What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-05 compared with 2020-05-05 · 340 added, 177 removed, 313 unchanged (62% of the section changed)

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References to our “Ordinary Shares” refers collectively to our Class A Ordinary Shares and Class B Ordinary Shares.

The following is a discussion and analysis of our results of operations for the three months ended March 31, 2020 and 2019 and financial condition as of March 31, 2020 and December 31, 2019 .

The following is a discussion and analysis of our results of operations for the three and six months ended June 30, 2020 and 2019 and financial condition as of June 30, 2020 and December 31, 2019.

The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear in our annual report on Form 10-K for the fiscal year ended December 31, 2019.

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A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” (refer to Part I, Item 1A) contained in our Amendment No.

1 to Form 10-K for the fiscal year ended December 31, 2019 , as filed with the SEC on April 29, 2020.

1 to Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (the “SEC”) on April 29, 2020.

Such risks and uncertainties include, but are not limited to:

• Impact of disruptions to commerce, reduced economic activity and other consequences of a pandemic, including the novel coronavirus (“COVID-19”);

• Rating agency may downgrade or withdraw either of our ratings;

• Our results of operations will likely fluctuate from period to period and may not be indicative of our long-term prospects;

• Under our investment management structure, we have limited control over Solasglas Investments, LP (“SILP”);

• SILP may be concentrated in a few large positions, which could result in large losses;

• Competitors with greater resources may make it difficult for us to effectively market our products or offer our products at a profit;

• If our losses and loss adjustment expenses greatly exceed our loss reserves, our financial condition may be significantly and negatively affected;

• We may face risks from future strategic transactions such as acquisitions, dispositions, mergers or joint ventures;

• The effect of emerging claim and coverage issues on our business is uncertain;

• The property and casualty reinsurance market may be affected by cyclical trends;

• Loss of key executives could adversely impact our ability to implement our business strategy;

• Currency fluctuations could result in exchange rate losses and negatively impact our business.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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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.

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We are a global specialty property and casualty reinsurer, headquartered in the Cayman Islands, with a reinsurance and investment strategy that we believe differentiates us from most of our competitors.

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We focus on delivering risk solutions to clients and brokers who value our expertise, analytics and customer service offerings.

Historically, we have aimed to complement our underwriting results with a non-traditional investment approach in order to achieve higher rates of return over the long term than reinsurance companies that employ more traditional investment strategies.

We aim to complement our underwriting results with a non-traditional investment approach in order 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.

The Company’s subsidiaries hold an A.M.

Best Financial Strength Rating of A- (Excellent) with a negative outlook.

During 2019, the Company’s Board initiated a strategic review to address the risk of a downgrade.

During 2019, the Company’s Board initiated a strategic review.

On April 2, 2020, the Company announced the completion of its review of strategic transaction alternatives.

The Board, following a recommendation made by a special committee composed of independent directors, determined that stockholder value is likely to be better enhanced on a standalone basis than by pursuing a transaction with a third party.

Because our portfolio will evolve in response to market conditions and underwriting opportunities, period-to-period comparisons of our underwriting results may not be meaningful.

Because our strategy is designed to allow us to capitalize on favorable market conditions and underwriting opportunities, period-to-period comparisons of our underwriting results may not be meaningful.

In addition, our historical investment results may not necessarily be indicative of future performance.

Due to the nature of our reinsurance and investment strategies, our operating results will likely fluctuate from period to period.

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The Company’s subsidiaries hold an A.M.

Best Financial Strength Rating of A- (Excellent) with a negative outlook.

We manage our business on the basis of one operating segment, Property & Casualty reinsurance, and we analyze our business based on the following categories:

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Other business covers accident and health, financial lines (including transactional liability, mortgage insurance, surety and trade credit), marine, and to a lesser extent, other specialty business such as aviation, crop, cyber, energy, political and terrorism exposures.

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Outlook and Trends

The global pandemic related to the novel coronavirus (“COVID-19”) is expected to have a significant adverse impact on the property and casualty insurance and reinsurance industry.

We expect that the economic consequences related to COVID-19 will negatively impact the amount of premiums written by our cedents and, in turn, by us.

While we have incorporated an estimate of refunds of premium we wrote during the first quarter of 2020, we expect the premium reduction will be more significant in the second quarter of 2020 and persist for the remainder of 2020 and beyond.

We cannot predict with certainty the degree of the impact, which will depend on the extent and duration of economic contraction, particularly in the United States.

However, given the anticipated impact of the pandemic on our earned premiums, we expect an increase in our underwriting expense ratio in the near term.

We also expect that COVID-19 will negatively impact the frequency and severity of claims in certain lines, including mortgage insurance/reinsurance, workers’ compensation, health and multi-line business.

Further, while we do not have significant exposure to business interruption claims, the potential exists for elevated losses in the event that U.S.

or other government legislative action is taken to retroactively mandate coverage irrespective of terms, exclusions or other conditions included in our underlying policies that would otherwise preclude coverage.

In other lines that we write, particularly motor, we believe that the frequency of claims is likely to be reduced.

We believe that fewer claims will be reported, at least in the short term, as a result of fewer private passenger automobiles being driven during shelter-in-place orders.

This decrease in claims may offset the decrease in premiums, which could result in a net favorable impact to our cedents and, in turn, us.

We expect that technological, analytical, product and delivery mechanism innovations in the insurance and reinsurance industries will have an increasingly significant impact on the markets in which we operate.

The Greenlight Re Innovations unit, our internal effort to develop and implement product and service innovations with insurance applications, is positioned to facilitate some of these market shifts, while we also anticipate benefiting from new underwriting opportunities that are created.

The global pandemic related to the novel coronavirus (the “COVID-19 pandemic”) is having a significant impact on the property and casualty insurance and reinsurance industry.

The COVID-19 pandemic has increased loss activity in certain lines we write, including mortgage insurance/reinsurance and multi-line business.

Further, while we do not have a significant exposure to business interruption claims, the potential exists for elevated losses if the U.S.

federal government or other government legislative action is taken to retroactively mandate coverage irrespective of terms, exclusions or other conditions included in our underlying policies that would otherwise preclude coverage.

In other areas of our business, particularly motor, we believe that fewer claims will be reported, at least in the short term, as a result of shelter-in-place orders.

In total, we believe that i n comparison to the industry as a whole, our exposure to the COVID-19 pandemic is relatively small.

In the short term, we believe the COVID-19 pandemic will accelerate the improvement in reinsurance pricing that started last year.

Although the worldwide economic contraction will likely cause a decrease in demand for some types of coverage, the reduction in capital that the losses have caused, as well as an improved understanding of exposure to pandemics and similar events, have led to a meaningful shortage of supply.

Over the past few months, we have seen risk placements in specialty classes with significantly improved terms, and have noted that attempts to place risks with only modest pricing improvements are often met with shortfalls in capacity.

We continue to expand the lines of business we write and we have increased our participation in excess-of-loss contracts when the economics support it, thereby replacing some of our lower-performing quota-share contracts with higher-margin business.

We believe that the benefits of these improved market conditions will flow through our underwriting results in future periods.

We expect technological, analytical, product and delivery mechanism innovations in the insurance and reinsurance industries to have a significant impact on the markets in which we operate, and the COVID-19 pandemic will accelerate innovation and the corresponding market impact.

We believe that Greenlight Re Innovations unit, our internal effort to develop and implement product and service innovations with insurance applications, is well positioned to facilitate certain of these market shifts.

Additionally, we believe we are well positioned to benefit from new underwriting opportunities that may be created as a result of the COVID-19 pandemic.

Compared to most of our competitors, we are small and have low overhead expenses.

We believe that our current expense efficiency, agility and existing relationships has provided support to our competitive position and should allows us to profitably participate in lines of business that fit within our strategy.

However, the size of our current capital base, combined with A.M Best’s negative outlook on our subsidiaries’ A- (Excellent) rating, may constrain our capacity and our ability to access underwriting business.

Our ability to execute our business plan during the remainder of 2020 may be adversely impacted by a prolonged negative outlook from A.M.

We believe that our current expense efficiency, agility and existing relationships has provided support to our competitive position and enables us to participate in lines of business that fit within our strategy.

However, the size of our current capital base, combined with our A.M.

Best rating, may constrain our capacity and our ability to access underwriting business.

Our ability to execute our business strategy may be adversely impacted by a prolonged negative outlook from A.M.

Best or if A.M.

Best revises our subsidiaries’ ratings below A- (Excellent).

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We continue to monitor market conditions to best position ourselves to participate where an appropriate risk-reward profile exists.

Our underlying results and product line concentrations may vary, perhaps significantly, from one period to the next, and therefore our results to date are not necessarily indicative of future portfolio composition and performance.

There are many global economic, investment and political uncertainties that may impact our business and our investment portfolio, including the impact of COVID-19, central bank actions and potential trade disputes.

Our decision to de-risk our investments has reduced, although not eliminated, our exposure to such uncertainties.

We expect to hold most of our investable assets in cash and short-term treasuries in the current environment.

In addition to the COVID-19 pandemic impact, there are many global economic, investment and political uncertainties that may impact our business and our investment portfolio, including central bank actions, potential trade disputes and economic inequality.

During 2019 we had reduced, although not eliminated, our investment exposure to such uncertainties.

While we expect our investment exposure to increase moderately in the near term, we intend to limit our gross long exposure to less than 50% of total shareholders’ equity for the foreseeable future.

Refer to “ SILP Letter Agreement ” in Part II, Item 5.

“Other Information” of this Form 10-Q.

Critical Accounting Policies and Estimates

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Key Financial Measures and Non-GAAP Measures

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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 and the change in shareholder value.

Generally, a non-GAAP financial measure, as defined in Securities and Exchange Commission (“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 in accordance with U.S.

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 in accordance with U.S.

We believe that these measures, which may be calculated or defined differently by other companies, provide a consistent and comparable measure of performance of our business to help shareholders understand performance trends and allow for a more complete understanding of the Company’s business.

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In addition, fully diluted book value per share may be useful to our investors, shareholders and other interested parties to form a basis of comparison with other companies within the property and casualty reinsurance industry.

Basic book value per share is calculated on the basis of ending shareholders' equity and aggregate of Class A and Class B Ordinary shares issued and outstanding, as well as all unvested restricted shares.

Fully diluted book value per share is considered a non-GAAP financial measure and represents basic book value per share combined with any dilutive impact of in-the-money stock options and RSUs issued and outstanding as of any period end.

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GAAP measure.

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019

($ in thousands, except per share and share amounts)

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(1) All unvested restricted shares, including those with performance conditions, are included in the “basic” and “fully diluted” denominators.

As of March 31, 2020, the number of unvested restricted shares with performance conditions was 501,989 (356,900, 356,900, 120,605, 120,605 as of December, 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019, respectively).

As of June 30, 2020, the number of unvested restricted shares with performance conditions was 501,989 (as of March 31, 2020:

501,989, December, 31, 2019:

356,900, September 30, 2019:

356,900, June 30, 2019:

Net Underwriting Income (Loss)

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(4) interest expense and (5) income taxes.

We exclude total investment related income or loss and foreign exchange gains or losses as we believe these items are influenced by market conditions and other

We exclude total investment related income or loss and foreign exchange gains or losses as we believe these items are influenced by market conditions and other factors not related to underwriting decisions.

We exclude corporate expenses because these

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factors not related to underwriting decisions.

We exclude corporate expenses because these expenses are generally fixed and not incremental to or directly related to our underwriting operations.

expenses 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.

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GAAP financial measure) on a consolidated basis is shown below:

Three months ended March 31

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands)

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Results of Operations

The table below summarizes our operating results for the three months ended March 31, 2020 and 2019 :

Three months ended March 31

The table below summarizes our operating results for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

(in thousands, except percentages)

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Net premiums earned $ 108,414 $ 120,441 $ 219,435 $ 245,803

Underwriting expenses

Underwriting related expenses

Loss and LAE incurred, net

Current year $ 87,700 $ 83,625 $ 159,225 $ 171,437

Prior year * 1,494 (5,149) 5,666 29,904

Loss and LAE incurred, net 89,194 78,476 164,891 201,341

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Loss ratio - prior year 1.4 % (4.2) % 2.6 % 12.2 %

Loss ratio 82.3 % 65.2 % 75.1 % 81.9 %

Acquisition cost ratio 16.5 % 30.9 % 22.6 % 23.9 %

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Combined ratio 101.2 % 98.8 % 100.0 % 108.3 %

* The net financial impact associated with changes in the estimate of losses incurred in prior years, which incorporates earned reinstatement premiums assumed and ceded, adjustments to assumed and ceded acquisition costs and adjustments to deposit accounted contracts, was a loss of $3.9 million and $25.7 million , for the three months ended March 31, 2020 and 2019 , respectively.

* The net financial impact associated with changes in the estimate of losses incurred in prior years, which incorporates earned reinstatement premiums assumed and ceded, adjustments to assumed and ceded acquisition costs and adjustments to deposit accounted contracts, was a loss of $1.1 million and loss of $2.0 million for the three months ended June 30, 2020 and 2019, respectively, and a loss of $5.0 million and a loss of $27.7 million, for the six months ended June 30, 2020 and 2019, respectively.

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Results of operations for three months ended March 31, 2020 and 2019

For the three months ended March 31, 2020 , the fully diluted book value per share decreased by $1.25 per share, or 9.7% , to $11.63 per share from $12.88 per share at December 31, 2019 .

For the three months ended March 31, 2020 , the basic book value per share decreased by $1.23 per share, or 9.5% , to $11.67 per share from $12.90 per share at December 31, 2019 .

For the three months ended March 31, 2020 , the net loss was $40.3 million , compared to net income of $5.9 million reported for the equivalent 2019 period.

The developments that most significantly affected our financial performance during the three months ended March 31, 2020 , compared to the equivalent 2019 period, are summarized below:

Underwriting income - The underwriting income for the three months ended March 31, 2020 was $1.3 million .

Results of operations for three and six months ended June 30, 2020 and 2019

For the three months ended June 30, 2020, the fully diluted book value per share increased by $0.18 per share, or 1.5%, to $11.81 per share from $11.63 per share at March 31, 2020.

For the three months ended June 30, 2020, the basic book value per share increased by $0.18 per share, or 1.5%, to $11.85 per share from $11.67 per share at March 31, 2020.

The increase in basic and fully diluted book value per share for the three and six months ended June 30, 2020, was due primarily to share repurchases executed during the second quarter of 2020.

For the three months ended June 30, 2020, the net loss was $0.1 million, compared to a net income of $15.3 million reported for the equivalent 2019 period.

The developments that most significantly affected our financial performance during the three months ended June 30, 2020, compared to the equivalent 2019 period, are summarized below:

• Underwriting income:

The underwriting loss for the three months ended June 30, 2020 was $1.3 million.

By comparison, the equivalent period in 2019 reported an underwriting income of $1.5 million.

The decrease in underwriting income was primarily due to the COVID-19 pandemic loss reserves, which contributed $6.0 million to the underwriting loss.

• Our overall composite ratio was 98.8% for the three months ended June 30, 2020, compared to 96.1% during the equivalent 2019 period.

The composite ratio for three months ended June 30, 2020 included 5.5 points related to the COVID-19 pandemic losses.

The comparable period in 2019 included 2.9 loss ratio points related to natural catastrophe events.

• Investment income:

Our net investment related income for the three months ended June 30, 2020 was $5.5 million compared to an investment related income of $18.8 million reported for the same period in 2019.

For the six months ended June 30, 2020, the fully diluted book value per share decreased by $1.07 per share, or 8.3%, to $11.81 per share from $12.88 per share at December 31, 2019.

For the six months ended June 30, 2020, the basic book value per share decreased by $1.05 per share, or 8.1%, to $11.85 per share from $12.90 per share at December 31, 2019.

For the six months ended June 30, 2020, the net loss was $40.3 million, compared to net income of $21.2 million reported for the equivalent 2019 period.

The developments that most significantly affected our financial performance during the six months ended June 30, 2020, compared to the equivalent 2019 period, are summarized below:

• Underwriting income:

The underwriting loss for the six months ended June 30, 2020 was $0.1 million.

By comparison, the underwriting loss for the same period in 2019 was $20.3 million primarily resulting from adverse loss development on our private passenger automobile business.

Our overall composite ratio was 96.8% for the three months ended March 31, 2020 , compared to 115.2% during the same period in 2019 .

Investment income - Our net investment related loss for the three months ended March 31, 2020 was $35.3 million compared to investment related income of $32.3 million incurred during the equivalent 2019 period.

The investment loss for the three months ended March 31, 2020 was primarily related to our investment in SILP which reported a return of (8.1)% compared to 6.2% during the same period in 2019 .

The investment loss for the three months ended March 31, 2020 was primarily driven by the impact of changes in fair value primarily attributable to the recent disruptions in global financial markets associated with COVID–19.

Our overall composite ratio was 97.7% for the six months ended June 30, 2020, compared to 105.8% during the same period in 2019.

• Investment income:

Our net investment related loss for the six months ended June 30, 2020 was $29.7 million compared to investment related income of $51.1 million incurred during the equivalent 2019 period.

The investment loss for the six months ended June 30, 2020 was primarily related to our investment in SILP, which reported a return of (7.8)% compared to 9.1% during the same period in 2019.

The investment loss in SILP for the six months ended June 30, 2020 was primarily driven by the impact of changes in fair value primarily attributable to the disruptions in global financial markets associated with the COVID–19 pandemic.

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Underwriting results

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Details of gross premiums written are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands) ($ in thousands)

Property $ 13,551 11.6 % $ 25,454 16.7 % $ 27,710 12.2 % $ 52,259 16.6 %

Casualty 74,794 64.1 108,526 71.2 136,357 60.2 219,012 69.5

Other 28,344 24.3 18,360 12.1 62,409 27.6 43,629 13.9

Total $ 116,689 100.0 % $ 152,340 100.0 % $ 226,476 100.0 % $ 314,900 100.0 %

As a result of our underwriting philosophy, the total premiums we write, as well as the mix of premiums between property, casualty and other business, may vary significantly from period to period depending on the market opportunities that we identify.

For the three months ended June 30, 2020, our gross premiums written decreased by $35.7 million, or 23.4%, compared to the equivalent 2019 period.

The primary drivers for this change are the following:

Gross Premiums Written

Three months ended June 30, 2020

Increase (decrease)

($ in millions) % change Explanation

Property $(11.9) (46.8)% The decrease in property gross premiums written during the three months ended June 30, 2020 over the comparable 2019 period was primarily related to motor contracts that we elected not to renew in Q3 of 2019.

Casualty $(33.7) (31.1)% The decrease in casualty gross premiums written during the three months ended June 30, 2020 over the comparable 2019 period was primarily related to motor contracts that we elected not to renew, and also due to lower premium volumes on in-force contracts.

To a lesser extent, the decrease in casualty premiums also related to multi-line business partly related to the non-renewal of a program and partly due to decrease in volume of underlying business written by the cedents during the COVID-19 pandemic.

The decrease was partially offset by an increase in workers’ compensation premiums compared to the same period in 2019.

This increase in workers’ compensation premiums written was primarily due to an expanded relationship with an existing cedent as well as a restructured and renewed contract that was recorded on a deposit accounting basis during the comparative period in 2019.

Other $10.0 54.4% The increase in “other” gross premiums written during the three months ended June 30, 2019 over the comparable 2019 period was primarily due to new crop, energy, cyber and other specialty business written during 2020 and latter half of 2019.

The increase was also attributed to health premiums resulting from strategic partnerships and the innovation initiatives.

The increase was partially offset by decrease in transactional liabilities premiums due to a slow down in M&A activity during 2020 due to the COVID-19 pandemic.

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For the three months ended March 31, 2020 , our gross premiums written decreased by $52.8 million , or 32.5% , compared to the equivalent 2019 period.

For the six months ended June 30, 2020, our gross premiums written decreased by $88.4 million, or 28.1%, compared to the equivalent 2019 period.

The primary drivers of this change are as follows:

Gross Premiums Written

Three months ended March 31, 2020

Six months ended June 30, 2020

Increase (decrease)

($ in millions)

The decrease in property gross premiums written during the first three months of 2020 over the comparable 2019 period was primarily related to motor contracts that we elected not to renew.

The decrease was partially offset by new and renewed motor contracts during 2019 and 2020.

The decrease in casualty gross premiums written during the first three months of 2020 over the comparable 2019 period was primarily related to motor contracts that we elected not to renew, and also due to lower premium volumes on in-force contracts.

The lower premium volumes represent the cedents’ reporting of lower premiums.

The decrease was partially offset by an increase in multi-line and workers’ compensation premiums compared to the same period in 2019.

The increase in “other” gross premiums written during the first three months of 2020 over the comparable 2019 period was primarily attributable to new contracts relating to health, financial, marine, energy and other specialty lines.

Several of the new contracts were on an excess of loss basis and the premiums on these contracts are written in full during the quarter in which the contracts incept.

($ in millions) % change Explanation

Property $(24.5) (47.0)% The decrease in property gross premiums written during the six months of 2020 over the comparable 2019 period was primarily related to motor contracts that we elected not to renew.

Casualty $(82.7) (37.7)% The decrease in casualty gross premiums written during the six months of 2020 over the comparable 2019 period was primarily related to motor contracts that we elected not to renew, and also due to lower premium volumes on in-force contracts.

To a lesser extent, the decrease in casualty premiums also related to multi-line business primarily related to the non-renewal of a program.

The decrease was partially offset by an increase in workers’ compensation premiums compared to the same period in 2019.

Other $18.8 43.0% The increase in “other” gross premiums written during the six months of 2020 over the comparable 2019 period was primarily attributable to new contracts relating to crop, energy, cyber and other specialty lines.

The increase was also attributed to health premiums resulting from strategic partnerships and the innovation initiatives.

The increase was partially offset by decrease in transactional liabilities premiums due to a slow down in M&A activity during 2020 due to the COVID-19 pandemic.

Premiums Ceded

For the three months ended March 31, 2020 , premiums ceded were $0.7 million , compared to $21.4 million for the three months ended March 31, 2019 .

During the comparative period in 2019 we purchased outward retrocession to reduce our overall exposure to an inward motor contract.

The decrease in premiums ceded for the three months ended March 31, 2020 was primarily related to our decision not to renew the associated inward motor contract.

For the three and six months ended June 30, 2020, premiums ceded were $0.1 million and $0.8 million, respectively, compared to $23.1 million and $44.5 million for the three and six months ended June 30, 2019, respectively.

During the comparative period in 2019 we had retroceded a portion of our overall exposure to an inward motor contract.

The decrease in premiums ceded for the three and six months ended June 30, 2020 was primarily related to our decision not to renew the associated inward motor contract.

In general, we use retrocessional coverage to manage our net portfolio exposure, to leverage areas of expertise and to improve our strategic position in meeting the needs of clients and brokers.

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Details of net premiums written are provided in the following table:

Three months ended March 31

($ in thousands)

For the three months ended March 31, 2020 , net premiums written decreased by $32.1 million , or 22.7% , compared to the three months ended March 31, 2019 .

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands) ($ in thousands)

Property $ 13,641 11.7 % $ 20,289 15.7 % $ 27,620 12.2 % $ 42,483 15.7 %

Casualty 74,571 64.0 90,584 70.1 135,807 60.2 184,375 68.2

Other 28,345 24.3 18,326 14.2 62,239 27.6 43,500 16.1

Total $ 116,557 100.0 % $ 129,199 100.0 % $ 225,666 100.0 % $ 270,358 100.0 %

For the three and six months ended June 30, 2020, net premiums written decreased by $12.6 million, or 9.8%, and $44.7 million, or 16.5%, respectively, compared to the three and six months ended June 30, 2019.

The movement in net premiums written resulted from the changes in gross premiums written and ceded during the periods.

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Details of net premiums earned are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands) ($ in thousands)

Property $ 14,257 13.2 % $ 18,286 15.2 % $ 29,066 13.2 % $ 38,031 15.5 %

Casualty 69,199 63.8 80,437 66.8 134,472 61.3 165,894 67.5

Other 24,958 23.0 21,718 18.0 55,897 25.5 41,878 17.0

Total $ 108,414 100.0 % $ 120,441 100.0 % $ 219,435 100.0 % $ 245,803 100.0 %

Net premiums earned are primarily a function of the amount and timing of net premiums written during the current and prior periods.

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Details of net losses incurred are provided in the following table:

Three months ended March 31

($ in thousands)

The below table summarizes the loss ratios for the three months ended March 31, 2020 and 2019 :

Three months ended March 31

Increase / (decrease) in loss ratio points

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands) ($ in thousands)

Property $ 10,323 11.6 % $ 11,534 14.7 % $ 19,795 12.0 % $ 25,504 12.7 %

Casualty 48,795 54.7 55,553 70.8 96,229 58.4 147,740 73.4

Other 30,076 33.7 11,389 14.5 48,867 29.6 28,097 13.9

Total $ 89,194 100.0 % $ 78,476 100.0 % $ 164,891 100.0 % $ 201,341 100.0 %

The below table summarizes the loss ratios for the six months ended June 30, 2020 and 2019:

Three months ended June 30 Six months ended June 30

2020 2019 Increase / (decrease) in loss ratio points 2020 2019 Increase / (decrease) in loss ratio points

Property 72.4 % 63.1 % 9.3 68.1 % 67.1 % 1.0

Casualty 70.5 % 69.1 % 1.4 71.6 % 89.1 % (17.5)

Other 120.5 % 52.4 % 68.1 87.4 % 67.1 % 20.3

Total 82.3 % 65.2 % 17.1 75.1 % 81.9 % (6.8)

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The changes in net losses incurred for the three months ended March 31, 2020 were attributable to the following:

The changes in net losses incurred for the three months ended June 30, 2020 as compared to the equivalent 2019 period were attributable to the following:

Net Losses Incurred

Three months ended March 31, 2020

Three months ended June 30, 2020

Increase (decrease)

($ in millions)

Increase / (decrease) in loss ratio points

The decrease in property losses incurred during the first three months of 2020 over the comparable 2019 period related primarily to significant adverse loss development during the comparable 2019 period which was not present during the current period in 2020.

The lower level of adverse prior year loss development was the primary driver of the 6.8 percentage points decrease in the property loss ratio during the first three months of 2020 as compared to the equivalent 2019 period.

The decrease in casualty losses incurred during the first three months of 2020 over the comparable 2019 period related primarily to significant adverse loss development during the comparable 2019 period which was not present during the current period in 2020.

The lower level of adverse prior year loss development was the primary driver of the 35.2 percentage points decrease in the casualty loss ratio during the first three months of 2020 as compared to the equivalent 2019 period.

The increase in “other” losses incurred during the first three months of 2020 over the comparable 2019 period was primarily due to losses on crop contracts.

In spite of the increase in “other” incurred losses, the loss ratio decreased by 22.2 percentage points as a result of the ratio being calculated on a much larger earned premium denominator for the three months of 2020 compared to the same period in 2019.

($ in millions) Increase / (decrease) in loss ratio points Explanation

Property $(1.2) 9.3 The decrease in losses incurred reflects lower motor property losses during the three months ended June 30, 2020, compared to the equivalent period in 2019.

This reduction was due primarily to the non-renewal of certain motor contracts, as well as a lower level of losses reported on in-force motor contracts as a result of shelter-in-place policies implemented in U.S during the second quarter of 2020.

Despite the slight reduction in losses incurred during the three months ended June 30, 2020, the loss ratio increased during that period over the equivalent 2019 period as a result of the COVID-19 pandemic related business interruption claims incurred on non-motor contracts during the second quarter of 2020.

Casualty $(6.8) 1.4 The decrease in losses incurred reflects lower motor casualty losses during the three months ended June 30, 2020, compared to the equivalent 2019 period.

These decreases in casualty losses noted above were largely offset by increases in losses associated with our multi-line business as compared to the equivalent 2019 period.

This increase in multi-line losses was due primarily to (i) adverse development on losses incurred in prior periods and (ii) losses incurred in connection with the COVID-19 pandemic during the second quarter of 2020.

These multiline losses were the primary drivers of the increase in loss ratio during the second quarter of 2020 over the equivalent 2019 period.

Other $18.7 68.1 The increase in “Other” losses incurred during the three months ended June 30, 2020 over the equivalent 2019 period was primarily related to losses incurred on mortgage contracts resulting from the COVID-19 pandemic.

The increases in losses incurred on mortgage business were mostly offset by reductions in the profit commissions we pay to our cedents.

To a lesser extent the increase in “Other” losses incurred was due to certain health and crop contracts reporting higher than expected losses.

The mortgage, crop and health contracts contributed to the 68.1 percentage points increase in Other loss ratio during the three months of 2020 as compared to the equivalent 2019 period.

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The changes in net losses incurred for the six months ended June 30, 2020 were attributable to the following:

Net Losses Incurred

Six months ended June 30, 2020

Increase (decrease)

($ in millions) Increase / (decrease) in loss ratio points Explanation

Property $(5.7) 1.0 The decrease in property losses incurred during the six months of 2020 as compared to the equivalent 2019 period related primarily to:

• significant adverse loss development recognized during the the first half of 2019,

• the non-renewal of certain motor contracts,

• a lower level of losses reported on in-force motor contracts as a result of shelter-in-place policies implemented in U.S during the second quarter of 2020.

Despite the reduction in losses incurred during the six months ended June 30, 2020, the loss ratio increased 1.0 percentage point during that period over the equivalent 2019 period as a result of the COVID-19 pandemic related business interruption claims incurred on non-motor contracts during the first half of 2020.

Casualty $(51.5) (17.5) The decrease in casualty losses incurred during the six months of 2020 as compared to the equivalent 2019 period related primarily to:

• significant adverse loss development recognized during the first half of 2019,

• favorable loss development on professional liability and motor contracts,

• the non-renewal of certain motor contracts,

• a lower level of losses reported on in-force motor contracts as a result of shelter-in-place policies implemented in U.S during the second quarter of 2020.

While the casualty losses incurred and loss ratio decreased for the motor business, the losses incurred and loss ratio for multi-line business increased compared to the same period in 2019.

This increase in multi-line losses was due primarily to (i) adverse loss development recognized during the first half of 2020 and (ii) and the COVID-19 pandemic related claims incurred on non-motor contracts during the first half of 2020.

Overall, the reduced level of adverse prior year loss development recognized during the first half of 2020 was the primary driver of the 17.5 percentage point decrease in the casualty loss ratio as compared to the equivalent 2019 period.

Other $20.8 20.3 The increase in “Other” losses incurred during the six months ended June 30, 2020 over the comparable 2019 period was primarily related to losses incurred on mortgage contracts resulting from the COVID-19 pandemic.

The increases in losses incurred on mortgage business were mostly offset by reductions in the profit commissions we pay to our cedents.

To a lesser extent the increase in “Other” losses incurred was due to certain health and crop contracts reporting higher than expected losses.

The mortgage, crop and health contracts contributed to the 20.3 percentage points increase in Other loss ratio during the three months of 2020 as compared to the equivalent 2019 period.

See Note 5 of the accompanying condensed consolidated financial statements for additional discussion of prior period development of net claims and claim expenses.

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Acquisition Costs, Net

Details of acquisition costs are provided in the following table:

Three months ended March 31

($ in thousands)

The acquisition cost ratios for the three months ended March 31, 2020 and 2019 , were as follows:

Three months ended March 31

Increase / (decrease)

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands) ($ in thousands)

Property $ 2,977 16.6 % $ 4,816 13.0 % $ 5,862 11.8 % $ 6,911 11.8 %

Casualty 20,021 111.8 23,668 63.7 37,688 75.9 36,706 62.5

Other (5,095) (28.4) 8,688 23.3 6,092 12.3 15,081 25.7

Total $ 17,903 100.0 % $ 37,172 100.0 % $ 49,642 100.0 % $ 58,698 100.0 %

The acquisition cost ratios for the three and six months ended June 30, 2020 and 2019, were as follows:

Three months ended June 30 Six months ended June 30

2020 2019 Increase / (decrease) 2020 2019 Increase / (decrease)

Property 20.9 % 26.3 % (5.4) % 20.2 % 18.2 % 2.0 %

Casualty 28.9 % 29.4 % (0.5) % 28.0 % 22.1 % 5.9 %

Other (20.4) % 40.0 % (60.4) % 10.9 % 36.0 % (25.1) %

Total 16.5 % 30.9 % (14.4) % 22.6 % 23.9 % (1.3) %

The changes in the acquisition cost ratios for the three months ended June 30, 2020, compared to the same period in 2019, were attributable to the following:

Change in Acquisition Cost Ratios

Three months ended June 30, 2020

Increase / (decrease) in acquisition cost ratio points Explanation

Property (5.4) The decrease in the property acquisition cost ratio during the three months ended June 30, 2020 over the comparable 2019 period was due primarily to the non-renewal motor contracts, which incorporated relatively high commission rates.

Casualty (0.5) The slight decrease in the casualty acquisition cost ratio during the three months ended June 30, 2020 as compared to the comparable 2019 period was due primarily to the non-renewal of motor contracts, which incorporated relatively high commissions rates.

The decrease was partially offset by higher acquisition costs associated with multi-line contracts.

Other (60.4) The decrease in the “other” acquisition cost ratio during the three months ended June 30, 2020 over the comparable 2019 period was due to mortgage contracts that recorded a reversal of profit commissions that mostly offset the increase in loss reserves associated with the COVID-19 pandemic.

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The changes in the acquisition cost ratios for the three months ended March 31, 2020 , compared to the same period in 2019 , were attributable to the following:

The changes in the acquisition cost ratios for the six months ended June 30, 2020, compared to the same period in 2019, were attributable to the following:

Change in Acquisition Cost Ratios

Three months ended March 31, 2020

Increase / (decrease) in acquisition cost ratio points

The increase in the property acquisition cost ratio during the three months ended March 31, 2020 over the comparable 2019 period was due primarily to the lower comparable period acquisition cost which benefited from the reversal of sliding scale ceding commissions on private passenger automobile contracts.

The increase in the casualty acquisition cost ratio during the three months ended March 31, 2020 over the comparable 2019 period was due primarily to the lower comparable period acquisition cost which benefited from the reversal of sliding scale ceding commissions on private passenger automobile contracts.

The increase in the “other” acquisition cost ratio during the three months ended March 31, 2020 over the comparable 2019 period was due primarily to changes in the mix of business.

Contracts with relatively high ceding commissions, including transactional liability contracts, made up a larger proportion of the “other” category during the first quarter of 2020 than during the comparable 2019 period.

The first quarter of 2019 had a greater proportion of contracts with lower ceding commissions, including crop, marine and energy contracts.

Six months ended June 30, 2020

Increase / (decrease) in acquisition cost ratio points Explanation

Property 2.0 The property acquisition cost ratio increased during the six months ended June 30, 2020 over the comparable 2019 period.

The first half of 2019 benefited from the reversal of sliding scale ceding commissions on private passenger automobile contracts.

This reversal was the primary driver of the increase during the first half of 2020.

Casualty 5.9 The casualty acquisition cost ratio increased during the six months ended June 30, 2020 over the comparable 2019 period.

The first half of 2019 benefited from the reversal of sliding scale ceding commissions on private passenger automobile contracts.

This reversal was the primary driver of the increase during the first half of 2020.

An additional cause of the increase related to a relative increase in the amount of workers’ compensation and multi-line business written during the first half of 2020.

These lines incorporate relatively high commission rates as compared to other casualty business.

Other (25.1) The decrease in the “other” acquisition cost ratio during the six months ended June 30, 2020 over the comparable 2019 period was due to profit commission reversals recognized on mortgage contracts, offsetting most of the increase in loss reserves associated with the COVID-19 pandemic.

General and Administrative Expenses

Details of general and administrative expenses are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands) ($ in thousands)

Underwriting expenses $ 3,268 $ 4,262 $ 6,204 $ 8,068

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General and administrative expenses $ 6,149 $ 7,919 $ 12,943 $ 14,759

For the three months ended March 31, 2020 , general and administrative expenses decreased by $0.05 million , or 0.7% , compared to the equivalent 2019 period.

General and administrative expenses decreased by $1.8 million, or 22.4%, for the three months ended June 30, 2020, compared to the equivalent 2019 period.

The decrease was due primarily to lower personnel costs and to a lesser extent due to lower travel, accommodation and office related expenses resulting from shelter-in-place orders.

For the six months ended June 30, 2020, general and administrative expenses decreased by $1.8 million, or 12.3%, compared to the equivalent 2019 period.

The decrease was due primarily to lower personnel costs, partially offset by higher corporate expenses including legal and other professional fees relating to the strategic review.

For the three months ended March 31, 2020 and 2019 , general and administrative expenses included $0.9 million and $1.1 million , respectively, of expenses related to stock compensation granted to employees and directors.

For the six months ended June 30, 2020 and 2019, general and administrative expenses included $1.7 million and $2.2 million, respectively, of expenses related to stock compensation granted to employees and directors.

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Total Investment Related Income (Loss)

Total investment related income (loss) incorporates (i) changes in the net asset value of our investment in SILP managed by DME 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 innovation investments, including investments accounted for under the equity method.

We expect our 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 investment related income (loss) is as follows:

Three months ended March 31

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

($ in thousands)

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Total net investment related income (loss) $ 5,543 $ 18,791 $ (29,746) $ 51,114

For the three months ended March 31, 2020 , investment income, net of fees and expenses, resulted in a loss of 8.1% on the Investment Portfolio managed by DME Advisors, compared to a gain of 6.2% for the three months ended March 31, 2019 .

The long portfolio lost 8.6% , while the short portfolio and macro positions gained 0.4% and 0.3% , respectively, during the three months ended March 31, 2020 .

For the three months ended March 31, 2020 , the largest contributors to SILP’s investment income were short positions in Assured Guaranty (AGO), the S&P 500 Index and a group of equities in the life insurance industry which are intended to reduce exposure to the Brighthouse Financial (BHF) long position.

The largest detractors were long positions in BHF, Chemours (CC) and Green Brick Partners (GRBK).

The losses in the long portfolio were primarily driven by the impact of changes in fair value primarily attributable to the recent disruptions in global financial markets associated with COVID–19.

For the three months ended March 31, 2020 and 2019 , the investment income from SILP included management fees paid by SILP to DME Advisors of $0.7 million and $2.0 million , respectively, and were included in the caption “Income (loss) from investments in related party investment fund” in the accompanying condensed consolidated financial statements.

The caption “Income (loss) from investments in related party investment fund” also includes performance compensation allocated from the Company’s investment in SILP to DME II.

For the three months ended March 31, 2020 and 2019 , the performance allocation of $0.0 million and $3.4 million , respectively, was deducted from the Company’s investment in SILP and allocated to DME II.

The nil performance allocation for the three months ended March 31, 2020 was due to a net loss reported by SILP for the period.

We expect our investment income, including any change in the net asset value of the investment in SILP, to fluctuate from period to period.

During the three months ended March 31, 2020 , we wrote-off a valuation allowance previously recorded on certain notes receivable.

The write-off has been presented in the above table as realized loss with an offsetting reduction in unrealized loss.

The investment income from related party investment fund in the above table is net of management fees paid by SILP to DME Advisors as well as 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 detailed breakdowns of management fees and performance compensation for the three and six months ended June 30, 2020 and 2019, please refer to Note 3 of the condensed consolidated financial statements.

For the three months ended June 30, 2020, investment income, net of fees and expenses, resulted in a gain of 0.3%, on the Investment Portfolio managed by DME Advisors, compared to a gain of 2.7% for the three months ended June 30, 2019.

SILP’s long portfolio and macro positions gained 7.6% and 0.2%, respectively, while the short portfolio lost 7.3% during the three months ended June 30, 2020.

For the three months ended June 30, 2020, the significant contributors to SILP’s investment income were long positions in Brighthouse Financial (BHF), The Chemours Company (CC) and Green Brick Partners (GRBK) .

The largest detractors were short positions in Lincoln National (LNC), Tesla (TSLA) and a basket of short positions in companies whose finances are significantly affected by the COVID-19 pandemic.

For the six months ended June 30, 2020, investment income, net of fees and expenses, resulted in a loss of 7.8% on the Investment Portfolio managed by DME Advisors, compared to a gain of 9.1% for the six months ended June 30, 2019.

The long and short portfolio lost 1.9% and 6.1%, respectively, while the macro positions gained 0.5%, during the six months ended June 30, 2020.

For the six months ended June 30, 2020, the largest contributors to SILP’s investment income were short positions in Assured Guaranty (AGO), the S&P 500 Index and a group of companies in the life insurance industry that was intended to reduce the exposure to the BHF long position.

The largest detractors were long position in BHF, short position in TSLA and a basket of short positions in companies whose finances are significantly affected by the COVID-19 pandemic.

The losses in the long portfolio were primarily driven by the impact of changes in fair value primarily attributable to the recent disruptions in global financial markets associated with the COVID–19 pandemic.

For the three and six months ended June 30, 2020, the decrease in interest income compared to the equivalent period in 2019, related to lower interest rates offered by financial institutions on the restricted cash and cash equivalents pledged as collateral to our clients.

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For the three months ended March 31, 2020 and 2019 , the gross investment return (loss) on our investments managed by DME Advisors (excluding investment advisor performance allocation) was (8.1)% and 6.9% , respectively.

The gross investment gains (losses) were composed of the following:

Three months ended March 31

During the three and six months ended June 30, 2020, we recorded net unrealized gains of $3.3 million relating to our portfolio of innovation investments.

During the six months ended June 30, 2020, we wrote-off a valuation allowance previously recorded on certain notes receivable.

The write-off has been presented in the above table as a realized loss with an offsetting reduction in unrealized loss.

For the three months ended June 30, 2020 and 2019, and for the six months ended June 30, 2020 and 2019, the gross investment return (loss) on our investments managed by DME Advisors (excluding investment advisor performance allocation) were composed of the following:

Three months ended June 30 Six months ended June 30

2020 2019 2020 2019

Long portfolio gains (losses) 7.6 % 1.0 % (1.9) % 13.2 %

2 unchanged sentences

Other income and expenses 1

(0.2) (0.5) (0.3) (1.2)

Gross investment return 0.3 % 3.1 % (7.8) % 10.1 %

Net investment return 1

0.3 % 2.7 % (7.8) % 9.1 %

1 “Other income and expenses” excludes performance compensation but includes management fees.

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Verdant’s future taxable income is expected to be taxed at a rate of 21%.

As of March 31, 2020 , a gross deferred tax asset of $3.7 million ( December 31, 2019 :

As of June 30, 2020, a gross deferred tax asset of $3.8 million (December 31, 2019:

$3.6 million) was included in other assets on the condensed consolidated balance sheets.

As of March 31, 2020 , this gross deferred tax asset was partially offset by a valuation allowance of $3.2 million ( December 31, 2019 :

As of June 30, 2020, this gross deferred tax asset was partially offset by a valuation allowance of $3.3 million (December 31, 2019:

$2.6 million).

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The Company has not taken any other tax positions that management believes are subject to uncertainty or that are reasonably likely to have a material impact to the Company, GRIL or Verdant.

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Ratio Analysis

The following table provides our underwriting ratios by line of business:

Three months ended March 31

Six months ended June 30 Six months ended June 30

Property Casualty Other Total Property Casualty Other Total

Loss ratio 68.1 % 71.6 % 87.4 % 75.1 % 67.1 % 89.1 % 67.1 % 81.9 %

Acquisition cost ratio 20.2 28.0 10.9 22.6 18.2 22.1 36.0 23.9

2 unchanged sentences

Combined ratio 100.0 % 108.3 %

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Financial Condition

Total investments

The total investments reported in the condensed consolidated balance sheets as of March 31, 2020 , was $207.6 million , compared to $256.4 million as of December 31, 2019 , a decrease of $48.8 million , or 19.0% .

The decrease was primarily related to investment losses from our investment in SILP driven by the significant volatility in the equity markets arising from economic uncertainty relating to COVID-19, and to a lesser extent due to withdrawals for claim payments.

As of March 31, 2020 , 77.8% of SILP’s investments were valued based on quoted prices in actively traded markets (Level 1), 13.2% was composed of instruments valued based on observable inputs other than quoted prices (Level 2) and 1.7% was composed of instruments valued based on non-observable inputs (Level 3).

As of March 31, 2020 , 7.3% of SILP’s investments were in private equity funds valued using the funds’ net asset values as a practical expedient.

The total investments reported in the condensed consolidated balance sheets as of June 30, 2020, was $199.7 million, compared to $256.4 million as of December 31, 2019, a decrease of $56.7 million, or 22.1%.

The decrease was primarily related to investment losses from our investment in SILP driven by the significant volatility in the equity markets arising from economic uncertainty relating to the COVID-19 pandemic, and to a lesser extent due to withdrawals for claim payments.

As of June 30, 2020, 86.1% of SILP’s investments were valued based on quoted prices in actively traded markets (Level 1), 7.1% was composed of instruments valued based on observable inputs other than quoted prices (Level 2) and 1.6% was composed of instruments valued based on non-observable inputs (Level 3).

As of June 30, 2020, 5.2% of SILP’s investments were in private equity funds valued using the funds’ net asset values as a practical expedient.

Restricted cash and cash equivalents

The restricted cash and cash equivalents are used for funding trusts and letters of credits issued to our ceding insurers.

Our restricted cash decreased by $6.1 million , or 0.8% , from $742.1 million at December 31, 2019 to $736.0 million , as of March 31, 2020 , primarily due to reduction in collateral held by our ceding insurers.

The Company’s restricted cash and cash equivalents are used for funding trusts and letters of credits issued to our ceding insurers.

Our restricted cash decreased by $10.8 million, or 1.5%, from $742.1 million at December 31, 2019 to $731.3 million, as of June 30, 2020, primarily due to reduction in collateral held by our ceding insurers.

Loss and loss adjustment expense reserves;

Loss and loss adjustment expenses recoverable

The COVID-19 pandemic is unprecedented and we do not have previous loss experience on which to base estimates for loss and loss adjustment expense reserves related to this pandemic.

See Note 5 of the accompanying condensed consolidated financial statements for assumptions used in our loss estimates relating to the COVID-19 pandemic.

Losses in respect of the COVID-19 pandemic subsequent to June 30, 2020 will be reflected in the periods in which those losses are incurred.

Reserves for loss and loss adjustment expenses were composed of the following:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Reserves IBNR Total Case

Reserves IBNR Total

($ in thousands)

During the three months ended March 31, 2020 , the total gross loss and loss adjustment expense reserves decreased by $14.9 million , or 3.2% to $455.7 million from $470.6 million as of December 31, 2019 .

See Note 5 of the accompanying condensed consolidated financial statements for a summary of changes in outstanding loss and loss adjustment expense reserves and for a description of prior period loss developments.

During the three months ended March 31, 2020 , the total loss and loss adjustment expenses recoverable decreased by $4.4 million , or 16.1% , to $23.1 million from $27.5 million as of December 31, 2019 .

Property $ 49,293 $ 23,833 $ 73,126 $ 48,350 $ 27,126 $ 75,476

Casualty 137,579 197,193 334,772 152,049 204,574 356,623

Other 20,881 38,876 59,757 17,435 21,054 38,489

Total $ 207,753 $ 259,902 $ 467,655 $ 217,834 $ 252,754 $ 470,588

During the six months ended June 30, 2020, the total gross loss and loss adjustment expense reserves decreased by $2.9 million, or 0.6% to $467.7 million from $470.6 million as of December 31, 2019.

See Note 5 of the accompanying

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condensed consolidated financial statements for a summary of changes in outstanding loss and loss adjustment expense reserves and for a description of prior period loss developments.

During the six months ended June 30, 2020, the total loss and loss adjustment expenses recoverable decreased by $7.3 million, or 26.5%, to $20.2 million from $27.5 million as of December 31, 2019.

The decrease primarily related to losses recovered relating to retroceded private passenger automobile contracts that were not renewed during 2019.

10 unchanged sentences

In other words, it corresponds to a 99.6% probability that the loss from an event will fall below the indicated PML.

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PMLs are estimates and as a result, we cannot provide any 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.

The PML estimate incorporates all significant exposure from our reinsurance operations, including coverage for property, marine and energy, motor and catastrophe workers’ compensation.

As of April 1, 2020 , our estimated PML exposure (net of retrocession and reinstatement premiums) at a 1-in-250 year return period for a single event and in aggregate was $91.0 million and $108.2 million , respectively.

The following table provides the PML for single event loss exposure and aggregate loss exposure to natural peril losses for each of the peak zones as of April 1, 2020 :

April 1, 2020

As of July 1, 2020, our estimated PML exposure (net of retrocession and reinstatement premiums) at a 1-in-250 year return period for a single event and in aggregate was $90.9 million and $109.7 million, respectively.

The following table provides the PML for single event loss exposure and aggregate loss exposure to natural peril losses for each of the peak zones as of July 1, 2020:

1-in-250 year return period

Single Event Loss

Aggregate Loss

Zone Single Event Loss Aggregate Loss

($ in thousands)

United States, Canada and the Caribbean $ 90,864 $ 99,720

Europe 44,264 47,952

Japan 34,288 36,594

Rest of the world 33,099 36,764

Maximum 90,864 109,692

Total shareholders’ equity

Total equity reported on the condensed consolidated balance sheet decreased by $40.3 million to $436.9 million as of March 31, 2020 , compared to $477.2 million as of December 31, 2019 .

Retained earnings decreased primarily due to a net loss of $40.3 million reported for the three months ended March 31, 2020 .

Total equity reported on the condensed consolidated balance sheet decreased by $47.3 million to $429.9 million as of June 30, 2020, compared to $477.2 million as of December 31, 2019.

Retained earnings decreased primarily due to a net loss of $40.3 million reported for the six months ended June 30, 2020.

Additionally, the Company repurchased 1.2 million Class A ordinary shares during the six months ended June 30, 2020 resulting in a $7.8 million decrease in shareholders’ equity.

For details of other movements in shareholders’ equity see Part I, Item 1.

“Condensed Consolidated Statements of Shareholders’ Equity.”

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Liquidity and Capital Resources

5 unchanged sentences

We currently do not expect to pay dividends on our ordinary shares.

As of March 31, 2020 , Greenlight Re and GRIL were each rated “A- (Excellent)” with a negative outlook, by A.M.

As of June 30, 2020, Greenlight Re and GRIL were each rated “A- (Excellent)” with a negative outlook, by A.M.

On July 22, 2020, A.M.

Best affirmed the “A- (Excellent)” ratings.

The ratings reflect A.M.

2 unchanged sentences

Best ratings may be revised or revoked at the sole discretion of the rating agency.

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Sources and Uses of Funds

1 unchanged sentence

We use cash from our operations to pay losses and loss adjustment expenses, profit commissions, interest and general and administrative expenses.

As of March 31, 2020 , all of our investable assets, excluding strategic investments and funds required for business operations and for capital risk management, are invested by DME Advisors in SILP, subject to our investment guidelines.

As of June 30, 2020, all of our investable assets, excluding strategic investments and funds required for business operations and for capital risk management, are invested by DME Advisors in SILP, subject to our investment guidelines.

We have the ability to redeem funds from SILP at any time for operational purposes by providing three days’ notice to the general partner.

As of March 31, 2020 , 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.

As of June 30, 2020, 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 condensed consolidated statements of operations for each reporting period.

For the three months ended March 31, 2020 and 2019 , the net cash used in operating activities was $31.8 million and $7.1 million , respectively.

The net cash primarily used in our underwriting activities (which excludes investment-related expenses) was $37.5 million and $8.3 million for the three months ended March 31, 2020 and 2019 , respectively.

Generally, if the premiums collected exceed claim payments within a given period, we would generate cash from our underwriting activities.

Our underwriting activities represented a net use of cash for the three months ended March 31, 2020 and 2019 , as the losses we paid exceeded the premiums we collected.

For the six months ended June 30, 2020 and 2019, the net cash used in operating activities was $42.7 million and $5.8 million, respectively.

The net cash used in our underwriting activities and for payment of corporate expenses was $49.0 million and $11.1 million for the six months ended June 30, 2020 and 2019, respectively.

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 six months ended June 30, 2020 and 2019, as the losses we paid exceeded the premiums we collected.

The cash used in, and generated from, underwriting activities may vary significantly from period to period depending on the underwriting opportunities available and claims submitted to us by our cedents.

For the three months ended March 31, 2020 , our net withdrawals from SILP provided cash of $8.0 million which was used to pay losses.

For the six months ended June 30, 2020, our net withdrawals from SILP provided cash of $21.9 million which was primarily used to pay losses and to fund collateral required by our ceding insurers.

By comparison, for the same period in 2019 our investing activities provided cash of $63.5 million.

As of March 31, 2020 , we believe we have sufficient cash flow from operating and investing activities to meet our foreseeable liquidity requirements.

We expect that our operational needs for liquidity will not be materially impacted by COVID-19 and will be met by cash, funds generated from underwriting activities and investment income, including withdrawals from SILP, if necessary.

As of March 31, 2020 , we expect to fund our operations for the next twelve months from operating and investing cash flow.

As of June 30, 2020, we believe we have sufficient cash flow from operating and investing activities to meet our foreseeable liquidity requirements.

We expect that our operational needs for liquidity will not be materially impacted by the COVID-19 pandemic and will be met by cash, funds generated from underwriting activities and investment income, including withdrawals from SILP, if necessary.

As of June 30, 2020, we expect to fund our operations for the next twelve months from operating and investing cash flow.

However, we may explore various financing alternatives, including capital raising alternatives, to fund our business strategy, improve our capital structure, increase surplus, pay claims or make acquisitions.

We can provide no assurances that transactions will occur or, if so, as to the terms of such transactions.

We can provide no assurances that any such transactions will occur or, if so, as to the terms of such transactions.

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.

As of March 31, 2020 , Greenlight Re and GRIL both exceeded the regulatory minimum capital requirements.

During the six months ended June 30, 2020, we received regulatory approval for a return of up to $15.0 million of Greenlight Re’s share premium to GLRE to facilitate the share buybacks.

For the six months ended June 30, 2020, we used $7.8 million to repurchase the Class A ordinary shares.

As of June 30, 2020, Greenlight Re and GRIL both exceeded the regulatory minimum capital requirements.

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Letters of Credit and Trust Arrangements

As of March 31, 2020 , neither Greenlight Re nor GRIL was licensed or admitted as a reinsurer in any jurisdiction other than the Cayman Islands and the European Economic Area, respectively.

As of June 30, 2020, neither Greenlight Re nor GRIL was licensed or admitted as a reinsurer in any jurisdiction other than the Cayman Islands and the European Economic Area, respectively.

Because 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, we anticipate that all of our U.S.

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clients will require us to provide collateral through funds withheld, trust arrangements, letters of credit or a combination thereof.

As of March 31, 2020 , we had one letter of credit facility available with an aggregate capacity of $400.0 million ( December 31, 2019 :

As of June 30, 2020, we had one letter of credit facility available with an aggregate capacity of $400.0 million (December 31, 2019:

$400.0 million).

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We provide collateral to cedents in the form of letters of credit and trust arrangements.

As of March 31, 2020 , the aggregate amount of collateral provided to cedents under such arrangements was $735.6 million ( December 31, 2019 :

As of June 30, 2020, the aggregate amount of collateral provided to cedents under such arrangements was $731.7 million (December 31, 2019:

$733.2 million).

As of March 31, 2020 , the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of $736.0 million ( December 31, 2019 :

As of June 30, 2020, the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of $731.3 million (December 31, 2019:

$742.1 million).

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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 as of March 31, 2020 .

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The Company was in compliance with all the covenants of this facility as of June 30, 2020.

Our capital structure currently consists of senior convertible notes and equity issued in two classes of ordinary shares.

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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 three months ended March 31, 2020 .

We did not make any significant commitments for capital expenditures during the six months ended June 30, 2020.

On March 26, 2020, the Board of Directors extended the share repurchase plan to June 30, 2021 and increased the number of shares authorized to be repurchased to 5.0 million 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.

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The Company is not required to repurchase any of the Class A ordinary shares or the Notes and the repurchase plans may be modified, suspended or terminated at the election of our Board of Directors at any time without prior notice.

During the three months ended March 31, 2020 , no Class A ordinary shares or Notes were repurchased by the Company.

As of May 1, 2020 , 4.7 million Class A ordinary shares and $25.0 million of the Notes, remained available for repurchase under the repurchase plans.

During the six months ended June 30, 2020, 1.2 million Class A ordinary shares were repurchased by the Company.

As of June 30, 2020, 3.8 million Class A ordinary shares and $25.0 million of the Notes, remained available for repurchase under the repurchase plans.

On April 26, 2017, our shareholders approved an amendment to our stock incentive plan to increase the number of Class A ordinary shares available for issuance by 1.5 million shares from 3.5 million to 5.0 million.

As of March 31, 2020 , there were 62,531 Class A ordinary shares available for future issuance under the Company’s stock incentive plan.

As of June 30, 2020, there were 62,531 Class A ordinary shares available for future issuance under the Company’s stock incentive plan.

The stock incentive plan is administered by the Compensation Committee of the Board of Directors.

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Contractual Obligations and Commitments

The following table shows our aggregate contractual obligations as of March 31, 2020 by time period remaining:

The following table shows our aggregate contractual obligations as of June 30, 2020 by time period remaining:

1 year 1-3 years 3-5 years More than

5 years Total

($ in thousands)

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Loss and loss adjustment expense reserves (3) 241,310 124,396 47,701 54,248 467,655

$ 245,712 $ 234,396 $ 47,701 $ 54,248 $ 582,057

(1) Reflects our minimum contractual obligations pursuant to the lease agreements as described below.

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The minimum lease payment obligations are included in the above table under operating lease obligations and in Note 11 to the accompanying condensed consolidated financial statements.

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Pursuant to the IAA between SILP 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 on August 31, 2023 subject to automatic extension for successive three-year terms.

For the three months ended March 31, 2020 and 2019 , management fees paid by SILP to DME Advisors were $0.7 million and $2.0 million , respectively.

For the three and six months ended June 30, 2020, management fees paid by SILP to DME Advisors were $0.6 million and $1.3 million, respectively (2019:

$1.6 million and $3.6 million, respectively).

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 by DME Advisors, subject to a loss carry forward provision.

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The loss carry forward provision contained in the SILP LPA allows DME II to earn 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.

Due to the investment loss for the three months ended March 31, 2020 , no performance allocation was earned by DME II.

For the three months ended March 31, 2019 , $3.4 million of performance allocation was netted against income in the caption “Investment in related party investment fund” in the Company’s condensed consolidated statement of operations.

Due to the investment loss for the six months ended June 30, 2020, no performance allocation was earned by DME II.

For the three and six months ended June 30, 2019, $1.6 million and $5.0 million, respectively, of performance allocation was netted against income in the caption “Investment in related party investment fund” in the Company’s condensed consolidated statement of operations.

On February 26, 2019, effective as of September 1, 2018, the Company entered into Amendment No.

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The amendment was intended to revise the mechanics for calculating the Carryforward Account and Performance Allocation (as defined in the LPA) to take into account withdrawals from and subsequent recontributions of capital to SILP, consistent with the treatment under the Joint Venture.

The Company has also entered into a letter agreement with DME Advisors and DME II whereby during the period from June 1, 2019 to June 30, 2020, the portion of the Investment Portfolio held in cash or cash equivalents will not be subject to any management fee or performance allocation.

The Company has also entered into a letter agreement with DME Advisors and DME II whereby during the period from June 1, 2019 to June 30, 2021, cash, cash equivalents and/or U.S.

government issued securities will not be subject to any management fee or performance allocation.

Refer to “ SILP Letter Agreement ” in Part II, Item 5.

“Other Information” of this Form 10-Q.

The Company has entered into a service agreement with DME Advisors pursuant to which DME Advisors will provide investor relations services to us for compensation of $5,000 per month plus expenses.

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Our related party transactions are presented in Note 10 to the accompanying condensed consolidated financial statements.

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Off-Balance Sheet Financing Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis