What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-05 · 226 added, 224 removed, 429 unchanged (51% 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 and six months ended June 30, 2020 and 2019 and financial condition as of June 30, 2020 and December 31, 2019.

The following is a discussion and analysis of our results of operations for the three and nine months ended September 30, 2020 and 2019 and financial condition as of September 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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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;

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

Best 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;

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• 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;

• The 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.

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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.

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 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.

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Casualty business covers general liability, motor liability, professional liability and workers’ compensation exposures.

The Company’s multi-line business predominantly relates to casualty reinsurance and as such all multi-line business is included within the casualty category.

The Company’s multi-line business relates predominantly to casualty reinsurance and as such all multi-line business is included within the casualty category.

Casualty business generally has losses reported and paid over a longer period of time than property business.

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Outlook and Trends

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.

Recent loss activity has created an unusually high level of uncertainty in the global reinsurance market.

While this uncertainty has caused reserving challenges throughout the industry, it has also led to underwriting opportunities.

COVID-19, which was declared a pandemic in March 2020, has increased loss activity in certain lines we write, including mortgage insurance/reinsurance and multi-line business.

Further, while we do not have 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.

P laintiffs are continuing to test insurers’ positions on business interruption coverage in court with mixed success.

While o ur estimated loss from the pandemic did not change during the third quarter, this estimate remains subject to significant uncertainty due to the unprecedented nature of this crisis.

We believe that i n comparison to other industry participants, our aggregate exposure to the pandemic is small.

As a result, the uncertainty that we face is challenging the reinsurance market as a whole on a significantly larger scale.

As reinsurers’ reserves must accommodate a wide range of loss estimates, they have less capital to deploy to new underwriting opportunities.

Adding to the reduction in capital was the unusually high frequency of small to medium sized natural catastrophes that occurred during the third quarter of 2020.

While some new capital has been injected into the industry, our assessment is that this new capital represents a small portion of what has been lost or encumbered.

The resulting imbalance between the demand for reinsurance capacity and the available supply is having a significant effect on market conditions.

In recent 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 diversify 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 what we anticipate to be higher-margin business.

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

The technological, analytical, product and delivery mechanism innovations in the insurance and reinsurance industries have accelerated as a result of the COVID-19 pandemic.

We expect this dynamic to have a significant impact on the markets in which we operate.

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 enables us to participate in lines of business that fit within our strategy.

We believe that our current expense efficiency, agility and existing relationships have provided support to our competitive position and enable 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.

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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.

Commencing in 2019 we reduced our investment exposure to such uncertainties and, for the foreseeable future we intend to limit our gross long exposure to 50% of the Company’s total shareholders’ equity.

Critical Accounting Policies and Estimates

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Recently issued and adopted accounting standards and their impact to the Company, if any, are presented under “Recent Accounting Pronouncements” in Note 2 to the condensed consolidated financial statements.

Key Financial Measures and Non-GAAP Measures

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Key Financial Measures and Non-GAAP Measures

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.

GAAP rules and standards (“non-GAAP financial measures”) to evaluate our financial performance, financial position and the change in shareholder value.

Generally, a non-GAAP financial measure, as defined in SEC Regulation G, is a numerical measure of a company’s historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with U.S.

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We believe that long-term growth in fully diluted book value per share is the most relevant measure of our financial performance because it provides management and investors a yardstick by which to monitor the shareholder value generated.

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.

In addition, fully diluted book value per share may assist our investors, shareholders and other interested parties in forming 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.

In addition, the fully diluted book value per share includes the dilutive effect, if any, of ordinary shares to be issued upon conversion of the convertible notes.

Fully diluted book value per share 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.

In addition, fully diluted book value per share includes the dilutive effect, if any, of ordinary shares to be issued upon conversion of the convertible notes.

Basic book value per share and fully diluted book value per share should not be viewed as substitutes for the comparable U.S.

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GAAP measure.

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

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

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

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Total equity (U.S.

GAAP) (numerator for basic book value per share) $ 429,904 $ 436,899 $ 477,183 $ 506,543 $ 500,738

Proceeds from in-the-money stock options issued and outstanding — — — — —

Numerator for fully diluted book value per share $ 429,904 $ 436,899 $ 477,183 $ 506,543 $ 500,738

GAAP) (numerator for basic and fully diluted book value per share) $ 426,867 $ 429,904 $ 436,899 $ 477,183 $ 506,543

Denominator for basic and fully diluted book value per share:

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

As of September 30, 2020, the number of unvested restricted shares with performance conditions was 429,444 (as of June 30, 2020:

501,989, 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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Net underwriting income (loss) is considered a non-GAAP financial measure because it excludes items used in the calculation of net income before taxes under U.S.

Net underwriting income (loss) is calculated as net premiums earned, plus other income (expense) relating to deposit-accounted contracts, less net loss and loss adjustment expenses, less acquisition costs, and less underwriting expenses.

Net underwriting income (loss) is calculated as net premiums earned, plus other income (expense) relating to reinsurance and deposit-accounted contracts, less net loss and loss adjustment expenses, less acquisition costs, and less underwriting expenses.

The measure excludes, on a recurring basis:

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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 factors not related to underwriting decisions.

We exclude corporate expenses because these

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expenses are generally fixed and not incremental to or directly related to our underwriting operations.

We exclude total investment 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 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 net income.

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The reconciliations of net underwriting income (loss) to income (loss) before income taxes (the most directly comparable U.S.

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

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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Add (subtract):

Investment related (income) loss (5,543) (18,791) 29,746 (51,114)

Total investment (income) loss (6,897) (9,921) 22,849 (61,035)

Other non-underwriting (income) expense (257) 1,254 (6) 1,059

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Results of Operations

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

The table below summarizes our operating results 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

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Underwriting expenses 2,180 2,998 8,384 11,066

Deposit accounting expense (income) (645) (991) (1,252) (1,991)

Deposit accounting and other reinsurance expense (income) (1,312) (367) (2,564) (2,358)

Underwriting income (loss) $ (420) $ 2,599 $ (470) $ (17,714)

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Net investment income (loss) 466 3,312 11,237 9,265

Net investment result $ 5,543 $ 18,791 $ (29,746) $ 51,114

Total investment income (loss) $ 6,897 $ 9,921 $ (22,849) $ 61,035

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

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Combined ratio 100.4 % 98.0 % 100.1 % 104.7 %

* 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.

* 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 an income of $0.2 million and $0.0 million for the three months ended September 30, 2020 and 2019, respectively, and a loss of $4.8 million and a loss of $27.7 million, for the nine months ended September 30, 2020 and 2019, respectively.

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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.

Three months ended September 30, 2020 and 2019

For the three months ended September 30, 2020, the fully diluted book value per share increased by $0.22 per share, or 1.9%, to $12.03 per share from $11.81 per share at June 30, 2020.

For the three months ended September 30, 2020, the basic book value per share increased by $0.22 per share, or 1.9%, to $12.07 per share from $11.85 per share at June 30, 2020.

The increase in basic and fully diluted book value per share for the three months ended September 30, 2020 was due primarily to (i) share repurchases executed, (ii) net income earned and (iii) restricted shares forfeited during the quarter.

For the three months ended September 30, 2020, net income was $2.2 million, compared to a net income of $5.1 million reported for the equivalent 2019 period.

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

• Underwriting:

The underwriting loss for the three months ended September 30, 2020 was $0.4 million.

By comparison, the equivalent period in 2019 reported an underwriting income of $2.6 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.

The decrease in underwriting income was due primarily to natural catastrophe losses from hurricanes Laura, Isaias and Sally, the Midwest derecho storm, and the North American wildfires, which in aggregate contributed $8.1 million to the underwriting loss.

Our overall composite ratio was 99.6% for the three months ended September 30, 2020, compared to 96.0% during the equivalent 2019 period.

The composite ratio for three months ended September 30, 2020 included 7.0 points related to natural catastrophe losses compared to 2.4 loss ratio points during the same period in 2019.

• Investments:

Our total investment income for the three months ended September 30, 2020 was $6.9 million compared to total investment income of $9.9 million reported for the same period in 2019.

Nine months ended September 30, 2020 and 2019

For the nine months ended September 30, 2020, the fully diluted book value per share decreased by $0.85 per share, or 6.6%, to $12.03 per share from $12.88 per share at December 31, 2019.

For the nine months ended September 30, 2020, the basic book value per share decreased by $0.83 per share, or 6.4%, to $12.07 per share from $12.90 per share at December 31, 2019.

For the nine months ended September 30, 2020, net loss was $38.2 million, compared to net income of $26.4 million reported for the equivalent 2019 period.

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

• Underwriting:

The underwriting loss for the nine months ended September 30, 2020 was $0.5 million.

By comparison, the underwriting loss for the same period in 2019 was $17.7 million primarily resulting from adverse loss development on our private passenger automobile business.

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.

Our overall composite ratio was 98.4% for the nine months ended September 30, 2020, compared to 102.4% during the same period in 2019.

• Investments:

Our total investment loss for the nine months ended September 30, 2020 was $22.8 million compared to total investment income of $61.0 million incurred during the equivalent 2019 period.

The investment loss for the nine months ended September 30, 2020 was primarily related to our investment in SILP, which reported an investment loss of $34.1 million, driven primarily by the impact of changes in fair value mainly attributable to the disruptions in global financial markets associated with the COVID–19 pandemic.

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

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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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.

For the three months ended September 30, 2020, our gross premiums written increased by $25.0 million, or 22.6%, compared to the equivalent 2019 period.

The primary drivers for this change are the following:

Gross Premiums Written

Three months ended June 30, 2020

Three months ended September 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.

Property $(2.9) (14.5)% The decrease in property gross premiums written during the three months ended September 30, 2020 over the comparable 2019 period was primarily related to motor contracts that we had elected not to renew in the third quarter of 2019.

Casualty $15.7 20.3% The increase in casualty gross premiums written during the three months ended September 30, 2020 over the comparable 2019 period related primarily to

an increase in workers’ compensation premiums.

This increase in workers’ compensation premiums written was due primarily 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.

The increase in casualty premiums written also reflects an increase Lloyds’ syndicate multi-line quota share business.

The increase was partially offset by motor contracts that we elected not to renew, and lower premium volumes on in-force contracts.

Other $12.2 91.1% The increase in “other” gross premiums written during the three months ended September 30, 2020 over the comparable 2019 period was primarily due to new crop, energy and other specialty business written during 2020 and the latter half of 2019.

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

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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.

For the nine months ended September 30, 2020, our gross premiums written decreased by $63.4 million, or 14.9%, compared to the equivalent 2019 period.

The primary drivers of this change are as follows:

Gross Premiums Written

Six months ended June 30, 2020

Nine months ended September 30, 2020

Increase (decrease)

($ 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.

Property $(27.5) (38.0)% The decrease in property gross premiums written during the nine months of 2020 over the comparable 2019 period was primarily related to motor contracts that we elected not to renew in the third quarter of 2019.

Casualty $(67.0) (22.6)% The decrease in casualty gross premiums written during the nine months of 2020 over the comparable 2019 period was related primarily to motor contracts that we elected not to renew, and also due to lower premium volumes on in-force contracts.

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.

In addition, the increase in casualty premiums written also related to Lloyds’ syndicate multi-line quota share contracts.

Other $31.0 54.3% The increase in “other” gross premiums written during the nine 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.

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Premiums Ceded

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.

For the three and nine months ended September 30, 2020, premiums ceded were $1.5 million and $2.3 million, respectively, compared to $4.0 million and $48.6 million for the three and nine months ended September 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.

The decrease in premiums ceded for the three and nine months ended September 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 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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Total $ 134,132 100.0 % $ 106,572 100.0 % $ 359,798 100.0 % $ 376,930 100.0 %

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.

For the three and nine months ended September 30, 2020, net premiums written increased by $27.6 million, or 25.9%, and decreased by $17.1 million, or 4.5%, respectively, compared to the three and nine months ended September 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 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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Details of net losses incurred are provided in the following table:

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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Total $ 88,053 100.0 % $ 92,962 100.0 % $ 252,944 100.0 % $ 294,303 100.0 %

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

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

Three months ended September 30 Nine months ended September 30

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

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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:

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

Net Losses Incurred

Three months ended June 30, 2020

Three months ended September 30, 2020

Increase (decrease)

($ 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.

Property $0.8 29.3 The increase in property losses incurred during the three months ended September 30, 2020, compared to the equivalent 2019 period, was due to the estimated losses from hurricanes Isaias, Laura and Sally, the Midwest derecho storm, and the North American wildfires.

The increase in property losses incurred was partially offset by lower motor losses resulting from the non-renewal of certain motor contracts in Q3 2019.

Despite the small increase in losses incurred during the three months ended September 30, 2020, the property loss ratio increased during that period over the equivalent 2019 period as a result of lower earned premiums on property contracts during the third quarter of 2020.

Casualty $(9.1) (3.9) The decrease in losses incurred reflects lower motor casualty losses during the three months ended September 30, 2020, compared to the equivalent 2019 period.

This reduction was due primarily to the non-renewal of certain motor contracts in Q3 2019.

These decreases in casualty losses were partially offset by increases in losses associated with the growth in our workers’ compensation and catastrophe losses impacting certain multi-line contracts.

The decrease in motor casualty losses offset the impact of the catastrophe losses resulting in a 3.9 percentage point decrease in the casualty loss ratio during the third quarter of 2020 over the equivalent 2019 period.

Other $3.4 13.7 The increase in “Other” losses incurred during the three months ended September 30, 2020 over the equivalent 2019 period was primarily related to certain health and crop contracts reporting higher than expected losses.

The crop and health contracts contributed to the 13.7 percentage points increase in Other loss ratio during the third quarter 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:

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

Net Losses Incurred

Six months ended June 30, 2020

Nine months ended September 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:

Property $(4.9) 11.1 The decrease in property losses incurred during the nine months of 2020 as compared to the equivalent 2019 period related primarily to:

• significant adverse loss development recognized during 2019,

• the non-renewal of certain motor contracts, and

• a lower level of losses reported on in-force motor contracts as a result of fewer motorists on the roads at peak traffic times due to the COVID-19 pandemic during 2020.

The decrease in property losses were partially offset by:

• COVID-19 pandemic related business interruption claims incurred on non-motor contracts, and

• catastrophe losses from hurricanes Laura, Isaias, and Sally, the Midwest derecho storm, and the North American wildfires during the nine months ended September 30, 2020.

Despite the reduction in losses incurred during the nine months ended September 30, 2020, the loss ratio increased 11.1 percentage point during that period over the equivalent 2019 period as a result of the COVID-19 pandemic losses and catastrophe losses on a lower level of earned premiums.

Casualty $(60.7) (12.9) The decrease in casualty losses incurred during the first nine months of 2020 as compared to the equivalent 2019 period related primarily to:

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

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• 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.

• a lower level of losses reported on in-force motor contracts as a result of fewer motorists on the roads at peak traffic times due to the COVID-19 pandemic during 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.

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

Overall, the reduced level of adverse prior year loss development recognized during the first nine months of 2020 was the primary driver of the 12.9 percentage point decrease in the casualty loss ratio as compared to the equivalent 2019 period.

Other $24.2 18.4 The increase in “Other” losses incurred during the nine months ended September 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.

The mortgage, crop and health contracts contributed to the 18.4 percentage points increase in Other loss ratio during the first nine months of 2020 as compared to the equivalent 2019 period.

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

Acquisition Costs, Net

Details of acquisition costs are provided in the following table:

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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Total $ 27,018 100.0 % $ 30,962 100.0 % $ 76,660 100.0 % $ 89,660 100.0 %

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

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

Three months ended September 30 Nine months ended September 30

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

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Total 23.4 % 24.0 % (0.6) % 22.9 % 23.9 % (1.0) %

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:

The changes in the acquisition cost ratios for the three months ended September 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

Three months ended September 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.

Property 1.5 The increase in the property acquisition cost ratio during the three months ended September 30, 2020 over the comparable 2019 period was due primarily to higher commissions on certain motor contracts.

Casualty 2.9 The increase in the casualty acquisition cost ratio during the three months ended September 30, 2020 as compared to the equivalent 2019 period was due primarily to the relative increase in the amount of workers’ compensation and multi-line business written during the third quarter of 2020.

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

Other (16.2) The decrease in the “other” acquisition cost ratio during the three months ended September 30, 2020 over the comparable 2019 period was due to reversal of profit commissions upon final settlement of a commuted mortgage contract.

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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:

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

Change in Acquisition Cost Ratios

Six months ended June 30, 2020

Nine months ended September 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.

Property 1.8 The property acquisition cost ratio increased during the nine months ended September 30, 2020 over the comparable 2019 period.

The 2019 comparable period 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 nine months of 2020.

Casualty 4.8 The casualty acquisition cost ratio increased during the nine months ended September 30, 2020 over the comparable 2019 period.

The 2019 comparable period 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 nine months 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 nine months 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.

Other (22.3) The decrease in the “other” acquisition cost ratio during the nine months ended September 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 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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General and administrative expenses $ 5,152 $ 7,725 $ 18,095 $ 22,484

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 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.

General and administrative expenses decreased by $2.6 million, or 33.3%, for the three months ended September 30, 2020, compared to the equivalent 2019 period.

The decrease was due primarily to lower corporate expenses including legal and other professional fees compared to the same period in 2019 relating to the strategic review.

Additional causes of the decrease in general and administrative expenses were lower stock compensation expense due to share forfeitures and to a lesser extent, lower travel, accommodation and office related expenses due to the COVID-19 pandemic.

For the nine months ended September 30, 2020, general and administrative expenses decreased by $4.4 million, or 19.5%, compared to the equivalent 2019 period.

The decrease was due primarily to lower personnel costs including bonus and stock compensation expenses, and to a lesser extent due to lower corporate expenses including legal and other professional fees associated with the strategic review.

For the nine months ended September 30, 2020 and 2019, general and administrative expenses included $1.4 million and $2.9 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 June 30 Six months ended June 30

Total Investment Income (Loss)

Total investment 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, notes receivable and investments accounted for under the equity method.

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

A summary of our total investment income (loss) is as follows:

Three months ended September 30 Nine months ended September 30

2020 2019 2020 2019

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Income (loss) from investments in related party investment fund $ 6,431 $ 6,609 $ (34,086) $ 51,770

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

Total investment income (loss) $ 6,897 $ 9,921 $ (22,849) $ 61,035

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.

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

For the three months ended September 30, 2020, investment income, net of fees and expenses, resulted in a gain of 1.4%, on the Investment Portfolio managed by DME Advisors, compared to a gain of 1.2% for the three months ended September 30, 2019.

SILP’s long portfolio and macro positions gained 3.2% and 0.3%, respectively, while the short portfolio lost 1.9% during the three months ended September 30, 2020.

For the three months ended September 30, 2020, the significant contributors to SILP’s investment income were long positions in The Chemours Company (CC), Green Brick Partners (GRBK) and Atlas Air Worldwide Holdings (AAWW) .

The largest detractors were short positions in Tesla (TSLA), Zillow Group (Z) and a long position in AerCap Holdings (AER).

For the nine months ended September 30, 2020, investment income, net of fees and expenses, resulted in a loss of 6.5% on the Investment Portfolio managed by DME Advisors, compared to a gain of 10.4% for the nine months ended September 30, 2019.

The short portfolio lost 7.7%, while the long portfolio and macro positions gained 0.9% and 0.7%, respectively, during the nine months ended September 30, 2020.

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

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

For the three and nine months ended September 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.

During the nine months ended September 30, 2020, we recorded net unrealized gains of $3.3 million relating to our portfolio of innovation investments.

During the nine months ended September 30, 2020, we wrote-off a valuation allowance

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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.

previously recorded on certain other 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

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

2020 2019 2020 2019

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

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

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

As of September 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 following table provides our underwriting ratios by line of business:

Six months ended June 30 Six months ended June 30

Three months ended September 30 Three months ended September 30

Property Casualty Other Total Property Casualty Other Total

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Combined ratio 100.4 % 98.0 %

Nine months ended September 30 Nine months ended September 30

Property Casualty Other Total Property Casualty Other Total

Loss ratio 76.9 % 71.3 % 86.3 % 75.5 % 65.8 % 84.2 % 67.9 % 78.5 %

Acquisition cost ratio 20.4 27.4 12.1 22.9 18.6 22.6 34.4 23.9

Composite ratio 97.3 % 98.7 % 98.4 % 98.4 % 84.4 % 106.8 % 102.3 % 102.4 %

Underwriting expense ratio 1.7 2.3

Combined ratio 100.1 % 104.7 %

Financial Condition

Total investments

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 total investments reported in the condensed consolidated balance sheets as of September 30, 2020, was $207.2 million, compared to $256.4 million as of December 31, 2019, a decrease of $49.2 million, or 19.2%.

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.

As of September 30, 2020, 91.1% of SILP’s investments were valued based on quoted prices in actively traded markets (Level 1), 4.7% was composed of instruments valued based on observable inputs other than quoted prices (Level 2) and 1.0% was composed of instruments valued based on non-observable inputs (Level 3).

As of September 30, 2020, 3.2% 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 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.

Our restricted cash decreased by $19.0 million, or 2.6%, from $742.1 million at December 31, 2019 to $723.1 million, as of September 30, 2020, primarily due to reduction in collateral held by our ceding insurers.

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Loss and loss adjustment expense reserves;

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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.

Losses in respect of the COVID-19 pandemic subsequent to September 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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Reserves IBNR Total Case

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Total $ 224,732 $ 257,038 $ 481,770 $ 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.

During the nine months ended September 30, 2020, the total gross loss and loss adjustment expense reserves increased by $11.2 million, or 2.4% to $481.8 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 nine months ended September 30, 2020, the total loss and loss adjustment expenses recoverable decreased by $7.6 million, or 27.5%, to $19.9 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.

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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 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:

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As of October 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 $89.7 million and $108.1 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 October 1, 2020:

October 1, 2020

1-in-250 year return period

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Total shareholders’ equity

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.

Total equity reported on the condensed consolidated balance sheet decreased by $50.3 million to $426.9 million as of September 30, 2020, compared to $477.2 million as of December 31, 2019.

Retained earnings decreased primarily due to a net loss of $38.2 million reported for the nine months ended September 30, 2020.

Additionally, the Company repurchased 1.9 million Class A ordinary shares during the nine months ended September 30, 2020 resulting in a $12.7 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

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

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

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

On July 22, 2020, A.M.

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

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.

As of September 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 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.

As of September 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 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.

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For the nine months ended September 30, 2020 and 2019, the net cash used in operating activities was $44.7 million and $8.7 million, respectively.

The net cash used in our underwriting activities and for payment of corporate expenses was $51.3 million and $17.6 million for the nine months ended September 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.

Our underwriting activities represented a net use of cash for the nine months ended September 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 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.

For the nine months ended September 30, 2020, our net withdrawals from SILP provided cash of $21.0 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 $79.2 million.

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

As of September 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.

As of September 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.

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In addition, any dividend payment would have to be approved by the relevant regulatory authorities prior to payment.

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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During the nine months ended September 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 repurchases.

In October 2020, we received regulatory approval for return of up to $25.0 million of Greenlight Re’s share premium to GLRE in order to provide additional capital to GRIL.

For the nine months ended September 30, 2020, we used $12.7 million to repurchase 1.9 million Class A ordinary shares.

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

Letters of Credit and Trust Arrangements

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.

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

As of September 30, 2020, we had one letter of credit facility available with an aggregate capacity of $275.0 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 June 30, 2020, the aggregate amount of collateral provided to cedents under such arrangements was $731.7 million (December 31, 2019:

As of September 30, 2020, the aggregate amount of collateral provided to cedents under such arrangements was $720.6 million (December 31, 2019:

$733.2 million).

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:

As of September 30, 2020, the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of $723.1 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 June 30, 2020.

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

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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 six months ended June 30, 2020.

We did not make any significant commitments for capital expenditures during the nine months ended September 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 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 June 30, 2020, there were 62,531 Class A ordinary shares available for future issuance under the Company’s stock incentive plan.

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

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.

As of September 30, 2020, there were 293,939 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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On October 29, 2020, our shareholders approved an amendment to our 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 shares.

Contractual Obligations and Commitments

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

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

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

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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 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:

For the three and nine months ended September 30, 2020, management fees paid by SILP to DME Advisors were $0.7 million and $2.0 million, respectively (2019:

$0.7 million and $4.2 million, respectively).

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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 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.

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

For the three and nine months ended September 30, 2019, $0.7 million and $5.7 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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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