What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-08-05 · 179 added, 162 removed, 585 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2020 and December 31, 2019

September 30, 2020 and December 31, 2019

(expressed in thousands of U.S.

dollars, except per share and share amounts)

June 30, 2020 December 31, 2019

(unaudited) (audited)

September 30, 2020 December 31, 2019

Investment in related party investment fund $ 184,956 $ 240,056

41 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and six months ended June 30, 2020 and 2019

For the three and nine months ended September 30, 2020 and 2019

(expressed in thousands of U.S.

dollars, except per share and share amounts)

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

4 unchanged sentences

Net premiums earned 115,519 129,154 334,954 374,957

Income (loss) from investment in related party investment fund [net of related party expenses of $ 616 and $ 1,278 , (three and six months ended June 30, 2019:

Income (loss) from investment in related party investment fund [net of related party expenses of $ 703 and $ 1,981 , (three and nine months ended September 30, 2019:

$ 1,325 and $ 9,888 , respectively)]

21 unchanged sentences

GREENLIGHT CAPITAL RE, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the six months ended June 30, 2020 and 2019

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the three and nine months ended September 30, 2020 and 2019

(expressed in thousands of U.S.

Ordinary share capital Additional paid-in capital Retained earnings (deficit) Shareholders’ equity attributable to Greenlight Capital Re, Ltd.

Non-controlling

interest in joint venture Total equity

Balance at December 31, 2018 $ 3,638 $ 499,726 $ ( 26,077 ) $ 477,287 $ 485 $ 477,772

Issue of Class A ordinary shares, net of forfeitures 41 — — 41 — 41

Share-based compensation expense — 2,190 — 2,190 — 2,190

Change in non-controlling interest in related party joint venture — — — — ( 485 ) ( 485 )

Net income (loss) — — 21,220 21,220 — 21,220

Balance at June 30, 2019 $ 3,679 $ 501,916 $ ( 4,857 ) $ 500,738 $ — $ 500,738

Balance at December 31, 2019 $ 3,699 $ 503,547 $ ( 30,063 ) $ 477,183 $ — $ 477,183

Cumulative effect of adoption of accounting guidance for expected credit losses at January 1, 2020

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

Ordinary share capital

Beginning balance $ 3,627 $ 3,679 $ 3,699 $ 3,638

Issue of Class A ordinary shares, net of forfeitures ( 19 ) 20 25 61

Repurchase of Class A ordinary shares ( 71 ) — ( 187 ) —

Ending balance 3,537 3,699 3,537 3,699

Additional paid-in capital

Beginning balance 497,559 501,916 503,547 499,726

Repurchase of Class A ordinary shares ( 4,828 ) — ( 12,484 ) —

Share-based compensation expense ( 302 ) 645 1,366 2,835

Ending balance 492,429 502,561 492,429 502,561

Retained earnings (deficit)

Beginning balance ( 71,282 ) ( 4,857 ) ( 30,063 ) ( 26,077 )

Cumulative effect of adoption of accounting guidance for expected credit losses at January 1, 2020

— — ( 886 ) —

Net income (loss) 2,183 5,140 ( 38,150 ) 26,360

Balance at June 30, 2020 $ 3,627 $ 497,559 $ ( 71,282 ) $ 429,904 $ — $ 429,904

Ending balance ( 69,099 ) 283 ( 69,099 ) 283

Total shareholders' equity $ 426,867 $ 506,543 $ 426,867 $ 506,543

The accompanying Notes to the Condensed Consolidated Financial Statements are an

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2020 and 2019

For the nine months ended September 30, 2020 and 2019

(expressed in thousands of U.S.

Six months ended June 30

Nine months ended September 30

Cash provided by (used in) operating activities

2 unchanged sentences

Loss (income) from investments in related party investment fund 34,086 ( 51,770 )

Loss (income) from equity accounted investment ( 790 ) ( 450 )

Loss (income) from investment accounted for under the equity method ( 870 ) ( 267 )

Net change in unrealized gains and losses on investments and notes receivable ( 19,153 ) ( 14,362 )

3 unchanged sentences

Share-based compensation expense 1,391 2,896

Amortization and interest expense, net of accruals 1,123 1,172

Amortization and interest expense, net of change in accruals 702 751

Depreciation expense 21 21

4 unchanged sentences

Unearned premiums ceded 901 17,242

Other assets 629 ( 77 )

Other assets, excluding depreciation ( 1,121 ) ( 561 )

Loss and loss adjustment expense reserves 11,182 ( 3,227 )

9 unchanged sentences

Change in due to related party investment fund — ( 9,642 )

Net change in notes receivable 360 59

Notes receivable collected (issued) 741 ( 1,016 )

Non-controlling interest contribution into (withdrawal from) related party joint venture, net — ( 1,278 )

9 unchanged sentences

Interest paid in cash $ 4,000 $ 3,933

Income tax paid in cash — —

Non-cash transfer of investments (Note 3) — 36,673

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

September 30, 2020

ORGANIZATION AND BASIS OF PRESENTATION

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Accordingly, significant estimates used in the preparation of the Company’s consolidated financial statements including those associated with premiums, expected credit losses on amounts owed to us and the estimations of loss and loss adjustment expense reserves may be subject to significant adjustments in future periods.

The results for the six months ended June 30, 2020 are not necessarily indicative of the results expected for the full calendar year.

The results for the nine months ended September 30, 2020 are not necessarily indicative of the results expected for the full calendar year.

SIGNIFICANT ACCOUNTING POLICIES

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The financial assets included in the captions “Reinsurance balances receivable,” “Loss and loss adjustment expenses recoverable” (collectively, “Reinsurance Assets”) and “Notes receivable,” in the Company’s condensed consolidated balance sheets are carried at amortized cost and therefore affected by ASU 2016-13.

Other than the changes relating to the adoption of ASU 2016-13, there have been no other changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2019.

Other than the changes relating to the adoption of ASU 2016-13, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2019.

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The following table reconciles the cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total presented in the condensed consolidated statements of cash flows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

($ in thousands)

4 unchanged sentences

Upon adoption of ASU 2016-13, the Company calculated an allowance for expected credit losses for its reinsurance balances receivable and loss and loss adjustment expenses recoverable by applying a Probability of Default (“PD”) / Loss Given Default (“LGD”) model that considers both the Company’s collectibility history on its reinsurance assets as well as representative external loss history.

The external loss history that the Company used included a long-term probability of liquidation study specific to insurance companies.

Additionally, the life of each of the Company’s reinsurance treaties was also considered as the probability of default was calculated over the contractual length of the reinsurance contracts.

The external loss history that the Company uses includes a long-term probability of liquidation study specific to insurance companies.

Additionally, the life of each of the Company’s reinsurance treaties is also considered as the probability of default is calculated over the contractual length of the reinsurance contracts.

The credit worthiness of a counterparty is evaluated by considering the credit ratings assigned by independent agencies and individually evaluating all the counterparties.

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For its retrocessionaire counterparties that are unrated, the Company may hold collateral in the form of funds withheld, trust accounts and/or irrevocable letters of credit.

For credit risk associated with reinsurance balances receivable, the Company considers the fact that in certain instances credit risk may be reduced by the Company's right to offset loss obligations or unearned premiums against premiums receivable.

The Company regularly evaluates its net credit exposure to assess the ability of the retrocessionaires to honor their respective obligations.

In evaluating credit risk associated with reinsurance balances receivable, the Company considers its right to offset loss obligations or unearned premiums against premiums receivable.

The Company regularly evaluates its net credit exposure to assess the ability of retrocessionaires to honor their respective obligations.

Upon adoption of ASU 2016-13 , the Company recorded an allowance for expected credit loss on its Reinsurance Assets of $ 0.1 million with an offset to retained earnings.

At June 30, 2020, the allowance for expected credit losses was $ 0.1 million.

At September 30, 2020, the allowance for expected credit losses was $ 0.1 million.

Notes Receivable

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These notes are recorded at cost plus accrued interest, if any, net of valuation allowance for expected credit losses.

The Company calculates the allowance for expected credit losses to provide for the risk of credit losses inherent in the lending process.

Interest income, change in the allowance for expected credit losses (excluding changes due to charge-offs) and unrealized and realized gains or losses on the notes receivable are included in the caption “Net investment income (loss)” in the Company’s condensed consolidated statements of operations.

The allowance for expected credit losses is calculated using a PD / LGD model that takes into account the Company’s collectibility history on its notes receivable as well as representative external loss history.

The expected loss, as a percentage, is calculated as the product of the PD and LGD and is calculated for each period over the life of a note.

Interest income, changes in the allowance for expected credit losses and unrealized and realized gains or losses on the notes receivable are included in the caption “Net investment income (loss)” in the Company’s condensed consolidated statements of operations.

The allowance for expected credit losses is calculated using a PD / LGD model that takes into account the Company’s experience as well as representative external loss history.

The expected loss percentage is calculated as the product of the PD and LGD for each period over the life of a note.

The Company evaluates the financial condition of the notes receivable counterparties and monitors its exposure on a regular basis.

At June 30, 2020, the

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Company considers the notes receivable balance to be collectible and has not experienced any default on payments since inception of these notes.

At September 30, 2020, the Company considers the notes receivable balance to be collectible and has not experienced any default on payments since inception of these notes.

The notes receivable originated between 2015 and 2018.

At June 30, 2020 and December 31, 2019, $ 0.1 million and $ 0.1 million, respectively, of accrued interest was included in the caption “Notes receivable” in the Company’s condensed consolidated balance sheets.

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At September 30, 2020 and December 31, 2019, $ 0.1 million and $ 0.1 million, respectively, of accrued interest was included in the caption “Notes receivable” in the Company’s condensed consolidated balance sheets.

When there is uncertainty as to the collection of interest contractually due, the Company places the note on non-accrual status.

8 unchanged sentences

The following table provides a roll-forward of the Company’s allowance for credit losses on notes receivable:

Six months ended June 30

Nine months ended September 30

($ in thousands)

7 unchanged sentences

Under deposit accounting, an asset or liability is recognized based on the consideration paid or received.

The Company’s deposit assets and liabilities are recorded in the Company’s condensed consolidated balance sheets in the caption “Reinsurance balances receivable” and “Reinsurance balances payable,” respectively.

At June 30, 2020, deposit assets and deposit liabilities were $ 4.7 million and $ 47.9 million, respectively (December 31, 2019:

The deposit asset or liability balance is subsequently adjusted using the interest method with a corresponding income or expense recorded in the Company’s condensed consolidated statements of operations under the caption “Other income (expense).” The Company’s deposit assets and liabilities are recorded in the Company’s condensed consolidated balance sheets in the caption “Reinsurance balances receivable” and “Reinsurance balances payable,” respectively.

At September 30, 2020, deposit assets and deposit liabilities were $ 5.3 million and $ 35.2 million, respectively (December 31, 2019:

$ 5.2 million and $ 56.9 million, respectively).

For the three and six months ended June 30, 2020 and 2019, the interest income/(expense) on deposit accounted contracts was as follows:

Three months ended June 30 Six months ended June 30

For the three and nine months ended September 30, 2020 and 2019, the interest income/(expense) on deposit accounted contracts was as follows:

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

16 unchanged sentences

In the event of a net loss, all RSUs, stock options outstanding, convertible debt and participating securities are excluded from the calculation of both basic and diluted loss per share as their inclusion would be anti-dilutive.

The table below presents the shares outstanding for the purposes of the calculation of earnings (loss) per share for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30 Six months ended June 30

The table below presents the shares outstanding for the purposes of the calculation of earnings (loss) per share for the three and nine months ended September 30, 2020 and 2019:

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

23 unchanged sentences

The amendments in ASU 2020-01 clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments.

These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions.

ASU 2020-01 is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The adoption of ASU 2020-01 is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”).

ASU 2020-06 is designed to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.

The amendments remove the separation models in Subtopic 470-20 for certain contracts.

As a result, embedded conversion features would not be presented separately in equity;

rather, the contract would be accounted for as a single liability measured at its amortized cost.

Subtopic 815-40 simplifies the analysis of whether an embedded conversion feature meets the derivative scope exception for contracts that are indexed to, and classified in, stockholders equity, as well as addresses the computation of earnings per share for convertible debt instruments.

ASU 2020-06 requires the application of the if-converted method when calculating diluted earnings per share.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 using either a modified retrospective method of transition or a fully retrospective method of transition.

Early adoption is permitted no earlier than for fiscal years beginning after December 15, 2020.

The Company is currently evaluating the effect the new standard will have on its consolidated financial statements.

INVESTMENT IN RELATED PARTY INVESTMENT FUND

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DME and DME Advisors are related to the Company and each is an affiliate of David Einhorn, Chairman of the Company’s Board of Directors.

On September 1, 2018, the Company entered into an amended and restated exempted limited partnership agreement (the “SILP LPA”) of Solasglas Investments, LP (“SILP”), with DME Advisors II, LLC (“DME II”), as General Partner, Greenlight Re and GRIL, (together the “GLRE Limited Partners”), and the initial limited partner (each, a “Partner”).

On September 1, 2018, the Company entered into an amended and restated exempted limited partnership agreement (as amended by that certain letter agreement dated as of August 5, 2020, the “SILP LPA”) of Solasglas Investments, LP (“SILP”), with DME Advisors II, LLC (“DME II”), as General Partner, Greenlight Re and GRIL, (together the “GLRE Limited Partners”), and the initial limited partner (each, a “Partner”).

The SILP LPA, in conjunction with a participation agreement, replaced the venture agreement and assigned and/or transferred Greenlight Re’s and GRIL’s invested assets in the Joint Venture to SILP.

The Joint Venture was terminated on January 2, 2019 by which date all assets were transferred to SILP.

On September 1, 2018, SILP also entered into a SILP investment advisory agreement (“IAA”) with DME Advisors pursuant to which DME Advisors is the investment manager for SILP.

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1, 2018, SILP also entered into a SILP investment advisory agreement (“IAA”) with DME Advisors pursuant to which DME Advisors is the investment manager for SILP.

The Company has concluded that SILP qualifies as a variable interest entity (“VIE”) under U.S.

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

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Consequently, the Company has concluded that DME II’s interests, and not the Company’s, meet both the “power” and “benefits” criteria associated with VIE accounting guidance, and therefore DME II is SILP’s primary beneficiary.

1 unchanged sentence

During 2019, SILP’s investment portfolio was de-risked in order to reduce the Company’s investment volatility in the near-term.

As a result, a significant proportion of the Company’s investment assets in SILP was held in cash and short-term treasuries as of June 30, 2020 and December 31, 2019.

As a result, a significant proportion of the Company’s investment assets in SILP was held in cash and short-term treasuries as of December 31, 2019.

On August 5, 2020, the Company entered into an amended and restated letter agreement with DME Advisors and DME II whereby the deployed Investment Portfolio can not exceed an amount equal to 50 % of the Company’s shareholders’ equity, as reported in the Company’s then most recent quarterly U.S.

GAAP financial statements, adjusted monthly for investment gains and losses as reported by SILP during any intervening period.

The Company’s maximum exposure to loss relating to SILP is limited to the net asset value of the GLRE Limited Partners’ investment in SILP.

As of June 30, 2020, the net asset value of the GLRE Limited Partners’ investment in SILP was $ 177.7 million (December 31, 2019:

As of September 30, 2020, the net asset value of the GLRE Limited Partners’ investment in SILP was $ 185.0 million (December 31, 2019:

$ 240.1 million), representing 81.0 % (December 31, 2019:

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The GLRE Limited Partners can redeem their assets from SILP for operational purposes by providing three business days’ notice to DME II.

As of June 30, 2020, the majority of SILP’s long investments are composed of cash, short-term U.S.

treasuries and publicly-traded equity securities, which can be readily liquidated to meet any GLRE Limited Partner’s redemption requests.

The Company’s share of the change in the net asset value of SILP for the three and six months ended June 30, 2020 was $ 1.6 million and $( 40.5 ) million, respectively, (three and six months ended June 30, 2019:

As of September 30, 2020, the majority of SILP’s long investments are composed of cash and publicly-traded equity securities, which can be readily liquidated to meet GLRE Limited Partners’ redemption requests.

The Company’s share of the change in the net asset value of SILP for the three and nine months ended September 30, 2020 was $ 6.4 million and $( 34.1 ) million, respectively, (three and nine months ended September 30, 2019:

$ 6.6 million and $ 51.8 million, respectively), and shown in the caption “Income (loss) from investment in related party investment fund” in the Company’s condensed consolidated statements of operations.

The change in the net asset value of 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.

The change in the net asset value of SILP for the nine months ended September 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.

The summarized financial statements of SILP are presented below.

1 unchanged sentence

Summarized Statement of Assets and Liabilities of Solasglas Investments, LP

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

($ in thousands)

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Summarized Statement of Operations of Solasglas Investments, LP

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

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(1) Net of management fees and accrued performance allocation as follows:

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

6 unchanged sentences

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At June 30, 2020, the following securities were included in the caption “Other investments”:

June 30, 2020 Cost Unrealized

At September 30, 2020, the following securities were included in the caption “Other investments”:

September 30, 2020 Cost Unrealized

gains Unrealized

14 unchanged sentences

The carrying values of these holdings are determined based on their original cost minus impairment, if any, plus or minus changes resulting from observable price changes.

At June 30, 2020, the carrying value of private investments and unlisted equities was $ 15.6 million (December 31, 2019:

$ 10.7 million), and incorporated upward adjustments of $ 3.3 million and $ 4.1 million during the three and six months ended June 30, 2020, respectively (2019:

At September 30, 2020, the carrying value of private investments and unlisted equities was $ 15.7 million (December 31, 2019:

$ 10.7 million), and incorporated upward adjustments of $ 0.0 million and $ 4.1 million during the three and nine months ended September 30, 2020, respectively (2019:

$ 0.0 million and $ 0.2 million, respectively), excluding any unrealized gains or losses related to changes in foreign currency exchange rates.

The Company’s investment accounted for under the equity method represents its investment in AccuRisk Holdings LLC (“AccuRisk”), a Chicago, Illinois-based managing general underwriter focused on employee and health insurance benefits.

At June 30, 2020, the Company held a 58 % (December 31, 2019:

At September 30, 2020, the Company held a 58 % (December 31, 2019:

58 %) economic interest in AccuRisk and had provided a $ 6.0 million credit facility.

3 unchanged sentences

The Company’s maximum exposure to loss relating to AccuRisk is limited to the carrying amount of its investment, plus the credit facility extended.

For the three and six months ended June 30, 2020, the Company’s share of AccuRisk’s net income was $( 0.1 ) million and $ 0.8 million, respectively (2019:

For the three and nine months ended September 30, 2020, the Company’s share of AccuRisk’s net income was $ 0.1 million and $ 0.9 million, respectively (2019:

$( 0.2 ) million and $ 0.3 million, respectively), which was included in the caption “Net investment income” in the Company’s condensed consolidated statements of operations.

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This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

As of June 30, 2020 and December 31, 2019, the Company did not carry any investments at fair value that were assigned a Level within the fair value hierarchy.

The Company’s investment in the related party investment fund is measured at fair value using the net asset value practical expedient, and is therefore not classified within the fair value hierarchy.

(See Note 3 for further details.)

As of September 30, 2020 and December 31, 2019, the Company did not carry any investments at fair value that were assigned a Level within the fair value hierarchy.

The Company’s investment in the related party investment fund is measured at

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fair value using the net asset value practical expedient, and is therefore not classified within the fair value hierarchy.

(See Note 3 for further details.)

Financial Instruments Disclosed, But Not Carried, at Fair Value

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The carrying values of the notes receivable (net of allowance for expected credit loss) approximate their fair values, which the Company has determined on the basis of Level 3 inputs.

The fair value of the convertible senior notes payable is estimated based on the bid price observed in an inactive market for the identical instrument (Level 2 input).

The fair value of the convertible senior notes payable is estimated based on the bid price observed in an inactive market for the identical instrument (Level 2 input) (see Note 7 ) .

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

At June 30, 2020, the loss and loss adjustment expenses reserves included estimated amounts for several catastrophe events.

At September 30, 2020, the loss and loss adjustment expenses reserves included estimated amounts for several catastrophe events.

For significant catastrophe events including, but not limited to, hurricanes, typhoons, floods, wildfires and pandemics, loss reserves are generally established based on loss payments and case reserves reported by clients when, and if, received.

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• the ability of the cedents and insured to mitigate some or all of their losses.

While the Company believes its estimate of loss and loss adjustment expense reserves for the COVID-19 pandemic is adequate as of June 30, 2020 based on available information, actual losses may ultimately differ materially from the Company's current estimates.

While the Company believes its estimate of loss and loss adjustment expense reserves for the COVID-19 pandemic is adequate as of September 30, 2020 based on available information, actual losses may ultimately differ materially from the Company's current estimates.

The Company will continue to monitor the appropriateness of its assumptions as new information becomes available and will adjust its estimates accordingly.

Such adjustments may be material to the Company's results of operations and financial condition.

There were no significant changes in the actuarial methodology or reserving process related to the Company’s loss and loss adjustment expense reserves for the six months ended June 30, 2020.

There were no significant changes in the actuarial methodology or reserving process related to the Company’s loss and loss adjustment expense reserves for the nine months ended September 30, 2020.

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At June 30, 2020 and December 31, 2019, loss and loss adjustment expense reserves were composed of the following:

June 30, 2020 December 31, 2019

At September 30, 2020 and December 31, 2019, loss and loss adjustment expense reserves were composed of the following:

September 30, 2020 December 31, 2019

($ in thousands)

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A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated

for the six months ended June 30, 2020 and 2019 is as follows:

for the nine months ended September 30, 2020 and 2019 is as follows:

Consolidated 2020 2019

12 unchanged sentences

Foreign currency revaluation ( 505 ) ( 1,154 )

Net balance at June 30 447,430 429,279

Net balance at September 30 461,821 437,900

Losses recoverable 19,949 41,535

Gross balance at June 30 $ 467,655 $ 470,066

The changes in the outstanding loss and loss adjustment expense reserves for health claims for the six months ended June 30, 2020 and 2019 are as follows:

Gross balance at September 30 $ 481,770 $ 479,435

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The changes in the outstanding loss and loss adjustment expense reserves for health claims for the nine months ended September 30, 2020 and 2019 are as follows:

Health 2020 2019

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Foreign currency revaluation — —

Net balance at June 30 14,874 16,045

Net balance at September 30 12,994 14,810

Losses recoverable — —

Gross balance at June 30 $ 14,874 $ 16,045

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For the six months ended June 30, 2020, the estimate of net losses incurred relating to prior accident years increased by $ 5.7 million, primarily in relation to certain general liability, health and multi-line contracts, partially offset by favorable loss development on professional liability contracts.

The net financial impact of the prior year unfavorable loss development for the six months ended June 30, 2020, taking into account earned reinstatement premiums assumed and ceded, adjustments to assumed and ceded acquisition costs and adjustments to deposit accounted contracts, was a loss of $ 5.0 million.

For the six months ended June 30, 2019, the estimate of net losses incurred relating to prior accident years increased by $ 29.9 million that originated primarily from private passenger automobile contracts.

These unanticipated automobile losses were the result of adverse rulings that affected a significant number of loss events that occurred in Florida between 2015 and early 2018, including many claims that had previously been considered closed.

The net financial impact of the prior year adverse loss development for the six months ended June 30, 2019 was a loss of $ 27.7 million.

Gross balance at September 30 $ 12,994 $ 14,810

For the nine months ended September 30, 2020, the estimate of net losses incurred relating to prior accident years increased by $ 5.4 million, primarily in relation to certain general liability, health and multi-line contracts, partially offset by favorable loss development on professional liability contracts.

The net financial impact of the prior year unfavorable loss development for the nine months ended September 30, 2020, taking into account earned reinstatement premiums assumed and ceded, adjustments to assumed and ceded acquisition costs and adjustments to deposit accounted contracts, was a loss of $ 4.8 million.

For the nine months ended September 30, 2019, the estimate of net losses incurred relating to prior accident years increased by $ 30.2 million that originated primarily from certain private passenger automobile contracts.

These unanticipated automobile losses were the result of adverse court rulings that affected a significant number of loss events that occurred in Florida between 2015 and early 2018, including many claims that had previously been considered closed.

The net financial impact of the prior year adverse loss development for the nine months ended September 30, 2019 was a loss of $ 27.7 million.

The Company, from time to time, purchases retrocessional coverage for one or more of the following reasons:

1 unchanged sentence

Loss and loss adjustment expenses recoverable from retrocessionaires are recorded as assets.

For the three and six months ended June 30, 2020, the Company’s earned ceded premiums were $ 0.5 million and $ 1.5 million, respectively (2019:

For the three and nine months ended September 30, 2020, the Company’s earned ceded premiums were $ 1.7 million and $ 3.2 million, respectively (2019:

$ 22.0 million and $ 65.8 million, respectively).

For the three and six months ended June 30, 2020, loss and loss adjustment expenses incurred of $ 89.2 million and $ 164.9 million, respectively (2019:

For the three and nine months ended September 30, 2020, loss and loss adjustment expenses incurred of $ 88.1 million and $ 252.9 million, respectively (2019:

$ 93.0 million and $ 294.3 million, respectively), reported on the condensed consolidated statements of operations are net of loss and loss expenses recovered and recoverable of $ 2.5 million and $ 6.2 million (2019:

2 unchanged sentences

Failure of retrocessionaires to honor their obligations could result in losses to the Company.

At June 30, 2020, the Company’s loss reserves recoverable consisted of (i) $ 15.8 million (December 31, 2019:

At September 30, 2020, the Company’s loss reserves recoverable consisted of (i) $ 15.0 million (December 31, 2019:

$ 21.2 million) from unrated retrocessionaires, of which $ 14.5 million (December 31, 2019:

2 unchanged sentences

The Company regularly evaluates its net credit exposure to assess the ability of the retrocessionaires to honor their respective obligations.

At June 30, 2020, the Company had recorded an allowance for expected credit losses of $ 0.1 million (December 31, 2019:

At September 30, 2020, the Company had recorded an allowance for expected credit losses of $ 0.1 million (December 31, 2019:

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SENIOR CONVERTIBLE NOTES

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The Company has therefore bifurcated the Notes into liability and equity components.

If redeemed at June 30, 2020, the face value of the Notes would be cash settled as the Company has assumed that the conversion option will not be exercised due to the share price at June 30, 2020 being lower than the conversion price of $ 17.19 per share.

At September 30, 2020, the Company’s share price was lower than the conversion price of $ 17.19 per share.

The Company’s effective borrowing rate for non-convertible debt at the time of issuance of the Notes was estimated to be 6.0 %, which equated to an $ 8.2 million discount.

As of June 30, 2020 and December 31, 2019, the unamortized debt discount was $ 5.1 million and $ 5.9 million, respectively, and is expected to be amortized through the maturity date.

As of September 30, 2020 and December 31, 2019, the unamortized debt discount was $ 4.7 million and $ 5.9 million, respectively, and is expected to be amortized through the maturity date.

The debt discount also represents the portion of the Note’s principal amount allocated to the equity component.

The Company incurred issuance costs in connection with the issuance of the Notes.

As of June 30, 2020, the unamortized portion of these costs attributed to the debt component was $ 2.0 million (December 31, 2019:

$ 2.3 million), which are expected

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to be amortized through the maturity date.

As of September 30, 2020, the unamortized portion of these costs attributed to the debt component was $ 1.8 million (December 31, 2019:

$ 2.3 million), which are expected to be amortized through the maturity date.

The portion of these issuance costs attributed to the equity component was netted against the gross proceeds allocated to equity, resulting in $ 7.9 million being included in the caption “Additional paid-in capital” in the Company’s condensed consolidated balance sheets.

The carrying value of the Notes as of June 30, 2020, including accrued interest of $ 1.7 million, was $ 94.6 million (December 31, 2019:

The carrying value of the Notes as of September 30, 2020, including accrued interest of $ 0.7 million, was $ 94.2 million (December 31, 2019:

$ 93.5 million).

As of June 30, 2020, the fair value of the Notes was estimated to be $ 79.1 million (December 31, 2019:

As of September 30, 2020, the fair value of the Notes was estimated to be $ 80.1 million (December 31, 2019:

$ 94.9 million) (see Note 4 Financial Instruments).

For the three and six months ended June 30, 2020, the Company recognized interest expense of $ 1.6 million and $ 3.1 million (2019:

For the three and nine months ended September 30, 2020, the Company recognized interest expense of $ 1.6 million and $ 4.7 million (2019:

$ 1.6 million and $ 4.7 million) in connection with the interest coupon, amortization of issuance costs and amortization of the discount.

The Company was in compliance with all covenants relating to the Notes as of June 30, 2020 and December 31, 2019.

The Company was in compliance with all covenants relating to the Notes as of September 30, 2020 and December 31, 2019.

SHARE CAPITAL

On April 26, 2017, the Company’s shareholders approved an amendment to the 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 June 30, 2020, 62,531 (December 31, 2019:

As of September 30, 2020, 293,939 (December 31, 2019:

555,805 ) Class A ordinary shares remained 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.

On October 29, 2020, the Company’s shareholders approved an amendment to the stock incentive plan to increase the number of Class A ordinary shares available for issuance by 3.0 million shares from 5.0 million to 8.0 million.

The Board has adopted a share repurchase plan.

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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 six months ended June 30, 2020, 1.2 million Class A ordinary shares were repurchased by the Company (2019:

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.

All ordinary shares repurchased are canceled immediately upon repurchase.

During the nine months ended September 30, 2020, 1.9 million Class A ordinary shares were repurchased by the Company (2019:

As of September 30, 2020, 3.1 million Class A ordinary shares and $ 25.0 million of the Notes, remained available for repurchase under the repurchase plans.

All Class A ordinary shares repurchased are canceled immediately upon repurchase.

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The following table is a summary of voting ordinary shares issued and outstanding:

Six months ended June 30 Six months ended June 30

Nine months ended September 30 Nine months ended September 30

Class A Class B Class A Class B

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Additional paid-in capital includes the premium per share paid by the subscribing shareholders for Class A and B ordinary shares which have a par value of $ 0.10 each.

It also includes share-based awards earned not yet issued.

It also includes the earned portion of the grant-date fair value of share-based awards that have not yet vested.

SHARE-BASED COMPENSATION

The Company has a stock incentive plan for directors, employees and consultants that is administered by the Compensation Committee of the Board of Directors.

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Employee and Director Restricted Shares

For the six months ended June 30, 2020, 306,264 (2019:

For the nine months ended September 30, 2020, 306,264 (2019:

235,701 ) Class A ordinary shares were issued to employees pursuant to the Company’s stock incentive plan.

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During the vesting period, the holder of the restricted shares retains voting rights and is entitled to any dividends declared by the Company.

For the six months ended June 30, 2020, 145,089 (2019:

For the nine months ended September 30, 2020, 145,089 (2019:

326,240 ) Class A ordinary shares were issued to the Company’s Chief Executive Officer (“CEO”) pursuant to the Company’s stock incentive plan.

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$ 10.84 ) per share.

As the performance conditions associated with these restricted shares have not been met, no compensation cost was recognized relating to these shares for the six months ended June 30, 2020 and 2019.

Subsequent to June 30, 2020, the Company accelerated the vesting of a portion of the CEO’s restricted shares resulting in 72,545 shares vesting on July 30, 2020.

On July 30, 2020, the Company accelerated the vesting of a portion of the CEO’s restricted shares resulting in 72,545 shares vesting immediately.

The remaining restricted shares are still subject to performance and service conditions.

For the six months ended June 30, 2020, 18,701 (2019:

2,155 ) restricted shares were forfeited by employees who left the Company prior to the expiration of the applicable vesting periods.

For the six months ended June 30, 2020, $ 0.1 million stock compensation expense (2019:

nil ) relating to the forfeited restricted shares was reversed.

The Company recorded $ 1.2 million of share-based compensation expense, net of forfeiture reversals, relating to restricted shares for the six months ended June 30, 2020 (2019:

As the performance conditions associated with these restricted shares have not been met, no compensation cost was recognized relating to the unvested shares for the nine months ended September 30, 2020 and 2019.

For the nine months ended September 30, 2020, 210,109 (2019:

27,386 ) restricted shares were forfeited by employees who left the Company and prior to the expiration of the applicable vesting periods.

For the nine months ended September 30, 2020, $ 0.7 million stock compensation expense (2019:

$ 0.2 million) relating to the forfeited restricted shares was reversed.

The Company recorded $ 0.6 million of share-based compensation expense, net of forfeiture reversals, relating to restricted shares for the nine months ended September 30, 2020 (2019:

$ 2.0 million).

As of June 30, 2020, there was $ 3.1 million (December 31, 2019:

As of September 30, 2020, there was $ 2.2 million (December 31, 2019:

$ 2.7 million) of unrecognized compensation cost relating to non-vested restricted shares (excluding CEO’s restricted shares with performance conditions) which are expected to be recognized over a weighted average period of 2.4 years (December 31, 2019:

For the six months ended June 30, 2020, the total fair value of restricted shares vested was $ 2.8 million (2019:

For the nine months ended September 30, 2020, the total fair value of restricted shares vested was $ 2.8 million (2019:

$ 3.1 million).

The following table summarizes the activity for unvested outstanding restricted share awards during the six months ended June 30, 2020:

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The following table summarizes the activity for unvested outstanding restricted share awards during the nine months ended September 30, 2020:

shares Weighted

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Forfeited ( 210,109 ) 10.90

Balance at June 30, 2020 1,142,451 $ 9.82

Balance at September 30, 2020 878,498 $ 9.88

Employee and Director Stock Options

For the six months ended June 30, 2020, no Class A ordinary share purchase options were granted, no stock options were exercised by directors or employees, and no stock options vested.

For the nine months ended September 30, 2020, no Class A ordinary share purchase options were granted or exercised by directors or employees, while 40,000 (2019:

60,000 ) stock options expired and 80,000 (2019:

80,000 ) stock options vested.

When stock options are granted, the Company reduces the corresponding number from the shares authorized for issuance as part of the Company’s stock incentive plan.

The total compensation cost expensed relating to stock options for the six months ended June 30, 2020 was $ 0.4 million (2019:

The total compensation cost expensed relating to stock options for the nine months ended September 30, 2020 was $ 0.5 million (2019:

$ 0.7 million).

At June 30, 2020, the total compensation cost related to non-vested options not yet recognized was $ 0.9 million (December 31, 2019:

$ 1.3 million) to be recognized over a weighted average period of 2.2 years (December 31, 2019:

At September 30, 2020, the total compensation cost related to non-vested options not yet recognized was $ 0.8 million (December 31, 2019:

$ 1.3 million), which will be recognized over a weighted average period of 2.0 years (December 31, 2019:

2.4 years) assuming the grantee completes the service period for vesting of the options.

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There was no activity in employee and director stock options during the six months ended June 30, 2020.

At June 30, 2020 and December 31, 2019, there were 0.9 million and 0.9 million stock options outstanding, respectively, with a weighted average exercise price of $ 22.68 and $ 22.68 per share, respectively and weighted average grant date fair value of $ 10.25 and $ 10.25 per share, respectively.

The weighted average remaining contractual term of the stock options was 5.3 years and 5.8 years, at June 30, 2020 and December 31, 2019, respectively.

At September 30, 2020 and December 31, 2019, there were 0.8 million and 0.9 million stock options outstanding, respectively, with a weighted average exercise price of $ 22.22 and $ 22.68 per share, respectively and weighted average grant date fair value of $ 10.25 and $ 10.25 per share, respectively.

The weighted average remaining contractual term of the stock options was 5.3 years and 5.8 years, at September 30, 2020 and December 31, 2019, respectively.

Employee Restricted Stock Units

The Company issues restricted stock units (“RSUs”) to certain employees as part of the stock incentive plan.

The Company issues RSUs to certain employees as part of the stock incentive plan.

These RSUs contain restrictions relating to vesting, forfeiture in the event of termination of employment, transferability and other matters.

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On the vesting date, the Company converts each RSU into one Class A ordinary share and issues new Class A ordinary shares from the shares authorized for issuance as part of the Company’s stock incentive plan.

For the six months ended June 30, 2020, 60,622 (2019:

For the nine months ended September 30, 2020, 60,622 (2019:

48,535 ) RSUs were issued to employees pursuant to the Company’s stock incentive plan.

For the six months ended June 30, 2020, no (2019:

For the nine months ended September 30, 2020, no (2019:

24,165 ) RSUs were forfeited by employees who left the Company prior to the expiration of the applicable vesting periods.

The Company recorded $ 0.2 million of share-based compensation expense, net of forfeitures, relating to RSUs for the six months ended June 30, 2020 (2019:

The Company recorded $ 0.3 million of share-based compensation expense, net of forfeitures, relating to RSUs for the nine months ended September 30, 2020 (2019:

$ 0.1 million).

Employee RSU activity during the six months ended June 30, 2020 was as follows:

Employee RSU activity during the nine months ended September 30, 2020 was as follows:

RSUs Weighted

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Forfeited — —

Balance at June 30, 2020 116,722 $ 9.60

For the six months ended June 30, 2020 and 2019, the combined stock compensation expense (net of forfeitures), which was included in the caption “General and administrative expenses” in the Company’s statements of operations, was $ 1.7 million and $ 2.2 million, respectively.

Balance at September 30, 2020 116,722 $ 9.60

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For the nine months ended September 30, 2020 and 2019, the combined stock compensation expense (net of forfeitures), which was included in the caption “General and administrative expenses” in the Company’s statements of operations, was $ 1.4 million and $ 2.9 million, respectively.

RELATED PARTY TRANSACTIONS

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DME, DME II and DME Advisors are related to the Company and each is an affiliate of David Einhorn, Chairman of the Company’s Board of Directors.

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The Company has entered into the SILP LPA with DME II.

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The Company has 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.

For a detailed breakdown of management fees and performance compensation for the three and six months ended June 30, 2020 and 2019, refer to Note 3 of the condensed consolidated financial statements.

For a detailed breakdown of management fees and performance compensation for the three and nine months ended September 30, 2020 and 2019, refer to Note 3 of the condensed consolidated financial statements.

Pursuant to the SILP LPA and the IAA, the Company has agreed to indemnify DME, DME II and DME Advisors for any expense, loss, liability, or damage arising out of any claim asserted or threatened in connection with DME Advisors serving as the Company’s or SILP’s investment advisor.

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(“GRBK”), a publicly traded company.

As of June 30, 2020, SILP, along with certain affiliates of DME Advisors, collectively owned 47.7 % of the issued and outstanding common shares of GRBK.

As of September 30, 2020, SILP, along with certain affiliates of DME Advisors, collectively owned 47.6 % of the issued and outstanding common shares of GRBK.

Under applicable securities laws, DME Advisors may be limited at times in its ability to trade GRBK shares on behalf of SILP.

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The agreement is automatically renewed annually until terminated by either the Company or DME Advisors for any reason with 30 days prior written notice to the other party.

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Collateral Assets Investment Management Agreement

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The CMA can be terminated by any of the parties upon 30 days’ prior written notice to the other parties.

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COMMITMENTS AND CONTINGENCIES

Letters of Credit and Trusts

At June 30, 2020, the Company had one letter of credit facility, which automatically renews each year unless terminated by either party in accordance with the applicable required notice period:

Facility Termination Date Notice period required for termination

At September 30, 2020, the Company had one letter of credit facility, which automatically renews each year unless terminated by either party in accordance with the applicable required notice period:

Maximum Facility Limit Termination Date Notice period required for termination

($ in thousands)

Citibank Europe plc $ 400,000 October 11, 2021 120 days prior to termination date

As of June 30, 2020, an aggregate amount of $ 140.9 million (December 31, 2019:

$ 204.5 million) in letters of credit were issued under the above facility.

As of June 30, 2020, total cash and cash equivalents with a fair value in the aggregate of $ 140.5 million (December 31, 2019:

Citibank Europe plc $ 275,000 August 20, 2021 120 days prior to termination date

Effective August 26, 2020, the Company amended the credit facility to reduce the maximum facility limit from $ 400.0 million to $ 275.0 million.

As of September 30, 2020, an aggregate amount of $ 133.0 million (December 31, 2019:

$ 204.5 million) in letters of credit were issued under the credit facility.

As of September 30, 2020, total cash and cash equivalents with a fair value in the aggregate of $ 135.6 million (December 31, 2019:

$ 213.4 million) were pledged as collateral against the letters of credit issued and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets.

The 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.

The 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 will be prohibited from paying dividends to its parent company.

The Company was in compliance with all the covenants of the facility as of June 30, 2020 and December 31, 2019.

The Company was in compliance with all the covenants of the credit facility as of September 30, 2020 and December 31, 2019.

The Company has also established regulatory trust arrangements for certain cedents.

As of June 30, 2020, collateral of $ 590.8 million (December 31, 2019:

As of September 30, 2020, collateral of $ 587.5 million (December 31, 2019:

$ 528.7 million) was provided to cedents in the form of regulatory trust accounts and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets.

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The Company has determined that the current arrangement qualifies as a short term lease.

The short-term lease expense for the three and six months ended June 30, 2020 was $ 0.3 million (2019:

The short-term lease expense for the three and nine months ended September 30, 2020 was $ 0.4 million (2019:

$ 0.4 million).

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GRIL has the option to terminate the lease agreement in 2021.

The Company has determined that this lease was an operating lease and of June 30, 2020 has recorded a right-of-use asset and a corresponding lease liability of $ 0.1 million (December 31, 2019:

The Company has determined that this agreement qualifies as an operating lease under GAAP.

As of September 30, 2020 the Company has recorded a right-of-use asset and a corresponding lease liability of $ 0.1 million (December 31, 2019:

$ 0.2 million).

The operating lease expense for the three and six months ended June 30, 2020 and 2019 was insignificant.

Included in the ”Schedule of Commitments and Contingencies,” below, are the net minimum lease payment obligations relating to this lease as of June 30, 2020.

The operating lease expense for the three and nine months ended September 30, 2020 and 2019 was insignificant.

Included in the “Schedule of Commitments and Contingencies,” below, are the net minimum lease payment obligations relating to this lease as of September 30, 2020.

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Schedule of Commitments and Contingencies

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$ 171 $ 4,065 $ 4,000 $ 102,000 $ — $ — $ 110,236

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From time to time in the normal course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation, the outcomes of which determine the rights and obligations under the Company’s reinsurance contracts and other contractual agreements.

In some disputes, the Company may seek to enforce its rights under an agreement or to collect funds owing to it.

In some disputes, the Company may seek to enforce its rights under an agreement or to collect funds owed to it.

In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights.

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Gross Premiums Written by Line of Business

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

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Gross Premiums Written by Geographic Area of Risks Insured

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

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

SUBSEQUENT EVENTS

Subsequent to September 30, 2020, the Company agreed to settle a promissory note that had been entered into with a reinsurance counterparty.

The Company’s amortized cost associated with the promissory note at September 30, 2020 was $ 13.3 million, which was included in the caption “Notes receivable (net of allowance for expected credit loss).” In connection with this settlement, the Company received $ 19.1 million, resulting in a gain of $ 5.8 million that will be recognized in the fourth quarter of 2020.

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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 1. Financial Statements