
- Variable annuity sales surge as market confidence remains high, Wink finds
- New Allianz Life Annuity Offers Added Flexibility in Income Benefits
- How to elevate annuity discussions during tax season
- Life Insurance and Annuity Providers Score High Marks from Financial Pros, but Lag on User Friendliness, JD Power Finds
- An Application for the Trademark “TACTICAL WEIGHTING” Has Been Filed by Great-West Life & Annuity Insurance Company: Great-West Life & Annuity Insurance Company
More Annuity NewsHealth/Employee Benefits News
- Critics concerned seizure detection bill impacts Illinois' small businesses
- Som Medicare households may need nearly $500K for health care in retirement
- Medicaid and CHIP reliance by state: 2026 study
- In Assembly's sprint to finish, bills on PFAS, insurer denial pass final hurdle
- Parents of children with disabilities call to not ‘lock in’ Iowa Medicaid privatization
More Health/Employee Benefits NewsLife Insurance News
- Best’s Special Report: US Life/Health Insurance Industry Sees Impairments Halved in 2024
- Jackson Study Exposes Stark Disconnect Between Anticipation of Policy Change and Retirement Planning Conversations
- Thrivent plans to add 600 advisors this year
- Third Federal Named a top Financial Services Company by USA TODAY
- New Allianz Life Annuity Offers Added Flexibility in Income Benefits
More Life Insurance News