GREENLIGHT CAPITAL RE, LTD. 10-Q

Item 1. FINANCIAL STATEMENTS GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, 2020 and December 31, 2019 (expressed in thousands of U.S. dollars, except per share and share amounts) September 30, 2020 December 31, 2019 Assets Investments Investment in related party investment fund $ 184,956 $ 240,056 Other investments 22,241 16,384 Total investments 207,197 256,440 Cash and cash equivalents 8,159 25,813 Restricted cash and cash equivalents 723,107 742,093 Reinsurance balances receivable (net of allowance for expected credit losses of $ 89 ) 264,227 230,384 Loss and loss adjustment expenses recoverable (net of allowance for expected credit losses of $ 47 ) 19,949 27,531 Deferred acquisition costs 51,696 49,665 Unearned premiums ceded — 901 Notes receivable (net of allowance for expected credit losses of $ 1,000 ) 18,461 20,202 Other assets 3,264 2,164 Total assets $ 1,296,060 $ 1,355,193 Liabilities and equity Liabilities Loss and loss adjustment expense reserves $ 481,770 $ 470,588 Unearned premium reserves 203,855 179,460 Reinsurance balances payable 80,364 122,665 Funds withheld 5,232 4,958 Other liabilities 3,756 6,825 Convertible senior notes payable 94,216 93,514 Total liabilities 869,193 878,010 Shareholders' equity Preferred share capital (par value $ 0.10 ; authorized, 50,000,000 ; none issued) — — Ordinary share capital (Class A: par value $ 0.10 ; authorized, 100,000,000 ; issued and outstanding, 29,113,702 (2019: 30,739,395 ): Class B: par value $ 0.10 ; authorized, 25,000,000 ; issued and outstanding, 6,254,715 (2019: 6,254,715 )) 3,537 3,699 Additional paid-in capital 492,429 503,547 Retained earnings (deficit) ( 69,099 ) ( 30,063 ) Total shareholders' equity 426,867 477,183 Total liabilities and equity $ 1,296,060 $ 1,355,193 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 3 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 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 September 30 Nine months ended September 30 2020 2019 2020 2019 Revenues Gross premiums written $ 135,596 $ 110,607 $ 362,072 $ 425,507 Gross premiums ceded ( 1,464 ) ( 4,035 ) ( 2,274 ) ( 48,577 ) Net premiums written 134,132 106,572 359,798 376,930 Change in net unearned premium reserves ( 18,613 ) 22,582 ( 24,844 ) ( 1,973 ) 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 $ 703 and $ 1,981 , (three and nine months ended September 30, 2019: $ 1,325 and $ 9,888 , respectively)] 6,431 6,609 ( 34,086 ) 51,770 Net investment income 466 3,312 11,237 9,265 Other income (expense), net 1,569 ( 887 ) 2,570 1,299 Total revenues 123,985 138,188 314,675 437,291 Expenses Net loss and loss adjustment expenses incurred 88,053 92,962 252,944 294,303 Acquisition costs 27,018 30,962 76,660 89,660 General and administrative expenses 5,152 7,725 18,095 22,484 Interest expense 1,579 1,578 4,702 4,684 Total expenses 121,802 133,227 352,401 411,131 Income (loss) before income tax 2,183 4,961 ( 37,726 ) 26,160 Income tax (expense) benefit — 179 ( 424 ) 200 Net income (loss) $ 2,183 $ 5,140 $ ( 38,150 ) $ 26,360 Earnings (loss) per share Basic $ 0.06 $ 0.14 $ ( 1.07 ) $ 0.72 Diluted $ 0.06 $ 0.14 $ ( 1.07 ) $ 0.72 Weighted average number of ordinary shares used in the determination of earnings and loss per share Basic 35,677,554 36,841,623 35,569,292 36,646,515 Diluted 35,779,703 36,921,490 35,569,292 36,720,550 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 4 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) For the three and nine months ended September 30, 2020 and 2019 (expressed in thousands of U.S. dollars) 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 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 integral part of the Condensed Consolidated Financial Statements. 5 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the nine months ended September 30, 2020 and 2019 (expressed in thousands of U.S. dollars) Nine months ended September 30 2020 2019 Cash provided by (used in) operating activities Net income (loss) $ ( 38,150 ) $ 26,360 Adjustments to reconcile net income or loss to net cash provided by (used in) operating activities Loss (income) from investments in related party investment fund 34,086 ( 51,770 ) 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 ) Net realized (gains) losses on investments 15,000 14,150 Foreign exchange (gains) losses on investments 232 ( 160 ) Current expected credit losses recognized on notes receivable and reinsurance assets 250 — Share-based compensation expense 1,391 2,896 Amortization and interest expense, net of change in accruals 702 751 Depreciation expense 21 21 Net change in Reinsurance balances receivable ( 33,932 ) 26,981 Loss and loss adjustment expenses recoverable 7,535 2,170 Deferred acquisition costs ( 2,031 ) ( 678 ) Unearned premiums ceded 901 17,242 Other assets, excluding depreciation ( 1,121 ) ( 561 ) Loss and loss adjustment expense reserves 11,182 ( 3,227 ) Unearned premium reserves 24,395 ( 15,211 ) Reinsurance balances payable ( 42,301 ) ( 9,259 ) Funds withheld 274 ( 6,465 ) Other liabilities ( 3,069 ) 2,709 Net cash provided by (used in) operating activities ( 44,658 ) ( 8,680 ) Investing activities Proceeds from redemptions from related party investment fund 69,108 107,162 Contributions to related party investment fund ( 48,094 ) ( 11,306 ) Purchases of investments ( 944 ) ( 4,702 ) Change in due to related party investment fund — ( 9,642 ) Notes receivable collected (issued) 741 ( 1,016 ) Non-controlling interest contribution into (withdrawal from) related party joint venture, net — ( 1,278 ) Net cash provided by (used in) investing activities 20,811 79,218 Financing activities Repurchase of Class A ordinary shares ( 12,671 ) — Net cash provided by (used in) financing activities ( 12,671 ) — Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 122 ) 237 Net increase (decrease) in cash, cash equivalents and restricted cash ( 36,640 ) 70,775 Cash, cash equivalents and restricted cash at beginning of the period (see Note 2) 767,906 703,231 Cash, cash equivalents and restricted cash at end of the period (see Note 2) $ 731,266 $ 774,006 Supplementary information Interest paid in cash $ 4,000 $ 3,933 Income tax paid in cash — — Non-cash transfer of investments (Note 3) — 36,673 Non-cash addition of right-of-use asset — 323 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 6 Return to table of contents GREENLIGHT CAPITAL RE, LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 2020 1. ORGANIZATION AND BASIS OF PRESENTATION Greenlight Capital Re, Ltd. (“GLRE”) was incorporated as an exempted company under the Companies Law of the Cayman Islands on July 13, 2004. GLRE’s principal wholly-owned subsidiary, Greenlight Reinsurance, Ltd. (“Greenlight Re”), provides global specialty property and casualty reinsurance. Greenlight Re has a Class D insurer license issued in accordance with the terms of The Insurance Law, 2010 and underlying regulations thereto (the “Law”) and is subject to regulation by the Cayman Islands Monetary Authority, in terms of the Law. Greenlight Re commenced underwriting in April 2006. Verdant Holding Company, Ltd. (“Verdant”), a wholly-owned subsidiary of GLRE, was incorporated in 2008 in the state of Delaware. During 2010, GLRE established Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”), a wholly-owned reinsurance subsidiary based in Dublin, Ireland. GRIL is authorized as a non-life reinsurance undertaking in accordance with the provisions of the European Union (Insurance and Reinsurance) Regulations 2015. GRIL provides multi-line property and casualty reinsurance capacity to the European broker market and provides GLRE with an additional platform to serve clients located in Europe and North America. As used herein, the “Company” refers collectively to GLRE and its consolidated subsidiaries. The Class A ordinary shares of GLRE are listed on Nasdaq Global Select Market under the symbol “GLRE”. These unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019. In the opinion of management, these unaudited condensed consolidated financial statements reflect all of the normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented. The global pandemic related to the novel coronavirus (the “COVID-19 pandemic”) is expected to have a significant adverse impact on the property and casualty insurance and reinsurance industry. The Company has included in the loss and loss adjustment reserves, its best estimate of losses arising from the COVID-19 pandemic. However, there remains considerable uncertainty relating to the ultimate losses, which will depend on the extent and duration of economic contraction, particularly in the United States. 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 nine months ended September 30, 2020 are not necessarily indicative of the results expected for the full calendar year. 2. SIGNIFICANT ACCOUNTING POLICIES In the first quarter of 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”) which requires an entity to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. ASU 2016-13 was effective for public business entities for annual and interim periods beginning after December 15, 2019. 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 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. 7 Return to table of contents Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the period. Actual results could differ from these estimates. Restricted Cash and Cash Equivalents The Company maintains cash and cash equivalent balances to collateralize regulatory trusts and letters of credit issued to cedents (see Note 11). The following table reconciles the cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total presented in the condensed consolidated statements of cash flows: September 30, 2020 December 31, 2019 ($ in thousands) Cash and cash equivalents $ 8,159 $ 25,813 Restricted cash and cash equivalents 723,107 742,093 Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows $ 731,266 $ 767,906 Reinsurance Assets 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 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. The Company manages its credit risk in its reinsurance assets by transacting with insurers and reinsurers that it considers financially sound. 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. 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 September 30, 2020, the allowance for expected credit losses was $ 0.1 million. Notes Receivable Notes receivable represent promissory notes receivable from third parties. These notes are recorded at cost plus accrued interest, if any, net of valuation allowance for expected credit losses. 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 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. 8 Return to table of contents 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. For notes receivable placed on non-accrual status, the notes are presented excluding any accrued interest amount. The Company resumes the accrual of interest on a note when none of the principal or interest remains past due, and the Company expects to collect the remaining contractual principal and interest. Interest collected on notes that are placed on non-accrual status is recorded as interest income when collected, provided that the recorded value of the note is deemed to be fully collectible. Where doubt exists as to the collectibility of the remaining recorded value of the notes placed on non-accrual status, the Company immediately reverses any previous accrued interest through interest income and any payments received are applied to reduce the recorded value of the notes. The allowance for expected credit losses for notes receivable is calculated on the amortized cost excluding accrued interest and interest written off due to non-accrual status. Charge offs of notes receivable are recorded when all or a portion of the financial asset is deemed uncollectible. Full or partial charge offs are recorded as reductions to the amortized cost and deducted from the allowance in the period in which the note receivable is deemed uncollectible. In instances where the Company collects cash that it has previously charged off, the recovery will be recognized through earnings or as a reduction of the amortized cost for interest and principal, respectively. The following table provides a roll-forward of the Company’s allowance for credit losses on notes receivable: Nine months ended September 30 2020 2019 ($ in thousands) Balance at beginning of period $ 15,000 $ 9,012 Cumulative effect of adoption of ASU 2016-13 at January 1, 2020 750 — Charge offs ( 15,000 ) — Net increase (decrease) in allowance 250 — Balance at end of period $ 1,000 $ 9,012 Deposit Assets and Liabilities The Company applies deposit accounting to reinsurance contracts that do not transfer sufficient insurance risk to merit reinsurance accounting. Under deposit accounting, an asset or liability is recognized based on the consideration paid or received. 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 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 ($ in thousands) ($ in thousands) Deposit interest income $ 560 $ 1,023 $ 1,812 $ 2,493 Deposit interest expense $ — $ ( 656 ) $ — $ ( 135 ) Deposit interest income/(expense), net $ 560 $ 367 $ 1,812 $ 2,358 9 Return to table of contents Other Assets Other assets consist primarily of prepaid expenses, fixed assets, right-of-use lease assets, other receivables and deferred tax assets. Other Liabilities Other liabilities consist primarily of accruals for legal and other professional fees, employee bonuses and lease liabilities. Earnings (Loss) Per Share The Company’s unvested restricted stock awards, which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered “participating securities” for the purposes of calculating earnings (loss) per share. Basic earnings per share is calculated on the basis of the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings (or loss) per share includes the dilutive effect of the following: • Restricted Stock Units (“RSUs”) issued that would convert to common shares upon vesting; • additional potential common shares issuable when stock options are exercised, determined using the treasury stock method; and • those common shares with the potential to be issued by virtue of convertible debt and other such convertible instruments, determined using the treasury stock method. Diluted earnings (or loss) per share contemplates a conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share. 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 nine months ended September 30, 2020 and 2019: Three months ended September 30 Nine months ended September 30 2020 2019 2020 2019 Weighted average shares outstanding - basic 35,677,554 36,841,623 35,569,292 36,646,515 Effect of dilutive employee and director share-based awards 102,149 79,867 — 74,035 Weighted average shares outstanding - diluted 35,779,703 36,921,490 35,569,292 36,720,550 Anti-dilutive stock options outstanding 835,627 875,627 835,627 875,627 Participating securities excluded from calculation of loss per share — — 878,498 — Taxation Under current Cayman Islands law, no corporate entity, including GLRE and Greenlight Re, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company has an undertaking from the Governor-in-Cabinet of the Cayman Islands, pursuant to the provisions of the Tax Concessions Law, as amended, that, in the event that the Cayman Islands enacts any legislation that imposes tax on profits, income, gains or appreciations, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to GLRE, Greenlight Re nor their respective operations, or to the Class A or Class B ordinary shares or related obligations, before February 1, 2025. Verdant is incorporated in Delaware and therefore is subject to taxes in accordance with the U.S. federal rates and regulations prescribed by the U.S. Internal Revenue Service (“IRS”). Verdant’s taxable income is generally expected to be taxed at a marginal rate of 21% (2019: 21%). Verdant’s tax years 2014 and beyond remain open and subject to examination by the IRS. 10 Return to table of contents GRIL is incorporated in Ireland and therefore is subject to the Irish corporation tax rate of 12.5% on its trading income, and 25% on its non-trading income. The Company records a valuation allowance to the extent that the Company considers it more likely than not that all or a portion of the deferred tax asset will not be realized in the future. Other than this valuation allowance, the Company has not taken any income tax positions that are subject to significant uncertainty that is reasonably likely to have a material impact on the Company. Recent Accounting Pronouncements Recently Issued Accounting Standards Adopted As discussed above, the Company adopted ASU 2016-13 during the first quarter of 2020 using a modified retrospective transition method. The adoption resulted in a cumulative-effect adjustment to retained earnings of $ 0.9 million as of January 1, 2020. Recently Issued Accounting Standards Not Yet Adopted In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (“ASU 2020-01”). 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. 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. 3. INVESTMENT IN RELATED PARTY INVESTMENT FUND Prior to January 2, 2019, the Company and its reinsurance subsidiaries were party to a joint venture agreement (the “venture agreement”) with DME Advisors, LP (“DME Advisors”) and DME Advisors LLC (“DME”) under which the Company, its reinsurance subsidiaries and DME were participants in a joint venture (the “Joint Venture”) for the purpose of managing certain jointly held assets. 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 (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 11 Return to table of contents 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. GAAP. In assessing its interest in SILP, the Company noted the following: • DME II serves as SILP’s general partner and has the power of appointing the investment manager. The Company does not have the power to appoint, change or replace the investment manager or the general partner except “for cause.” Neither of the GLRE Limited Partners can participate in the investment decisions of SILP as long as SILP adheres to the investment guidelines provided within the SILP LPA. For these reasons, the GLRE Limited Partners are not considered to have substantive participating rights or kick-out rights. • DME II holds an interest in excess of 10% of SILP’s net assets which the Company considers to represent an obligation to absorb losses and a right to receive benefits of SILP that are significant to SILP. Consequently, the Company has concluded that DME II’s interests, 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. The Company’s investment in SILP is presented in the Company’s condensed consolidated balance sheets in the caption “Investment in related party investment fund.” 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 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 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: 81.0 %) of SILP’s total net assets. The remaining 19.0 % (December 31, 2019: 19.0 %) of SILP’s total net assets was held by DME II. The investment in SILP is recorded at the GLRE Limited Partners’ share of the net asset value of SILP as reported by SILP’s third-party administrator. The GLRE Limited Partners can redeem their assets from SILP for operational purposes by providing three business days’ notice to DME II. 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 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. 12 Return to table of contents Summarized Statement of Assets and Liabilities of Solasglas Investments, LP September 30, 2020 December 31, 2019 ($ in thousands) Assets Investments, at fair value $ 220,116 $ 162,928 Derivative contracts, at fair value 3,097 6,324 Due from brokers 130,220 68,060 Cash and cash equivalents 2,202 111,046 Interest and dividends receivable 281 47 Total assets 355,916 348,405 Liabilities and partners’ capital Liabilities Investments sold short, at fair value ( 116,336 ) ( 47,834 ) Derivative contracts, at fair value ( 10,962 ) ( 2,054 ) Due to brokers — ( 1,180 ) Interest and dividends payable ( 32 ) ( 828 ) Other liabilities ( 233 ) ( 101 ) Total liabilities ( 127,563 ) ( 51,997 ) Net Assets $ 228,353 $ 296,408 GLRE Limited Partners’ share of Net Assets $ 184,956 $ 240,056 13 Return to table of contents Summarized Statement of Operations of Solasglas Investments, LP Three months ended September 30 Nine months ended September 30 2020 2019 2020 2019 ($ in thousands) Investment income Dividend income (net of withholding taxes) $ 170 $ 652 $ 1,204 $ 2,334 Interest income 36 279 262 1,869 Total Investment income 206 931 1,466 4,203 Expenses Management fee ( 703 ) ( 653 ) ( 1,981 ) ( 4,235 ) Interest ( 176 ) ( 89 ) ( 518 ) ( 2,308 ) Dividends ( 213 ) ( 96 ) ( 612 ) ( 1,532 ) Professional fees and other ( 432 ) ( 204 ) ( 764 ) ( 1,009 ) Total expenses ( 1,524 ) ( 1,042 ) ( 3,875 ) ( 9,084 ) Net investment income (loss) ( 1,318 ) ( 111 ) ( 2,409 ) ( 4,881 ) Realized and change in unrealized gains (losses) Net realized gain (loss) ( 1,412 ) 14,760 ( 44,972 ) 26,989 Net change in unrealized appreciation (depreciation) 10,832 ( 5,675 ) 5,811 45,708 Net gain (loss) on investment transactions 9,420 9,085 ( 39,161 ) 72,697 Net income (loss) $ 8,102 $ 8,974 $ ( 41,570 ) $ 67,816 GLRE Limited Partners’ share of net income (loss) (1) $ 6,431 $ 6,609 $ ( 34,086 ) $ 51,770 (1) Net of management fees and accrued performance allocation as follows: Three months ended September 30 Nine months ended September 30 2020 2019 2020 2019 ($ in thousands) Management fees $ 703 $ 652 $ 1,981 $ 4,234 Performance allocation $ — $ 673 $ — $ 5,654 4. FINANCIAL INSTRUMENTS Investments Other Investments “Other investments” include unlisted securities and investments accounted for under the equity method. 14 Return to table of contents At September 30, 2020, the following securities were included in the caption “Other investments”: September 30, 2020 Cost Unrealized gains Unrealized losses Fair value / carrying value ($ in thousands) Private investments and unlisted equities $ 11,364 $ 5,373 $ ( 1,067 ) $ 15,670 Investment accounted for under the equity method — — — 6,571 Total other investments $ 22,241 At December 31, 2019, the following securities were included in the caption “Other investments”: December 31, 2019 Cost Unrealized gains Unrealized losses Fair value / carrying value ($ in thousands) Private investments and unlisted equities $ 10,420 $ 265 $ ( 4 ) $ 10,681 Investment accounted for under the equity method — — — 5,703 Total other investments $ 16,384 Private investments and unlisted equities include securities that do not have readily determinable fair values. 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 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 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. In addition to providing capital and funding in support of AccuRisk’s expansion plans, the Company also provides reinsurance capacity for business produced by AccuRisk. The Company has determined that AccuRisk is a VIE, of which the Company is not the primary beneficiary. The Company’s carrying value represents its ownership share of AccuRisk’s net assets. 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 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. Fair Value Hierarchy The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows: • Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. • Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. 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 15 Return to table of contents 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 The captions “Notes receivable (net of allowance for expected credit loss)” and “Convertible senior notes payable” represent financial instruments that are carried at amortized cost. 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) (see Note 7 ) . 5. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES 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. To establish IBNR loss estimates, the Company makes use of, among other things, the following: • estimates communicated by ceding companies; • industry data; • information received from clients, brokers and loss adjusters; • an understanding of the underlying business written and its exposures to catastrophe event related losses; • catastrophe scenario modelling software; and • management’s judgement. The COVID-19 pandemic is unprecedented. Therefore, the Company does not have previous loss experience on which to base its estimates for loss and loss adjustment expenses related to the COVID-19 pandemic. The determination of the Company's estimate was based on: • a review of in-force treaties that may provide coverage and incur losses; • catastrophe and scenario modeling analyses and results shared by cedents; • preliminary loss estimates received from clients and their analysts and loss adjusters; • reviews of industry insured loss estimates and market share analyses; and • management’s judgement. Significant assumptions on which the Company's estimates of reserves for the COVID-19 pandemic losses and loss adjustment expenses are based include: • the scope of coverage provided by the underlying policies, particularly those that provide for business interruption coverage; • the regulatory, legislative or judicial actions and social impact that could influence contract interpretations across the insurance industry; • the extent of economic contraction caused by the COVID-19 pandemic, particularly in the United States; and • 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 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 nine months ended September 30, 2020. 16 Return to table of contents 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) Case reserves $ 224,732 $ 217,834 IBNR 257,038 252,754 Total $ 481,770 $ 470,588 A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated for the nine months ended September 30, 2020 and 2019 is as follows: Consolidated 2020 2019 ($ in thousands) Gross balance at January 1 $ 470,588 $ 482,662 Less: Losses recoverable ( 27,531 ) ( 43,705 ) Net balance at January 1 443,057 438,957 Incurred losses related to: Current year 247,559 264,129 Prior years 5,385 30,174 Total incurred 252,944 294,303 Paid losses related to: Current year ( 72,453 ) ( 93,822 ) Prior years ( 161,222 ) ( 200,384 ) Total paid ( 233,675 ) ( 294,206 ) Foreign currency revaluation ( 505 ) ( 1,154 ) Net balance at September 30 461,821 437,900 Add: Losses recoverable 19,949 41,535 Gross balance at September 30 $ 481,770 $ 479,435 17 Return to table of contents 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 ($ in thousands) Gross balance at January 1 $ 18,063 $ 24,502 Less: Losses recoverable — — Net balance at January 1 18,063 24,502 Incurred losses related to: Current year 25,032 26,013 Prior years 1,341 2,196 Total incurred 26,373 28,209 Paid losses related to: Current year ( 15,115 ) ( 14,741 ) Prior years ( 16,327 ) ( 23,160 ) Total paid ( 31,442 ) ( 37,901 ) Foreign currency revaluation — — Net balance at September 30 12,994 14,810 Add: Losses recoverable — — 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. 6. RETROCESSION The Company, from time to time, purchases retrocessional coverage for one or more of the following reasons: to manage its overall exposure, to reduce its net liability on individual risks, to obtain additional underwriting capacity and to balance its underwriting portfolio. Loss and loss adjustment expenses recoverable from retrocessionaires are recorded as assets. 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 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: $ 13.9 million and $ 56.2 million). Retrocession contracts do not relieve the Company from its obligations to the insureds. Failure of retrocessionaires to honor their obligations could result in losses to the Company. 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: $ 20.0 million) were secured by cash, letters of credit and collateral held in trust accounts for the benefit of the Company and (ii) $ 5.0 million (December 31, 2019: $ 6.4 million) from retrocessionaires rated A- or above by A.M. Best. The Company regularly evaluates its net credit exposure to assess the ability of the retrocessionaires to honor their respective obligations. At September 30, 2020, the Company had recorded an allowance for expected credit losses of $ 0.1 million (December 31, 2019: nil ). 18 Return to table of contents 7. SENIOR CONVERTIBLE NOTES On August 7, 2018, the Company issued $ 100.0 million of senior unsecured convertible notes (the “Notes”), which mature on August 1, 2023. The Notes bear interest at 4.0 % payable semi-annually on February 1 and August 1 of each year beginning on February 1, 2019. Note holders have the option, under certain conditions, to redeem the Notes prior to maturity. If the Notes are redeemed by the holder, the Company shall have the option to settle the conversion obligation in cash, ordinary shares of the Company, or a combination thereof pursuant to the terms of the indenture governing the Notes. The Company has therefore bifurcated the Notes into liability and equity components. 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 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 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 September 30, 2020, including accrued interest of $ 0.7 million, was $ 94.2 million (December 31, 2019: $ 93.5 million). 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 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 September 30, 2020 and December 31, 2019. 8. SHARE CAPITAL 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. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. 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. In addition, the Board of Directors also authorized the Company to repurchase up to $ 25.0 million aggregate face amount of the Company’s 4.00 % Convertible Senior Notes due 2023 (the “Notes”) in privately negotiated transactions, in open market repurchases or pursuant to one more tender offers. 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 nine months ended September 30, 2020, 1.9 million Class A ordinary shares were repurchased by the Company (2019: 0 ). 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. 19 Return to table of contents The following table is a summary of voting ordinary shares issued and outstanding: Nine months ended September 30 Nine months ended September 30 2020 2019 Class A Class B Class A Class B Balance – beginning of period 30,739,395 6,254,715 30,130,214 6,254,715 Issue of ordinary shares, net of forfeitures 248,726 — 408,233 — Repurchase of ordinary shares ( 1,874,419 ) — — — Balance – end of period 29,113,702 6,254,715 30,538,447 6,254,715 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 the earned portion of the grant-date fair value of share-based awards that have not yet vested. 9. 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. Employee and Director Restricted Shares 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. These shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. The restricted shares cliff vest three years after the date of issuance, subject to the grantee’s continued service with the Company. 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 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. These shares contain performance and service conditions and certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. These restricted shares cliff vest 5 years after the date of issuance, subject to the performance condition being met and the grantee’s continued service with the Company. During the vesting period, the holder of the restricted shares retains voting rights and is entitled to any dividends declared by the Company. The weighted average grant date fair value of these restricted shares subject to performance conditions was $ 6.72 (2019: $ 10.84 ) per share. 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. 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 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: 1.6 years). For the nine months ended September 30, 2020, the total fair value of restricted shares vested was $ 2.8 million (2019: $ 3.1 million). 20 Return to table of contents The following table summarizes the activity for unvested outstanding restricted share awards during the nine months ended September 30, 2020: Number of non-vested restricted shares Weighted average grant date fair value Balance at December 31, 2019 873,087 $ 12.83 Granted 451,353 6.72 Vested ( 235,833 ) 13.83 Forfeited ( 210,109 ) 10.90 Balance at September 30, 2020 878,498 $ 9.88 Employee and Director Stock Options 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 nine months ended September 30, 2020 was $ 0.5 million (2019: $ 0.7 million). 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. 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 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. Each RSU grant cliff vests three years after the date of issuance, subject to the grantee’s continued service with the Company. 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 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 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 $ 0.3 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 nine months ended September 30, 2020 was as follows: Number of non-vested RSUs Weighted average grant date fair value Balance at December 31, 2019 63,582 $ 13.76 Granted 60,622 6.72 Vested ( 7,482 ) 21.65 Forfeited — — Balance at September 30, 2020 116,722 $ 9.60 21 Return to table of contents 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. 10. RELATED PARTY TRANSACTIONS Investment Advisory Agreement 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. The Company has entered into the SILP LPA with DME II. DME II receives a performance allocation equal to (with capitalized terms having the meaning provided under the SILP LPA) (a) 10 % of the portion of the Positive Performance Change for each limited partner’s capital account that is less than or equal to the positive balance in such limited partner’s Carryforward Account, plus (b) 20 % of the portion of the Positive Performance Change for each limited partner’s capital account that exceeds the positive balance in such limited partner’s Carryforward Account. The Carryforward Account for Greenlight Re and GRIL include the amount of losses that were to be recouped under the Joint Venture as well as any loss generated on the assets invested in SILP, subject to adjustments for redemptions. The loss carry forward provision contained in the SILP LPA allows DME II to earn a reduced performance allocation of 10 % of profits in years subsequent to any year in which SILP has incurred a loss, until all losses are recouped and an additional amount equal to 150 % of the loss is earned. On February 26, 2019, effective as of September 1, 2018, the Company entered into Amendment No. 1 to the SILP LPA. The amendment was intended to revise the mechanics for calculating the Carryforward Account and Performance Allocation (as defined in the LPA) to take into account withdrawals from and subsequent recontributions of capital to SILP, consistent with the treatment under the Joint Venture. In accordance with the SILP LPA, DME Advisors constructs a levered investment portfolio as agreed by the Company (the “Investment Portfolio” as defined in the SILP LPA). On September 1, 2018, SILP entered into the IAA with DME Advisors which entitles DME Advisors to a monthly management fee equal to 0.125 % ( 1.5 % on an annual basis) of each limited partner’s Investment Portfolio. The IAA has an initial term ending on August 31, 2023 subject to an automatic extension for successive three-year terms. 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 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. The Company will reimburse DME, DME II and DME Advisors for reasonable costs and expenses of investigating and/or defending such claims, provided such claims were not caused due to gross negligence, breach of contract or misrepresentation by DME, DME II or DME Advisors. There were no indemnification amounts incurred by the Company during any of the periods presented. Green Brick Partners, Inc. David Einhorn also serves as the Chairman of the Board of Directors of Green Brick Partners, Inc. (“GRBK”), a publicly traded company. 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. Service Agreement The Company has entered into a service agreement with DME Advisors, pursuant to which DME Advisors provides certain investor relations services to the Company for compensation of five thousand dollars per month (plus expenses). The agreement 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. 22 Return to table of contents Collateral Assets Investment Management Agreement Effective January 1, 2019, the Company (and its subsidiaries) entered into a collateral assets investment management agreement (the “CMA”) with DME Advisors, pursuant to which DME Advisors manages certain assets of the Company that are not subject to the SILP LPA and are held by the Company to provide collateral required by the cedents in the form of trust accounts and letters of credit. In accordance with the CMA, DME Advisors receives no fees and is required to comply with the collateral investment guidelines. The CMA can be terminated by any of the parties upon 30 days’ prior written notice to the other parties. 11. COMMITMENTS AND CONTINGENCIES Letters of Credit and Trusts 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 $ 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 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 credit facility as of September 30, 2020 and December 31, 2019. The Company has also established regulatory trust arrangements for certain cedents. 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. Lease Obligations Greenlight Re has entered into lease agreements for office space in the Cayman Islands that expires on December 31, 2020. The Company has determined that the current arrangement qualifies as a short term lease. The short-term lease expense for the three and nine months ended September 30, 2020 was $ 0.4 million (2019: $ 0.4 million). GRIL has entered into a lease agreement for office space in Dublin, Ireland. Under the terms of this lease agreement, GRIL is committed to minimum annual rent payments denominated in Euros approximating € 0.1 million until May 2021, and adjusted to the prevailing market rates for the subsequent five-year term. GRIL has the option to terminate the lease agreement in 2021. 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 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. 23 Return to table of contents Schedule of Commitments and Contingencies The following is a schedule of future minimum payments required under the above commitments: 2020 2021 2022 2023 2024 Thereafter Total ($ in thousands) Operating lease obligations $ 171 $ 65 $ — $ — $ — $ — $ 236 Interest and convertible note payable — 4,000 4,000 102,000 — — 110,000 $ 171 $ 4,065 $ 4,000 $ 102,000 $ — $ — $ 110,236 Litigation 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 owed to it. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. While the final outcome of legal disputes cannot be predicted with certainty, the Company does not believe that any existing dispute, when finally resolved, will have a material adverse effect on the Company’s business, financial condition or operating results. 24 Return to table of contents 12. SEGMENT REPORTING The Company manages its business on the basis of one operating segment, Property & Casualty Reinsurance. The following tables provide a breakdown of the Company’s gross premiums written by line of business and by geographic area of risks insured for the periods indicated: Gross Premiums Written by Line of Business Three months ended September 30 Nine months ended September 30 2020 2019 2020 2019 ($ in thousands) ($ in thousands) Property Commercial $ 3,396 2.5 % $ 5,088 4.6 % $ 9,426 2.6 % $ 11,752 2.8 % Motor 10,091 7.4 11,367 10.3 25,136 6.9 50,807 11.9 Personal 3,691 2.7 3,632 3.3 10,326 2.9 9,788 2.3 Total Property 17,178 12.6 20,087 18.2 44,888 12.4 72,347 17.0 Casualty General Liability 3,224 2.4 913 0.8 3,920 1.1 2,368 0.6 Motor Liability 41,679 30.7 47,021 42.5 96,729 26.7 197,335 46.4 Professional Liability 76 0.1 11 — 199 0.1 117 — Workers' Compensation 21,979 16.2 14,077 12.7 60,908 16.8 35,121 8.3 Multi-line 25,820 19.0 15,082 13.6 67,379 18.6 61,173 14.4 Total Casualty 92,778 68.4 77,104 69.6 229,135 63.3 296,114 69.7 Other Accident & Health 12,418 9.3 7,527 6.8 40,522 11.2 31,065 7.2 Financial 1,817 1.3 315 0.3 15,704 4.3 15,394 3.6 Marine 127 0.1 ( 33 ) — 749 0.2 94 — Other Specialty 11,278 8.3 5,607 5.1 31,074 8.6 10,493 2.5 Total Other 25,640 19.0 13,416 12.2 88,049 24.3 57,046 13.3 $ 135,596 100.0 % $ 110,607 100.0 % $ 362,072 100.0 % $ 425,507 100.0 % Gross Premiums Written by Geographic Area of Risks Insured Three months ended September 30 Nine months ended September 30 2020 2019 2020 2019 ($ in thousands) ($ in thousands) U.S. and Caribbean $ 110,798 81.7 % $ 89,811 81.2 % $ 291,511 80.5 % $ 358,099 84.1 % Worldwide (1) $ 22,738 16.8 % $ 18,450 16.7 % $ 66,150 18.3 % $ 64,590 15.2 % Europe $ — — % $ — — % $ — — % $ ( 13 ) — % Asia $ 2,060 1.5 % $ 2,346 2.1 % $ 4,411 1.2 % $ 2,831 0.7 % $ 135,596 100.0 % $ 110,607 100.0 % $ 362,072 100.0 % $ 425,507 100.0 % (1) “Worldwide” is composed of contracts that reinsure risks in more than one geographic area and may include risks in the U.S. 13. 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. 25 Return to table of contents