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Item 7. Management’s Discussion and Analysis

2021-03-10 compared with 2020-03-09 · 415 added, 324 removed, 332 unchanged (69% of the section changed)

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References to “we,” “us,” “our,” “our company,” or “the Company” refer to Greenlight Capital Re, Ltd.

(“GLRE”) and our wholly-owned subsidiaries, Greenlight Reinsurance, Ltd, (“Greenlight Re”), Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”) and Verdant Holding Company, Ltd.

(“GLRE”) and our wholly-owned subsidiaries, Greenlight Reinsurance, Ltd, (“Greenlight Re”), Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”), Greenlight Re Marketing (UK) Limited (“Greenlight Re UK”) and Verdant Holding Company, Ltd.

(“Verdant”), unless the context dictates otherwise.

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

We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report because that disclosure was already included in our Form 10-K/A for the fiscal year ended December 31, 2018 , filed with the SEC on March 15, 2019.

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We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report because that disclosure was already included in our Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 27, 2020.

You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for the fiscal year ended December 31, 2019 compared to the fiscal year ended December 31, 2018.

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

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

We aim to complement our underwriting results with a non-traditional investment approach in order to achieve higher rates of return over the long term than reinsurance companies that exclusively employ more traditional investment strategies.

Our investment portfolio is managed according to a value-oriented philosophy, in which our investment advisor takes long positions in perceived undervalued securities and short positions in perceived overvalued securities.

During the second quarter of 2019, A.M.

Best revised its rating outlook of the Company’s subsidiaries’ Financial Strength Rating of A- (Excellent) from “stable” to “negative.” The Company’s Board of Directors has initiated a strategic review to address the risk of a downgrade.

Additionally, to reduce volatility near-term, the Company has de-risked its investment portfolio.

As of the date of this Annual Report, the majority of our investable assets are held in cash and short-term treasuries which we expect to maintain until the strategic review is complete.

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

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

Because we seek to capitalize on favorable market conditions and opportunities, period-to-period comparisons of our underwriting results may not be meaningful.

Also, our historical investment results are not necessarily indicative of future performance.

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

The Company’s subsidiaries hold an A.M.

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

Outlook and Trends

The property and casualty reinsurance industry historically has been cyclical in nature, owing to fluctuations in the supply of capital.

During 2019, several developments have caused an increase in the demand for capital, including:

natural catastrophes in Japan and the Caribbean,

increased capital requirements at some Lloyd’s syndicates,

large loss activity in certain non-catastrophe classes, and

the voluntary withdrawal of capital from under performing business.

We expect the changing environment to provide improved opportunities in many classes including catastrophe, aviation, energy and satellite.

COVID-19 has created an unusually high level of uncertainty in the global reinsurance market.

While we believe that our aggregate exposure to the pandemic is small compared to other industry participants, the impact of the pandemic and related risks could harm our results of operations, financial position, and liquidity.

For a further discussion of risks associated with COVID-19, see “Risks Relating to our Business” in “Part I - Item 1A.

Risk Factors.”

While the COVID-19 uncertainty has caused reserving challenges throughout the industry, it has also led to underwriting opportunities.

The lack of clarity that we face is impacting the insurance and reinsurance market as a whole on a significantly larger scale.

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

We have already seen widespread pricing improvements, and this dynamic may be a significant driver of the increases.

Adding to the reduction in capital was the unusually high frequency of loss events in 2020.

Putting aside COVID-19, 2020 was the fifth costliest year in history regarding the impact of natural and human-made catastrophes on the insurance industry.

While investors have injected new capital into the industry, we believe that this new capital represents a small portion of what has been lost or encumbered.

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

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

Over time we expect our expense advantage to erode as the industry acts to reduce frictional costs.

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 current size of our capital base may reduce the number of high-quality underwriting opportunities that brokers refer to us.

Additionally, a prolonged negative outlook from A.M.

Best or an A.M.

Best revision to our subsidiaries’ ratings below A- (Excellent) may adversely impact our ability to execute our business strategy.

See “Risks Relating to our Business” in “Part I, Item 1A.

Risk Factors.”

Our growing Innovations business is increasing in importance as a source of attractive and lasting underwriting opportunities.

Our Innovations partnerships generally enable us to add value to the relationship in multiple ways:

as a strategic partner, a provider of risk capacity, and an investor.

Investor interest in later-stage “InsurTechs” has surged in 2020, a development that is well-suited to our early-stage investment strategy.

January 1 is a key renewal date for the global reinsurance industry, and, as noted earlier, in 2021 we have seen improved rates in most of the classes of business we write.

This hardening market enabled us to selectively expand our specialty book while taking advantage of improved rates.

Our in-force portfolio reflects increased diversity across the classes of business we write and a lower concentration risk to individual counterparties.

We are pleased with the progress we have made in growing and repositioning our underwriting book, and we expect that the newly formed Greenlight Re UK will help us secure further underwriting opportunities in the future.

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

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

The size of our capital base, combined with A.M Best’s revised outlook on our subsidiaries’ A- (Excellent) rating from “stable” to “negative,” may constrain our capacity and our ability to access underwriting business in the short term.

To date these have had minimal impact on our ability to execute our 2019 business plan and the January 1, 2020 renewals.

However, our ability to execute our remaining 2020 business plan may be adversely impacted by a prolonged negative outlook from A.M.

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

We expect our motor premiums to be lower relative to prior comparative periods due to our decision not to renew certain private passenger motor contracts during third quarter of 2019.

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

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

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

We expect to hold a majority of our investable assets in cash and short-term treasuries until the ongoing strategic review being conducted by the Board is complete.

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

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

Property business covers automobile physical damage, personal lines (including homeowners’ insurance) and commercial lines exposures.

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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.

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

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

We derive our revenues from two principal sources:

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● income from investments.

Premiums written are recognized as revenues, net of of any applicable underlying reinsurance coverage, and are earned over the term of the related policy or contract.

We recognize premiums written as revenues, net of any applicable underlying reinsurance coverage, over the term of the related policy or contract.

Depending on the contract structure, the earnings period could be the same as the reinsurance contract, or based on the terms of the underlying insurance policies.

Income from our investments is primarily composed of income generated from our investment in SILP and interest income from money market funds and notes receivable.

Our investment income also includes income (or losses) from our equity method investment as well as realized and unrealized gains from the investments made by Greenlight Re Innovations.

In addition, we may from time to time derive other income from gains on deposit accounted contracts, fees generated from advisory services and fees relating to overrides, profit commissions and the early termination of contracts.

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Income from our investments is primarily composed of:

● income (or loss) generated from our investment in SILP;

● gains (or losses) from our other investments including Innovations and an investment accounted for as equity method investment;

● interest income from money market funds;

● interest income and gains (or losses) from promissory notes receivable.

Our expenses consist primarily of the following:

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● investment-related expenses.

The extent of our loss and LAE is a function of the amount and type of reinsurance contracts we write and of the loss experience of the underlying coverage.

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The extent of our loss and LAE is a function of the amount and type of reinsurance contracts we write and the loss experience of the underlying coverage.

As described below, loss and loss adjustment expenses include an actuarially determined estimate of losses incurred, including losses incurred during the period and changes in estimates from prior periods.

The period over which loss and LAE reserves are paid depends on the nature of the coverage provided and generally extends over a period of multiple years.

The period over which we pay loss and LAE reserves depends on the nature of the coverage provided and generally extends over a period of multiple years.

Acquisition costs consist primarily of brokerage fees, ceding commissions, premium taxes, profit commissions, letters of credit and trust fees, and federal excise taxes.

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General and administrative expenses consist primarily of salaries and benefits and related costs, including costs associated with our incentive compensation plan, bonuses and stock compensation expenses.

General and administrative expenses also include professional fees, travel and entertainment, information technology, rent and other general operating expenses.

General and administrative expenses reported on our consolidated statements of operations include both underwriting expenses as well as corporate expenses.

For stock option expenses, we calculate compensation cost using the Black-Scholes option pricing model and expense stock options over their vesting period, which varies and has historically ranged from zero to six years.

For restricted stock awards and restricted stock units with only service conditions, we calculate compensation cost using the grant date fair value of each award and recognize the associated expense of the stock awards over their vesting periods, which typically range from one to five years.

For restricted stock awards that include both service and performance conditions, the associated expense is recognized when the Company determines that it is probable that the performance conditions will be achieved.

Interest expense consists of interest paid and accrued on senior convertible notes as well as the amortization of (i) issuance expenses and (ii) the note discount.

Investment-related expenses primarily consist of interest expense on borrowings, and management fees and performance compensation paid to the investment advisor.

General and administrative expenses also include professional fees, travel and entertainment, information technology, rent and other general operating costs.

General and administrative expenses reported on our consolidated statements of operations include both underwriting and corporate expenses.

For stock option expenses, we calculate compensation cost using the Black-Scholes option pricing model and recognize the associated expense over the stock options’ vesting periods, which vary and have historically ranged from zero to six years.

For restricted stock awards that include both service and performance conditions, we recognize the associated expense when we determine that it is probable that the performance conditions will be achieved.

Interest expense consists of interest paid and accrued on senior convertible notes and the amortization of (i) issuance expenses and (ii) the note discount.

Investment-related expenses primarily consist of management fees and performance compensation paid to the investment advisor.

We net these expenses against investment income (loss) in our consolidated financial statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements contain certain amounts that are inherently subjective in nature and have required management to make assumptions and best estimates to determine reported values.

Our consolidated financial statements contain certain amounts that are inherently subjective and have required management to make assumptions and best estimates to determine reported values.

If certain factors, including those described in “Part I.

— Risk Factors,” cause actual events or results to differ materially from our underlying assumptions or estimates, there could be a material adverse effect on our results of operations, financial condition or liquidity.

We believe that the following accounting policies affect the more significant estimates used in the preparation of our consolidated financial statements.

The descriptions below are summarized and have been simplified for clarity.

A more detailed description of our significant accounting policies as well as recently issued accounting standards are included in Note 2 to the consolidated financial statements.

We believe that the following accounting policies affect the more significant estimates used to prepare of our consolidated financial statements.

We have summarized the descriptions below for clarity.

We have included a more detailed description of our significant accounting policies and recently issued accounting standards in Note 2 to the consolidated financial statements.

Premium Revenues and Risk Transfer.

Our property and casualty reinsurance premiums are recorded as premiums written based upon contract terms and information received from ceding companies and their brokers.

For excess of loss reinsurance contracts, premiums are typically stated as a percentage of the subject premiums written by the client, subject to a minimum and deposit premium.

The minimum and deposit premium is typically based on an estimate of subject premiums expected to be written by the client during the contract term.

We record our property and casualty reinsurance premiums as premiums written based upon contract terms and information received from ceding companies and their brokers.

Excess of loss reinsurance contracts typically state premiums as a percentage of the subject premiums written by the client, subject to a minimum and deposit premium.

The minimum and deposit premium is generally based on an estimate of subject premiums expected to be written by the client during the contract term.

The minimum and deposit premium is reported initially as premiums written and adjusted, if necessary, in subsequent periods once the actual subject premium is known.

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Certain contracts provide for reinstatement premiums in the event of a loss.

Reinstatement premiums are written and earned when a triggering loss event occurs.

For each quota share or proportional property and casualty reinsurance contract we underwrite, our client estimates gross premiums written at inception of the contract.

We generally account for such premiums using our best estimates and then adjust our estimates based on actual reports provided by our client and based on our expectations of industry developments.

As the contract progresses, we monitor actual premiums received in conjunction with correspondence from the client in order to refine our estimate.

Variances from initial gross premiums written estimates are generally greater for quota share contracts than for excess of loss contracts.

All premiums on quota share contracts are earned over the risk coverage period.

Our client estimates gross premiums written at the contract’s inception for each proportional contract we underwrite.

We generally account for such premiums using our best estimates and then adjust our estimates based on our client’s actual reports and based on our expectations of industry developments.

As the contract progresses, we monitor actual premiums received in conjunction with the client’s correspondence to refine our estimate.

Variances from initial gross premiums written estimates are generally greater for proportional contracts than for non-proportional contracts.

We earn premiums on proportional contracts over the risk coverage period.

Unearned premiums represent the unexpired portion of reinsurance provided.

At the inception of each of our reinsurance contracts, we receive premium estimates from the client, which, together with historical and industry data, are used to estimate what we believe will be the ultimate premium payable pursuant to each contract.

We receive actual premiums written by each client as the client reports the actual results of the underlying insurance writings to us on a monthly or quarterly basis (depending on the terms of the contract).

At the inception of each of our reinsurance contracts, we receive premium estimates from the client, which, we use in conjunction with historical and and industry data to estimate what we believe will be the ultimate premium payable under each contract.

We receive actual premiums written by each client as the client reports the actual results of the underlying insurance

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writings to us monthly or quarterly (depending on the contract).

We book the actual premiums written when we receive them from our client.

Each reporting period we estimate the amount of premiums that are written for stub periods that have not yet been reported to us by the client.

Each reporting period we estimate the premiums written for stub periods that have not yet been reported to us by the client.

For example, at year-end we may have to estimate December premiums ceded under certain contracts since the client may not be required to report the actual results to us until after we have issued our audited consolidated financial statements.

Typically, premium estimates are only used for unreported stub periods, which account for a small percentage of our total premiums written.

We are able to confirm the accuracy and completeness of premiums reported by our clients by either reviewing the client’s statutory filings and/or performing an audit of the client, in accordance with the terms of the contract.

Typically, we only use premium estimates for unreported stub periods, which account for a small percentage of our total premiums written.

We confirm the accuracy and completeness of premiums reported by our clients by reviewing the client’s statutory filings or performing an audit of the client under the contract terms.

Discrepancies between premiums ceded and reported under a contract are, in our experience, rare.

To date, we have not had any material discrepancy in premiums reported by a client that required a formal dispute resolution process.

To date, we have not had any material difference in premiums reported by a client that required a formal dispute resolution process.

Assessing whether a reinsurance contract meets the conditions for risk transfer requires judgment.

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If we determine that a reinsurance contract does not transfer sufficient risk to merit reinsurance accounting treatment, the premium we receive is reported as a deposit liability.

Similarly, for ceded contracts that do not transfer sufficient risk to merit reinsurance accounting, the premium we pay is reported as a deposit asset.

Any gains or losses on deposit accounted contracts are calculated using the interest method and recorded in the consolidated statements of operations as other income or expense.

Our investment in SILP is carried at fair value, based on the most recent net asset value obtained from SILP’s third party administrators.

Other investments include private and unlisted equity securities that do not have readily determinable fair values.

The carrying values of these private equity securities are determined based on the original cost, reviewed for impairment and any subsequent changes in the valuation based on any recent observable transactions of those securities.

For “other investments” any realized and unrealized gains or losses are determined on the basis of specific identification method (by reference to cost or amortized cost, as appropriate) and included in net investment income (loss) in the consolidated statements of operations.

Similarly, we report the premium we pay as a deposit asset for ceded contracts that do not transfer sufficient risk to merit reinsurance accounting.

Any gains or losses on deposit accounted contracts are calculated using the interest method and recorded in the consolidated statements of operations under the caption “Other income (expense).”

We carry our investment in SILP at fair value, based on the most recent net asset value obtained from SILP’s third-party administrator.

The caption “Other investments” in our consolidated balance sheets includes private and unlisted equity securities that do not have readily determinable fair values.

We determine these private equity securities’ carrying value based on the original cost, reviewed for impairment and any subsequent changes in the valuation based on any recent observable transactions.

We determine realized gains and losses from other investments based on specific identification method (by reference to cost or amortized cost, as appropriate).

These gains and losses are included in the captions “Net investment income (loss)” in the consolidated statements of operations.

Loss and Loss Adjustment Expense Reserves.

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(ii) we obtain additional information, experience or other data;

(iii) new or improved methodologies are developed;

or (iv) changes in the legal environment occur.

(iii) we develop new or improved methodologies;

or (iv) we observe changes in the legal environment.

Our loss and LAE reserves relating to short-tail property risks are typically reported to us and settled more promptly than those relating to our long-tail risks.

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Our loss and LAE reserves are composed of case reserves (which are based on claims that have been reported to us) and IBNR reserves.

Our case reserve estimates are initially determined on the basis of loss reports received.

Our IBNR reserve estimates are determined using various actuarial methods as well as a combination of our own historical and current loss experience,

We determine case reserve estimates based on loss reports received.

We determine our IBNR reserve estimates using various actuarial methods as well as a combination of our own historical and current loss experience, insurance industry loss experience, assessments of pricing adequacy trends and our professional judgment.

In estimating our IBNR reserve, we project our estimated ultimate loss and LAE reserves and then subtract paid claims and case reserves to arrive at our IBNR reserve.

The nature and extent of our judgment in the reserving process depend in part upon the type of business.

Some of our property treaty reinsurance contracts represent business with both a low frequency of claims occurrence and a high potential severity of loss, such as claims arising from natural catastrophes.

Given the high-severity, low-frequency nature of these events, the losses typically generated by them do not lend themselves to traditional actuarial reserving methods, such as statistical calculations of a range of estimates surrounding the best point estimate of our loss and LAE reserves.

Therefore, our reserving approach for this type of business estimates the ultimate cost associated with a single loss event rather than analyzing the historical development patterns of past losses as a means of estimating the ultimate losses for an entire accident year.

We estimate our reserves for these large events on a contract-by-contract basis by reviewing policies with known or potential exposure to a particular loss event.

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insurance industry loss experience, estimates of pricing adequacy trends and our professional judgment.

The process we use to estimate our IBNR reserves involves projecting our estimated ultimate loss and LAE reserves and then subtracting paid claims and case reserves as notified by the ceding company, to arrive at our IBNR reserve.

The nature and extent of our judgment in the reserving process depends in part upon the type of business.

Some of our property treaty reinsurance contracts represent business which has both a low frequency of claims occurrence and a high potential severity of loss, such as claims arising from natural catastrophes.

Given the high-severity, low-frequency nature of these events, the losses typically generated therefrom do not lend themselves to traditional actuarial reserving methods, such as statistical calculations of a range of estimates surrounding the best point estimate of our loss and LAE reserves.

Therefore, our reserving approach for this type of business is to estimate the ultimate cost associated with a single loss event rather than analyzing the historical development patterns of past losses as a means of estimating ultimate losses for an entire accident year.

We estimate our reserves for these large events on a contract-by-contract basis by means of a review of policies with known or potential exposure to a particular loss event.

For non-catastrophe losses, we often apply trend-based actuarial methodologies in setting reserves, including paid and incurred loss development, Bornheutter-Ferguson, and frequency and severity techniques.

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The weight given to a particular method will depend on many factors, including the homogeneity within the class of business, the volume of losses, the maturity of the accident year, and the length of the expected development tail.

For example, development methods rely on reported losses, while expected loss ratio methods are typically based on expectations established prior to a notification of loss.

For example, development methods rely on reported losses, while expected loss ratio methods typically rely on expectations established before notification of loss.

Therefore, as an accident year matures, we may migrate from an expected loss ratio method to an incurred development method.

Reserving can prove especially difficult should a significant loss take place near the end of a financial reporting period, particularly if the loss involves a catastrophic event.

Reserving can prove especially difficult should a significant loss occur near the end of a financial reporting period, particularly if the loss involves a catastrophic event.

These factors further contribute to the degree of uncertainty in our reserving process.

As a predominantly broker-market reinsurer for both excess-of-loss and proportional contracts, we must rely on loss information reported to brokers by primary insurers who, in turn, must estimate their own losses at the policy level, often based on incomplete and changing information.

As a predominantly broker-market reinsurer for both excess-of-loss and proportional contracts, we must rely on loss information reported to brokers by primary insurers who, in turn, must estimate their losses at the policy level, often based on incomplete and changing information.

The information we receive varies by cedent and may include paid losses, estimated case reserves and an estimated provision for IBNR reserves.

Reserving practices and the quality of data reporting vary among ceding companies, which adds further uncertainty to the estimation of our ultimate losses.

Reserving practices and data reporting quality vary among ceding companies, which adds further uncertainty to our estimation of ultimate losses.

The nature and extent of information received from ceding companies and brokers also vary widely depending on the type of coverage, the contractual reporting terms (which are affected by market conditions and practices), and other factors.

Due to the lack of standardization of the terms and conditions of reinsurance contracts, the wide variability of coverage provided to individual clients and the tendency of those coverages to change rapidly in response to market conditions, the ongoing economic impact of such uncertainties and inconsistencies cannot always be reliably measured.

Due to the lack of standardization of the terms and conditions of reinsurance contracts, the wide variability of coverage provided to individual clients, and the tendency of those coverages to change rapidly in response to market conditions, we cannot always reliably measure the ongoing economic impact of such uncertainties and inconsistencies.

Time lags are inherent in loss reporting, especially in the case of excess-of-loss reinsurance contracts.

The combined characteristics of low claim frequency and high claim severity make the available data less useful for predicting ultimate losses.

In the case of proportional contracts, we rely on an analysis of a cedent’s historical experience, industry information and the professional judgment of underwriters in estimating reserves for these contracts.

In addition, we utilize ultimate loss ratio forecasts when reported by cedents and brokers, which are normally subject to three to six month lags for proportional business.

In the case of proportional contracts, we rely on an analysis of a cedent’s historical experience, industry information, and the underwriters’ professional judgment in estimating reserves for these contracts.

We also utilize ultimate loss ratio forecasts when reported by cedents and brokers, which are ordinarily subject to three to six-month lags for proportional business.

Due to the degree of reliance we place on ceding companies for claims reporting, our reserve estimates are highly dependent on ceding companies’ judgment.

Furthermore, during the loss settlement period, which may last several years, additional facts regarding individual claims and trends often will become known and case law may change, which can affect ultimate expected losses.

Since we rely on ceding company estimates of case and IBNR reserves in the process of establishing our own loss and LAE reserves, we maintain certain procedures designed to mitigate the risk that such information is incomplete or inaccurate.

Furthermore, during the loss settlement period, which may last several years, additional facts regarding individual claims and trends will often become known and case law may change, affecting ultimate expected losses.

Since we rely on ceding company estimates of case and IBNR reserves in the process of establishing our loss and LAE reserves, we maintain procedures designed to mitigate the risk that such information is incomplete or inaccurate.

These procedures may include:

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and (iii) underwriting reviews to ascertain that the losses ceded are covered as provided under the contract terms.

In addition, each subsequent year of loss experience with a given cedent provides additional insight into the accuracy and timeliness of previously reported information.

Each subsequent year of loss experience with a given cedent also provides additional insight into the accuracy and timeliness of previously reported information.

These procedures are incorporated in our internal controls and are regularly evaluated and amended as market conditions, risk factors, and unanticipated areas of exposure develop.

We monitor the development of our prior-year losses during the course of subsequent calendar years by comparing the actual reported losses against previous estimates.

The analysis of this loss development is an important factor in our ongoing refinement of the assumptions underlying our reserving process.

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Estimating loss reserves for our book of longer-tail casualty reinsurance business, which can be written on an excess-of-loss or proportional basis, involves further uncertainties.

We monitor the development of our prior-year losses during subsequent calendar years by comparing the actual reported losses against previous estimates.

The analysis of this loss development is an essential factor in the ongoing refinement of our reserving process’s assumptions.

Estimating loss reserves for our book of longer-tail casualty reinsurance business, which we write on proportional and non-proportional basis, involves further uncertainties.

In addition to the uncertainties inherent in the reserving process referred to above, casualty business can be subject to longer reporting lags than property business, and claims often take several years to settle.

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There is also the potential for the emergence of new types of losses within our casualty book.

Therefore, any factors that extend the time until claims are settled add uncertainty to the reserving process.

Therefore, any factors that extend the time until our cedents settle claims add uncertainty to the reserving process.

Furthermore, determining the appropriate level of casualty reserves is largely dependent upon our view of premium rates at any given time.

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The uncertainties inherent in the reserving process, together with the potential for unforeseen developments, including changes in laws and the prevailing interpretation of policy terms, may result in our loss and LAE reserves being materially greater or less than the loss and LAE reserves we initially established.

Any adjustments to our loss and LAE reserves are reflected in our financial results during the period in which they are determined.

Changes to our prior year loss reserves will impact our current underwriting results by improving our results if the prior year reserves prove to be redundant or impairing our results if the prior year reserves prove to be insufficient.

We believe that our reserves for loss and LAE are sufficient to cover losses that fall within the terms of our policies and agreements with our insured and reinsured customers on the basis of the methodologies used to estimate those reserves.

We can provide no assurance, however, that actual losses will not (i) be less than or (ii) exceed our total established reserves.

We reflect adjustments to our loss and LAE reserves in our financial results during the period in which they are determined.

Changes to our prior year loss reserves will impact our

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current underwriting results by improving our results if the prior year reserves prove redundant or impairing our results if the prior year reserves prove insufficient.

We believe that our reserves for loss and LAE are sufficient to cover losses that fall within the terms of our policies and agreements with our insured and reinsured customers based on the methodologies used to estimate those reserves.

However, we can provide no assurance that actual losses will not (i) be less than or (ii) exceed our total established reserves.

Please refer to Notes 2 and 7 of our consolidated financial statements for a more detailed explanation of our loss reserving methodology and the loss development tables by accident year, respectively, as required under U.S.

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a discretionary component based on a qualitative assessment of each employee’s performance and a quantitative component based on the return on deployed equity (“RODE”) for each underwriting year relating to reinsurance operations.

The qualitative portion of an employee’s annual bonus is accrued quarterly at each employee’s prorata target amount and updated to actual at year end .

The quantitative portion of each employee’s annual bonus is accrued based on the expected RODE for each underwriting year and adjusted for changes in the expected RODE and actual investment return each quarter until all losses are settled and the underwriting year is declared closed.

The quantitative bonus is calculated and paid in annual installments between three to five years from the end of the fiscal year in which the business was underwritten.

Any subsequent changes to the quantitative bonus are incorporated into the following open underwriting year.

The Compensation Committee of our Board of Directors approves all quantitative bonuses prior to being paid.

The qualitative portion of an employee’s annual bonus is accrued quarterly at each employee’s pro rata target amount and updated to actual at year-end.

We accrue the quantitative portion of each employee’s annual bonus based on the expected RODE for each underwriting year.

We then adjust this accrual for changes in the expected RODE and actual investment return each quarter until we have settled all losses, or the Compensation Committee of our Board of Directors declares the underwriting year closed.

We incorporate any subsequent changes to any open underwriting year’s quantitative bonus into the following underwriting year.

The Compensation Committee of our Board of Directors approves all quantitative bonuses before their payment dates.

The initial RODE calculation utilizes proprietary models which require significant estimation and judgment.

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We have established a stock incentive plan for directors, employees and consultants.

We recognize share-based compensation transactions using the fair value at the grant date of the award.

We recognize share-based compensation transactions using the fair value at the award’s grant date.

We calculate the compensation for restricted stock awards and restricted stock units (“RSUs”) based on the price of the Company’s common shares at the grant date.

We recognize the associated expense, adjusted for estimated forfeitures, over the vesting period and incorporating the probability of any performance conditions being met.

We recognize the associated expense, adjusted for estimated forfeitures, over the vesting period and incorporate the probability of meeting any performance conditions.

We estimate the forfeiture rate for restricted stock awards and RSUs based on our historical experience and our expectations of future forfeitures.

The forfeiture rate reduces the unamortized grant date fair value of unvested outstanding restricted stock awards and RSUs as well as the associated stock compensation expense.

As restricted shares and RSUs are forfeited, the number of outstanding restricted shares and RSUs is reduced and the remaining unamortized grant date fair value is compared to the assumed forfeiture levels, and if deemed necessary, true-up adjustments are recorded.

The forfeiture rate reduces the unamortized grant date fair value of unvested outstanding restricted stock awards and RSUs and the associated stock compensation expense.

As restricted shares and RSUs are forfeited, we reduce the number of outstanding restricted shares and RSUs and compare the remaining unamortized grant date fair value to the assumed forfeiture levels.

We record true-up adjustments as deemed necessary.

For the year ended December 31, 2020, we have assumed a forfeiture rate of 7.0% (2019:

7.0% and 2018:

6.0% ) for restricted stock awards and RSUs granted, in order to reflect the anticipated forfeitures and more accurately record the share-based compensation expense.

Share purchase options are expensed over the vesting period on a graded vesting basis.

7.0%) for restricted stock awards and RSUs granted.

We recognize the expense of share purchase options over the vesting period on a graded vesting basis.

Determining the fair value of share option awards at the grant date requires significant estimation and judgment.

We use an option-pricing model (Black-Scholes pricing model) to assist in the calculation of fair value.

The estimate of expected volatility is based on the daily historical trading data of our Class A ordinary shares from the date that these shares commenced trading (May 24, 2007) to the grant date.

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If actual results differ significantly from these estimates and assumptions, particularly in relation to our estimation of volatility which requires significant judgment, share-based compensation expense, primarily with respect to future share-based awards, could be materially impacted.

We use an option-pricing model (Black-Scholes pricing model) to assist in calculating of fair value.

We base the estimate of expected volatility on our Class A ordinary shares’ daily historical trading data from the date that these shares commenced trading (May 24, 2007) to the grant date.

If actual results differ significantly from these estimates and assumptions, particularly concerning our estimation of volatility and forfeiture rates, share-based compensation expense, primarily relating to future share-based awards, could be materially impacted.

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.

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

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

Non-GAAP financial measures should not be viewed as a substitute for those determined in accordance with U.S.

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

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

Non-GAAP financial measures should not be viewed as a substitute for those determined under U.S.

The key non-GAAP financial measures used in this report are:

Basic adjusted book value per share;

Fully diluted adjusted book value per share;

• Basic book value per share;

• Fully diluted book value per share;

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• Adjusted combined ratio;

• Net underwriting income (loss).

These non-GAAP measures are described below.

Basic Adjusted Book Value Per Share and Fully Diluted Adjusted Book Value Per Share

We believe that long-term growth in fully diluted adjusted 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 adjusted book value per share may be useful to our investors, shareholders and other interested parties to form a basis of comparison with other companies within the property and casualty reinsurance industry.

Basic adjusted book value per share is considered a non-GAAP financial measure because the numerator excludes non-controlling interests in the Joint Venture.

The Joint Venture was terminated during the first quarter of 2019, and as a result no such adjustment is required as at December 31, 2019 .

Fully diluted adjusted book value per share is also considered a non-GAAP financial measure and represents basic adjusted 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 adjusted book value per share includes the dilutive effect, if any, of ordinary shares to be issued upon conversion of the convertible notes.

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

Basic Book Value Per Share and Fully Diluted Book Value Per Share

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

Fully diluted book value per share may also help our investors, shareholders and other interested parties form a basis of comparison with other companies within the property and casualty reinsurance industry.

We calculate basic book value per share based on 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 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.

Fully diluted book value per share also 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.

GAAP measures.

Our primary financial goal is to increase fully diluted adjusted book value per share over the long term.

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The following table presents a reconciliation of the non-GAAP financial measures basic adjusted and fully diluted adjusted book value per share to the most comparable U.S.

Our primary financial goal is to increase fully diluted book value per share over the long term.

The following table presents a reconciliation of the non-GAAP financial measures basic and fully diluted book value per share to the most comparable U.S.

GAAP measure.

December 31, 2019

December 31, 2018

December 31, 2017

December 31, 2020 December 31, 2019 December 31, 2018

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

Numerator for basic adjusted and fully diluted adjusted book value per share:

Numerator for basic and fully diluted book value per share:

Total equity (U.S.

Non-controlling interest in joint venture

Numerator for basic adjusted book value per share

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

Numerator for fully diluted adjusted book value per share

Denominator for basic adjusted and fully diluted adjusted book value per share:

Ordinary shares issued and outstanding (denominator for basic adjusted book value per share)

GAAP) (numerator for basic and fully diluted book value per share) $ 464,857 $ 477,183 $ 477,772

Denominator for basic and fully diluted book value per share:

Ordinary shares issued and outstanding (denominator for basic book value per share) 34,514,790 36,994,110 36,384,929

In-the-money stock options and RSUs issued and outstanding 116,722 63,582 46,398

Denominator for fully diluted adjusted book value per share

Basic adjusted book value per share

Increase (decrease) in basic adjusted book value per share ($)

Increase (decrease) in basic adjusted book value per share (%)

Fully diluted adjusted book value per share

Increase (decrease) in fully diluted adjusted book value per share ($)

Increase (decrease) in fully diluted adjusted book value per share (%)

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

As of December 31, 2019, the number of unvested restricted shares with performance conditions was 356,900 (30,660 and 0, as of December 31, 2018 and December 31, 2017, respectively).

Denominator for fully diluted book value per share 34,631,512 37,057,692 36,431,327

Basic book value per share $ 13.47 $ 12.90 $ 13.12

Increase (decrease) in basic book value per share ($) $ 0.57 $ (0.22) $ (9.13)

Increase (decrease) in basic book value per share (%) 4.4 % (1.7) % (41.0) %

Fully diluted book value per share $ 13.42 $ 12.88 $ 13.10

Increase (decrease) in fully diluted book value per share ($) $ 0.54 $ (0.22) $ (9.12)

Increase (decrease) in fully diluted book value per share (%) 4.2 % (1.7) % (41.0) %

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

As of December 31, 2020, the number of unvested restricted shares with performance conditions was 193,149 (December 31, 2019:

356,900, December 31, 2018:

Adjusted combined ratio

“Combined ratio” is a commonly used measure in the property and casualty insurance industry, and is calculated using U.S.

GAAP components.

We use the combined ratio, as well as an adjusted combined ratio that excludes the impacts of certain items, to evaluate our underwriting performance.

We believe this adjusted non-GAAP measure provides management and financial statement users with a better understanding of the factors influencing our underwriting results.

In calculating the adjusted combined ratio, we exclude underwriting losses attributable to (i) prior accident-year reserve development, (ii) catastrophe losses, and (iii) certain significant, infrequent loss events.

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• Prior accident-year reserve development, which can be favorable or unfavorable, represents changes in our estimates of losses and loss adjustment expenses associated with loss events that occurred in prior years.

We believe a discussion of current accident-year performance, which excludes prior accident-year reserve development, is helpful since it provides more insight into current underwriting performance.

• By their nature, catastrophe losses and other significant, infrequent loss events are not representative of the type of loss activity that we would expect to occur in every period.

For example, the COVID-19 pandemic has certain characteristics that are unlike those of any other event in recent history.

We believe an adjusted combined ratio that excludes the effects of items such as these aids in understanding the underlying trends and variability in our underwriting results that may be obscured by these items.

The following table reconciles the combined ratio to the adjusted combined ratio:

Year ended December 31

2020 2019 2018

Combined ratio 100.4 % 106.9 % 102.8 %

Impact on combined ratio of selected items:

Prior-year development 0.8 % 6.2 % 1.5 %

Catastrophes 2.0 % 3.6 % 3.7 %

COVID-19 1.6 % — % — %

Adjusted combined ratio 96.0 % 97.1 % 97.6 %

Net Underwriting Income (Loss)

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We do not use premiums written as a measure of performance.

Net underwriting income (loss) is a performance measure used by management as it measures the fundamentals underlying the Company’s underwriting operations.

Net underwriting income (loss) is a performance measure used by management to measure the fundamentals underlying the Company’s underwriting operations.

We believe that the use of net underwriting income (loss) enables investors and other users of the Company’s financial information to analyze our performance in a manner similar to how management analyzes performance.

Management also believes that this measure follows industry practice and allows the users of financial information to compare the Company’s performance with its those of our industry peer group.

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.

Management also believes that this measure follows industry practice and allows the users of financial information to compare the Company’s performance with those of our industry peer group.

Net underwriting income (loss) is considered a non-GAAP financial measure because it excludes items used to calculate net income before taxes under U.S.

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

The measure excludes, on a recurring basis:

(1) investment income (loss);

(2) other income (expense) not related to underwriting, including foreign exchange gains or losses;

(2) other income (expense) not related to underwriting, including foreign exchange gains or losses and adjustments to the allowance for expected credit losses;

(3) corporate general and administrative expenses;

(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 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.

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Year ended December 31

2020 2019 2018

($ in thousands)

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Add (subtract):

Investment related (income) loss

Total investment (income) loss (25,532) (52,267) 323,106

Other non-underwriting (income) expense (686) 467 1,943

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Year ended December 31

2020 2019 2018

(in thousands, except percentages)

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Net premiums earned 455,411 483,580 508,363

Underwriting expenses

Underwriting related expenses

Loss and LAE incurred, net

Current year 333,096 357,237 363,871

Prior year * 4,737 31,250 2

Loss and LAE incurred, net 337,833 388,487 363,873

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Underwriting expenses 12,365 14,262 13,114

Deposit accounting expense (income)

Deposit accounting and other reinsurance expense (income) (2,463) (2,773) 285

Underwriting income (loss) (1,612) (33,480) (14,384)

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Net investment income (loss) 21,101 6,211 (262,533)

Net investment result

Net income (loss)

Total investment income (loss) $ 25,532 $ 52,267 $ (323,106)

Net income (loss) attributable to Greenlight Capital Re, Ltd.

$ 3,866 $ (3,986) $ (350,054)

Loss ratio - current year 73.1 % 73.9 % 71.6 %

Loss ratio - prior year 1.0 % 6.5 % — %

Loss ratio 74.2 % 80.3 % 71.6 %

Acquisition cost ratio 24.0 % 24.2 % 28.6 %

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Combined ratio 100.4 % 106.9 % 102.8 %

* 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 $30.1 million , $7.4 million, and $31.5 million in 2019, 2018 and 2017, respectively.

* The net adverse 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 $3.7 million, $30.1 million, and $7.4 million in 2020, 2019, and 2018, respectively.

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Results of operations for 2019 compared to 2018

For the year ended December 31, 2019 , fully diluted adjusted book value per share decreased by $0.22 per share, or 1.7% , to $12.88 per share from $13.10 per share at December 31, 2018 .

For the year ended December 31, 2019 , the basic adjusted book value per share decreased by $0.22 per share, or 1.7% , to $12.90 per share at December 31, 2019.

For the year ended December 31, 2019 , the net loss attributable to the Company was $4.0 million , compared to a net loss attributable to the Company of $350.1 million reported for the year ended December 31, 2018 .

The developments that most significantly affected our financial performance during the year ended December 31, 2019 , on a comparative basis to 2018 , are provided below:

• Underwriting loss - The underwriting loss for the year ended December 31, 2019 was $33.5 million , primarily resulting from adverse loss development on our private automobile business.

While we generally consider automobile exposures to be short-tailed, in 2019 we experienced unanticipated losses in this line due to adverse rulings that affected a significant number of claims in Florida, including many claims that previously had been considered closed.

The rulings impacted loss events that occurred between 2015 and early 2018.

For the year ended December 31, 2019 , the overall net financial impact associated with adverse loss development related to prior years was a loss of $30.1 million for the year ended December 31, 2019 .

Catastrophe events during the year ended December 31, 2019 , including Hurricane Dorian and Typhoons Faxai and Hagibis, contributed $17.4 million to the underwriting loss for the year ended December 31, 2019 .

By comparison, the catastrophe events during 2018, including Hurricanes Florence, Michael, California wildfires and Typhoon Jebi, contributed $18.9 million to the underwriting loss for the year ended December 31, 2018 .

As a result of the underwriting loss, our overall composite ratio was 104.5% for the year ended December 31, 2019 , compared to 100.2% during the year ended December 31, 2018 .

The higher composite ratio included 6.5% loss ratio points relating to prior period loss development and 3.6% loss ratio points relating to catastrophe losses during 2019 fiscal year.

• Investment income and losses - Our net investment related income for the year ended December 31, 2019 was $52.3 million , including a return of 9.3% on our Investment Portfolio, compared to an investment loss of $323.1 million , or a return of (30.3)% on our investments managed by DME Advisors, during the year ended December 31, 2018 .

Year ended 2020 compared to 2019

For the year ended December 31, 2020, the fully diluted book value per share increased by $0.54 per share, or 4.2%, to $13.42 per share from $12.88 per share on December 31, 2019.

For the year ended December 31, 2020, the basic book value per share increased by $0.57 per share, or 4.4%, to $13.47 per share from $12.90 per share on December 31, 2019.

The increases in basic and fully diluted book value per share for the year ended December 31, 2020 were due primarily to (i) share repurchases executed, (ii) net income earned, and (iii) restricted shares forfeited during the year.

For the year ended December 31, 2020, the net income was $3.9 million, compared to a net loss attributable to the Company of $4.0 million reported for the year ended December 31, 2019.

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

• Underwriting:

The underwriting loss for the year ended December 31, 2020, was $1.6 million on net earned premiums of $455.4 million.

By comparison, the underwriting loss for the same period in 2019 was $33.5 million on net earned premiums of $483.6 million, primarily resulting from adverse loss development on our private passenger automobile business.

Catastrophe events during the year ended December 31, 2020, including Hurricane Laura, Isaias, and Sally, the Midwest derecho storms, and North American wildfires contributed $9.0 million to the underwriting loss.

Additionally, COVID-19 contributed $7.1 million to the underwriting loss for the year ended December 31, 2020.

By comparison, the catastrophe events during 2019, including Hurricane Dorian and Typhoons Faxai and Hagibis, contributed $17.4 million to the underwriting loss for the year ended December 31, 2019.

Our overall combined ratio was 100.4% for the year ended December 31, 2020, compared to 106.9% during the same period in 2019.

Excluding the impacts of prior year development, catastrophe events, and COVID-19, the adjusted combined ratio for the year ended December 31, 2020, was 96.0%, compared to 97.1% in 2019.

• Investments:

Our total investment income for the year ended December 31, 2020 was $25.5 million compared to total investment income of $52.3 million reported during 2019.

Investment income for the year ended December 31, 2020 included a) $4.4 million on our investment in SILP, b) $10.2 million gain on our Innovations and other strategic investments and c) $5.8 million gain on settlement of a note receivable.

Underwriting results

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($ in thousands)

As a result of our underwriting philosophy, our premiums written may vary significantly from one period to the next.

Additionally, the mix of premiums written between property, casualty and other business may vary from period to period depending on the specific market opportunities that we pursue.

Property $ 58,463 12.2 % $ 85,957 16.4 %

Casualty 302,237 63.0 362,374 69.2

Other 119,091 24.8 75,646 14.4

Total $ 479,791 100.0 % $ 523,977 100.0 %

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

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Increase (decrease)

($ in millions)

The decrease in property gross premiums written during the year ended December 31, 2019 over the year ended December 31, 2018 was primarily related to certain motor contracts that we elected not to renew.

The decrease from these contracts was partially offset by new and renewed motor contracts written during 2019 as well as an increase in commercial property premiums.

The decrease in casualty gross premiums written during the year ended December 31, 2019 over the year ended December 31, 2018 was primarily related to certain motor contracts that we elected not to renew.

The decrease from these contracts was partially offset by new and renewed motor, workers’ compensation and multi-line contracts written during 2019.

The decrease in “other” gross premiums written during the year ended December 31, 2019 over the year ended December 31, 2018 was primarily related to a medical stop-loss contract we elected not to renew.

This decrease was partially offset by premiums from new contracts relating to financial, crop, energy and other specialty lines.

($ in millions) % change Explanation

Property $(27.5) (32.0)% The decrease in property gross premiums written during the year ended December 31, 2020 over the comparable 2019 period was due primarily to motor contracts that we elected not to renew in the third quarter of 2019.

Lower premium volumes on in-force motor contracts also contributed to the decrease.

Casualty $(60.1) (16.6)% The decrease in casualty gross premiums written during the year ended December 31, 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 motor contracts.

An increase in workers’ compensation premiums compared to the same period in 2019 partially offset the decrease described above.

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

Our expanded relationships with Lloyd’s corporate members and syndicates also increased the amount of multi-line business we wrote during 2020 compared to 2019.

Other $43.4 57.4% The increase in “Other” gross premiums written during the year ended December 31, 2020 over the comparable 2019 period was primarily attributable to new contracts relating to crop, energy, cyber and other specialty lines.

An increase in health premiums resulting from strategic partnerships and Innovations also contributed to the year-on-year increase.

Transactional liability premiums decreased during 2020, reflecting a reduction in M&A activity compared to 2019.

This decrease, due in part to the COVID-19 pandemic, partially offset the increase noted above.

Premiums Ceded

For the year ended December 31, 2019 , retrocessional premiums ceded decrease d by $54.1 million , or 52.7% , to $48.7 million compared to $102.8 million for the year ended December 31, 2018 .

This decrease in ceded premiums was primarily related to our non-renewal of inward motor contracts in 2019, which resulted in us not renewing the outward retrocession contracts in 2019.

We expect the remaining impact of the non-renewed retrocession contracts to flow through during 2020.

Additionally, during 2019 we reduced the amount of retrocessional coverage that we purchased relating to catastrophe exposure compared to the same period in 2018.

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.

For the year ended December 31, 2020, premiums ceded decreased by $46.4 million, or 95.3%, to $2.3 million compared to $48.7 million for the year ended December 31, 2019.

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

The decrease in premiums ceded for the year ended December 31, 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, leverage areas of expertise, and improve our strategic position in meeting clients’ and brokers’ needs.

Net Premiums Written

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($ in thousands)

The movement in net premiums written was the net result of the increases or decreases in gross premiums written and premiums ceded as explained in the preceding paragraphs.

Property $ 58,033 12.2 % $ 74,802 15.7 %

Casualty 300,546 62.9 325,460 68.5

Other 118,944 24.9 75,048 15.8

Total $ 477,523 100.0 % $ 475,310 100.0 %

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

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($ in thousands)

Net premiums earned are primarily a function of the amount and timing of net premiums previously written.

On occasion, there will be a significant difference between the change in net premiums written compared to the change in net premiums earned.

The only such difference that occurred during the periods presented related to the motor contracts that we did not renew during 2019 and the premiums written on new contracts during 2019 which will be earned over the remaining contract term in the future.

As a result, net premiums written increased by $10.6 million, or 2.3%, from 2018 to 2019, while net premiums earned decreased by $24.8 million, or 4.9%, during the same period.

Property $ 59,066 13.0 % $ 77,960 16.1 %

Casualty 289,501 63.5 325,575 67.3

Other 106,844 23.5 80,045 16.6

Total $ 455,411 100.0 % $ 483,580 100.0 %

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

Loss and Loss Adjustment Expenses Incurred, Net

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($ in thousands)

Our loss ratio fluctuates based on the mix of business, and any favorable or adverse loss development we experience.

Property $ 41,156 12.2 % $ 64,565 16.6 %

Casualty 207,572 61.4 265,021 68.2

Other 89,105 26.4 58,901 15.2

Total $ 337,833 100.0 % $ 388,487 100.0 %

The below table summarizes the loss ratios for the years ended December 31, 2020, and 2019:

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2020 2019 Increase / (decrease) in loss ratio points

Property 69.7 % 82.8 % (13.1) %

Casualty 71.7 % 81.4 % (9.7) %

Other 83.4 % 73.6 % 9.8 %

Total 74.2 % 80.3 % (6.1) %

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Increase (decrease)

($ in millions)

Increase / (decrease) in loss ratio points

The increase in property losses incurred during the year ended December 31, 2019 over the year ended December 31, 2018 related primarily to adverse prior year loss development on private passenger automobile physical damage business.

To a lesser extent, the 2019 catastrophe events also increased the property losses during the year ended December 31, 2019.

These increases were partially offset by favorable loss development relating to the 2018 wildfires.

The adverse prior year loss development on automobile physical damage business was the primary driver of the 7.2% increase in the property loss ratio during the year ended December 31, 2019 as compared to the prior year period.

The increase in casualty losses incurred during the year ended December 31, 2019 over the comparable year ended December 31, 2018 related primarily to adverse prior year loss development on private passenger automobile liability business.

To a lesser extent, the increase in workers’ compensation business also contributed to the higher losses incurred during the year ended December 31, 2019.

These increases were partially offset by lower losses on professional liability, general liability and multi-line contracts.

The adverse loss development experienced on automobile liability business was the primary driver of the 5.9% increase in the casualty loss ratio during the year ended December 31, 2019 as compared to 2018.

The increase in “other” losses incurred during the year ended December 31, 2019 over the comparable year ended December 31, 2018 related primarily to satellite losses from failed launches during 2019.

While some of the legacy health contracts reported adverse loss development, the overall losses incurred from health contracts decreased due to fewer health contracts in force during 2019.

The 17.6% increase in loss ratio was driven by (i) adverse development experienced on certain health contracts, (ii) satellite losses from failed launches in 2019, (iii) favorable prior year development on mortgage contracts recognized during 2018, and (iv) a reduction in mortgage business earned during the year ended December 31, 2019.

Mortgage contracts generally incorporate relatively low loss ratios.

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

Property $(23.4) (13.1)% The decrease in property losses incurred during the year ended December 31, 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 resulting from fewer motorists on the roads at peak traffic times due to the COVID-19 pandemic.

The decreases 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 storms, and the North American wildfires during the year ended December 31, 2020.

The property loss ratio decreased 13.1 percentage point during the year ended December 31 2020, over the equivalent 2019 period, primarily due to the reduced level of adverse prior year loss development.

Casualty $(57.4) (9.7)% The decrease in casualty losses incurred during the year ended December 31, 2020, as compared to the equivalent 2019 period related primarily to:

• significant adverse loss development recognized during 2019,

• favorable loss development on professional liability contracts,

• the non-renewal of certain motor contracts,

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

While the casualty losses incurred and loss ratio decreased for 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 2020 and (ii) COVID-19 pandemic related claims incurred on non-motor contracts.

Overall, the reduced level of adverse prior year loss development recognized during the year ended December 31, 2020 was the primary driver of the 9.7 percentage point decrease in the casualty loss ratio compared to the equivalent 2019 period.

Other $30.2 9.8% The increase in “Other” losses incurred during the year ended December 31, 2020 over the comparable 2019 period was related primarily to loss reserves for mortgage contracts resulting from the COVID-19 pandemic.

Reductions in profit commissions we pay to cedents on these contracts significantly reduced the net financial impact of the increased loss reserves (also see “Acquisitions Costs, Net” below).

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

The mortgage and crop contracts contributed to the 9.8 percentage points increase in “Other” loss ratio during the year ended December 31, 2020, compared to the equivalent 2019 period.

See “Part II, Item 7.

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LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES” in our Notes to the consolidated financial statements for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.

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Acquisition Costs, Net

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($ in thousands)

Property $ 12,040 11.0 % $ 14,496 12.4 %

Casualty 78,676 72.0 77,057 65.8

Other 18,572 17.0 25,531 21.8

Total $ 109,288 100.0 % $ 117,084 100.0 %

The acquisition cost ratios for the years ended December 31, 2020, and 2019, were as follows:

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Year ended December 31

2020 2019 Increase / (decrease)

Property 20.4 % 18.6 % 1.8 %

Casualty 27.2 % 23.7 % 3.5 %

Other 17.4 % 31.9 % (14.5) %

Total 24.0 % 24.2 % (0.2) %

The changes in the acquisition cost ratios during the year ended December 31, 2020, compared to the year ended December 31, 2019 were attributable to the following:

Increase / (decrease) in acquisition cost ratio points

The decrease in the property acquisition cost ratio during the year ended December 31, 2019 as compared to 2018 was due primarily to a decrease in sliding scale ceding commission expenses on private passenger automobile contracts as a result of adverse loss development during the period.

The decrease in the casualty acquisition cost ratio during the year ended December 31, 2019 as compared to 2018 was due primarily to a decrease in sliding scale ceding commission expenses on private passenger automobile contracts as a result of adverse loss development during the period.

The decrease in the “other” acquisition cost ratio during the year ended December 31, 2019 as compared to 2018 was due primarily to lower profit commissions incurred on mortgage contracts during the current period.

The acquisition cost ratio for the comparable year ended December 31, 2018 reflected higher profit commissions on mortgage contracts as a result of favorable prior period loss development recognized during 2018.

In addition, the new specialty contracts including crop, energy and space, incorporate a relatively low acquisition cost ratio.

Increase / (decrease) in acquisition cost ratio points Explanation

Property 1.8% The property acquisition cost ratio increased during the year ended December 31, 2020 over the comparable 2019 period due to the reversal of sliding scale ceding commissions on private passenger automobile contract during 2019.

Casualty 3.5% The casualty acquisition cost ratio increased 3.5% during the year ended December 31, 2020 over the comparable 2019 period due to the reversal of sliding scale ceding commissions on private passenger automobile contracts during 2019.

We also increased the amount of workers’ compensation and multi-line business we wrote during 2020 compared to 2019.

These contracts incorporate higher commission rates as compared to other casualty business.

Other (14.5)% The decrease in the “other” acquisition cost ratio during the year ended December 31, 2020, over the comparable 2019 period was due to profit commission reversals recognized on mortgage contracts.

In terms of net financial impact, these reductions in profit commissions mostly offset increased loss reserves we recorded in 2020 on these contracts (also see “ Loss and Loss Adjustment Expenses Incurred, Net ” above).

The decrease was partially offset by increased quota share premium earned relating to “Other” business.

Quota share contracts incorporate higher commission rates as compared to excess-of-loss contracts.

General and Administrative Expenses

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

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Year ended December 31

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General and administrative expenses $ 26,401 $ 29,822

For the year ended December 31, 2019 , the general and administrative expenses increased by $4.6 million , or 18.5% , compared to the same period in 2018 .

The increase was primarily due to higher legal and other professional fees, personnel costs and information technology expenses.

For the year ended December 31, 2020, general and administrative expenses decreased by $3.4 million, or 11.5%, compared to the same period in 2019.

The decrease was due primarily to lower personnel costs, including bonus and stock compensation expenses, and lower corporate expenses including legal and other professional fees compared to the year ended December 31, 2019.

Higher directors and officers insurance premiums partially offset the decrease in corporate expenses.

For the years ended December 31, 2020, and 2019, the general and administrative expenses included $2.5 million and $3.9 million, respectively, of expenses related to stock compensation granted to employees and directors.

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Total Investment Related Income (Loss)

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

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 Innovations 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:

Year ended December 31

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Income (loss) from equity method investment 843 700

Investment advisor compensation on joint venture

Net investment income (loss)

Income (loss) from investments in related party investment fund

Net investment related income (loss) $ 21,101 $ 6,211

For the year ended December 31, 2019 , the investment income, net of fees and expenses, represented a gain of 9.3% on the Investment Portfolio managed by DME Advisors, compared to a loss of 30.3% for the year ended December 31, 2018 .

The investment gain for the year ended December 31, 2019 was driven by SILP’s long portfolio, which reported an investment gain of 16.2% , while the short portfolio reported a loss of 5.3% for the year ended December 31, 2019 .

Additionally, macro positions reported a gain of 0.8% .

The noteworthy contributors to the investment gains for the year ended December 31, 2019 were Brighthouse Financial (BHF), General Motors (GM) and Green Brick Partners (GRBK).

The noteworthy detractors for the year ended December 31, 2019 were short positions in Amazon (AMZN), Netflix (NFLX) and a group of perceived overpriced momentum driven short equity positions (the “Bubble Basket”).

Net investment related income for the year ended December 31, 2019 included $14.4 million ( 2018 :

$3.7 million) of interest income on cash and cash equivalents posted for collateral to our cedents in the form of trusts and letters of credit.

For the year ended December 31, 2019 , the investment income included management fees paid by SILP to DME Advisors of $4.9 million ( 2018 :

$3.1 million ), and is netted in the caption, “Income (loss) from investments in related party investment fund” in the Company’s consolidated statements of operations.

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

For the year ended December 31, 2019, the performance allocation of $5.0 million was deducted from the Company’s investment in SILP and allocated to DME II.

No performance compensation was allocated during the year ended December 31, 2018 due to investment losses.

The performance compensation to DME II for subsequent years is reduced to 10% of net profits until all losses have been recouped and an additional amount equal to 150% of the loss is earned.

As of December 31, 2019 , the reduced performance allocation of 10% is expected to be applied to 168.6% of future net investment returns before reverting to 20%.

For the year ended December 31, 2019 net realized losses of $14.2 million were offset by a corresponding change in unrealized gains and losses.

This reclassification resulted from the transfer of assets from the Joint Venture to SILP in January 2019.

We expect our investment income (loss), including any change in the net asset value of the investment in SILP and any realized and unrealized gains (or losses), to fluctuate from period to period.

The change in unrealized gains and losses for year ended December 31, 2019 , also included a net increase in the valuation allowance provision of $6.0 million relating to notes receivable.

Income (loss) from investments in related party investment fund 4,431 46,056

Total investment income (loss) $ 25,532 $ 52,267

The caption “Income (loss) from investment in related party investment fund” in the above table is net of management fees paid by SILP to DME Advisors and performance compensation, if any, allocated from the Company’s investment in SILP to DME II.

No performance compensation is allocated in periods of loss reported by SILP.

For detailed breakdowns of management fees and performance compensation for the years ended December 31, 2020, and 2019, please refer to Note 3 of the consolidated financial statements.

For the year ended December 31, 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 9.3% for the year ended December 31, 2019.

The short portfolio lost 13.5%, while the long portfolio and macro positions gained 15.3% and 0.4%, respectively, during the year ended December 31, 2020.

For the year ended December 31, 2020, the largest contributors to SILP’s investment income were long positions in Green Brick Partners (GRBK), FuboTV (FUBO), and AerCap Holdings (AER).

The largest detractor was a short position in Tesla (TSLA), and a basket of short positions in companies whose finances are believed to have been significantly affected by the COVID-19 pandemic.

For the year ended December 31, 2020, the decrease in interest income compared to the equivalent period in 2019, related to lower interest rates offered by financial institutions on the restricted cash and cash equivalents pledged as collateral to our clients.

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For the years ended December 31, 2019 and 2018 , the gross investment returns on our investments managed by DME Advisors (excluding investment advisor performance allocation) were 10.2% and (30.3)% , respectively, and were composed of the following:

During the year ended December 31, 2020, we recorded net unrealized gains of $10.2 million on our portfolio of Innovations related investments.

During the year ended December 31, 2020, we also recognized the following realized gains and losses:

• a $5.8 million gain on a note receivable settled above its carrying value;

• a $15.0 million realized loss associated with a note receivable.

The $15.0 million realized loss noted above related to a note receivable against which we had recorded a valuation allowance as of December 31, 2019.

As a result, when we realized this loss during 2020, we offset it with a $15.0 million unrealized gain during the same period.

This unrealized gain is reflected in the caption “Change in unrealized gains and losses” in the table above which also includes unrealized gains on investment related to Innovations.

For the years ended December 31, 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:

Year ended December 31

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Other income and expenses 1

(0.7) % (1.5) %

Gross investment return 1.5 % 10.2 %

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

“Net investment return” incorporate both of these amounts.

“Net investment return” incorporates both of these amounts.

We post our investment returns on investments managed by DME Advisors monthly on our website ( www.greenlightre.com ).

We are not obligated to pay taxes in the Cayman Islands on either income or capital gains.

We have been granted an exemption by the Governor-In-Cabinet from any income taxes that may be imposed in the Cayman Islands for a period of 20 years, expiring on February 1, 2025.

GRIL is incorporated in Ireland and, therefore, is subject to the Irish corporation tax.

GRIL is expected to be taxed at a rate of 12.5% on its taxable trading income, and 25% on its non-trading income, if any.

Verdant is incorporated in Delaware and, therefore, is subject to taxes in accordance with the U.S.

The Governor-In-Cabinet has granted us an exemption from any income taxes that may be imposed in the Cayman Islands for a period of 20 years, expiring on February 1, 2025.

GRIL is incorporated in Ireland and is subject to the Irish corporation tax.

We expect GRIL to be taxed at a 12.5% rate on its taxable trading income, and 25% on its non-trading income, if any.

Verdant is incorporated in Delaware and is subject to taxes under the U.S.

federal rates and regulations prescribed by the Internal Revenue Service.

Verdant’s future taxable income is expected to be taxed at a rate of 21% ( 2018 :

As of December 31, 2019 , a gross deferred tax asset of $3.6 million ( 2018 :

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

As of December 31, 2019 , a deferred tax asset valuation allowance of $2.6 million was recorded by the Company.

Based on the timing of the reversal of the temporary differences and likelihood of generating sufficient taxable income to realize the future tax benefit, management believes it is more likely than not that the recorded deferred tax asset (net of the valuation allowance) will be fully realized in the future.

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

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

As of December 31, 2020, we have included a gross deferred tax asset of $3.5 million (2019:

$3.6 million) in the caption “Other assets” in the Company’s consolidated balance sheets.

As of December 31, 2020, a valuation allowance of $3.0 million (2019:

$2.6 million) partially offset this gross deferred tax asset.

Based on the timing of the reversal of the temporary differences and the likelihood of generating sufficient taxable income to realize the future tax benefit, we believe it is more likely than not that we will realize the recorded deferred tax asset (net of the valuation allowance).

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

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Ratio Analysis

The following table provides the ratios categorized as Property, Casualty and Other:

Year ended December 31

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

Year ended December 31 Year ended December 31

Property Casualty Other Total Property Casualty Other Total

Loss ratio 69.7 % 71.7 % 83.4 % 74.2 % 82.8 % 81.4 % 73.6 % 80.3 %

Acquisition cost ratio 20.4 27.2 17.4 24.0 18.6 23.7 31.9 24.2

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Combined ratio 100.4 % 106.9 %

The loss ratios for property, casualty and other business can vary depending on the mix of the lines of business written.

Additionally, the loss ratios within any line of business can vary significantly from period to period.

The combined ratio measures the total profitability of our underwriting operations.

Given the nature of our underwriting strategy, our combined ratio may vary significantly from period to period.

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Financial Condition

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The total investments reported in the consolidated balance sheets as of December 31, 2020, was $196.2 million, compared to $256.4 million as of December 31, 2019, a decrease of $60.2 million, or 23.5%.

The decrease was primarily related to withdrawals from SILP for claim payments and to provide collateral to our ceding insurers.

The decrease was partially offset by net investment income from our investment in SILP, transfer of equity securities from the Joint Venture to SILP and additional investments in insurtech companies as part of our innovations initiative during the year ended December 31, 2019 .

The decrease was primarily related to withdrawals from SILP for claim payments, funding collateral for our cedents and posting Funds at Lloyd’s to support the reinsurance contracts with Lloyd’s syndicates.

We include the Funds at Lloyd’s in the caption “Reinsurance balances receivable” on our consolidated balance sheets.

The decrease was partially offset by investment income from our investment in SILP and an increase in the valuation of investments related to Innovations.

As of December 31, 2020, 94.0% of SILP’s investments were valued based on quoted prices in actively traded markets (Level 1), 2.2% was composed of instruments valued based on observable inputs other than quoted prices (Level 2), and 0.8% was composed of instruments valued based on non-observable inputs (Level 3).

As of December 31, 2020, 3.0% of SILP’s investments were private equity funds valued using the funds’ net asset values as a practical expedient.

During the year ended December 31, 2019 , the Company took steps to reduce volatility of the invested assets and as a result, a portion of SILP’s equity portfolio was liquidated and a large proportion of its net assets are currently held in cash and short-term treasuries.

Restricted cash and cash equivalents

As of December 31, 2019 , the restricted cash and cash equivalents are used for funding trusts and letters of credits issued to our ceding insurers.

Our restricted cash increased by $57.1 million , or 8.3% , from $685.0 million at December 31, 2018 to $742.1 million , as of December 31, 2019 , primarily due to increased collateral provided to our ceding insurers.

The increase was partially funded by withdrawals from SILP.

We use our restricted cash and cash equivalents for funding trusts and letters of credits issued to our ceding insurers.

Our restricted cash increased by $3.3 million, or 0.4%, from $742.1 million as of December 31, 2019, to $745.4 million, as of December 31, 2020, primarily due to a net increase in collateral held in trusts by our ceding insurers.

Reinsurance balances receivable

During the year ended December 31, 2019 , reinsurance balances receivable decrease d by $69.9 million , or 23.3% , to $230.4 million from $300.3 million , as of December 31, 2018 .

The decrease was primarily related to premiums receivable on a large motor contract that we did not renew during 2019 and as a result the premiums receivable decreased as premiums on the expiring contract were collected.

During the year ended December 31, 2020, reinsurance balances receivable increased by $99.8 million, or 43.3%, to $330.2 million from $230.4 million, as of December 31, 2019.

The increase was primarily related to Funds at Lloyd’s to support the reinsurance contracts with Lloyd’s syndicates.

To a lesser extent, the increase related to premiums written and not yet collected from cedents on new and renewed contracts.

Loss and Loss Adjustment Expense Reserves;

Loss and Loss Adjustment Expenses Recoverable

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

See Note 7 of the accompanying 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 December 31, 2020 will be reflected in the periods in which those losses are incurred.

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

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Reserves IBNR Total Case

Reserves IBNR Total

($ in thousands)

During the year ended December 31, 2019 , the total gross loss and loss adjustment expense reserves decreased by $12.1 million , or 2.5% to $470.6 million from $482.7 million as of December 31, 2018 .

See Note 7 of the accompanying consolidated financial statements for a summary of changes in outstanding loss and loss adjustment expense reserves and for a description of significant prior period loss developments.

Property $ 25,833 $ 45,680 $ 71,513 $ 48,350 $ 27,126 $ 75,476

Casualty 138,432 206,152 344,584 152,049 204,574 356,623

Other 12,540 65,542 78,082 17,435 21,054 38,489

Total $ 176,805 $ 317,374 $ 494,179 $ 217,834 $ 252,754 $ 470,588

During the year ended December 31, 2020, the total gross loss and loss adjustment expense reserves increased by $23.6 million, or 5.0% to $494.2 million from $470.6 million as of December 31, 2019.

See Note 7 of the accompanying 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 year ended December 31, 2020, the total loss and loss adjustment expenses recoverable decreased by $10.7 million, or 38.8%, to $16.9 million from $27.5 million as of December 31, 2019.

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For most of the contracts we write, our risk exposure is limited by defined limits of liability.

Once the loss limit has been reached, we have no further exposure to additional losses from that contract outside of contract failure.

Once each contract’s limit of liability has been reached, we have no further exposure to additional losses from that contract.

However, certain contracts, particularly quota share contracts that relate to first-dollar exposure, may not contain aggregate limits.

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Our property business, and to a lesser extent our casualty and other business, include certain contracts that contain or may contain natural peril loss exposure.

We estimate catastrophe loss exposure in terms of the probable maximum loss (“PML”).

We define PML as the anticipated loss, taking into account contract terms and limits, caused by a catastrophe affecting a broad geographic area, such as that caused by an earthquake or hurricane.

Our property business, and to a lesser extent our casualty and other business, incorporate contracts that contain natural peril loss exposure.

We estimate catastrophe loss exposure in terms of the PML.

We anticipate that the PML will vary from period to period depending upon the modeled simulated losses and the composition of the in-force book of business.

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1-in-250 year return period

Single Event Loss

Aggregate Loss

Zone Single Event Loss Aggregate Loss

($ in thousands)

United States, Canada and the Caribbean $ 86,771 $ 99,613

Europe 44,453 51,236

Japan 39,202 42,570

Rest of the world 48,419 53,399

Maximum 86,771 109,574

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Total shareholders’ equity

Total equity reported on the consolidated balance sheet decreased by $12.3 million to $464.9 million as of December 31, 2020, compared to $477.2 million as of December 31, 2019.

Retained earnings decreased primarily due to a net loss of $4.0 million reported for the year ended December 31, 2019 .

The non-controlling interest was eliminated as a result of the termination of the Joint Venture.

Retained earnings increased primarily due to a net income of $3.9 million reported for the year ended December 31, 2020.

The Company repurchased 2.5 million Class A ordinary shares during the year ended December 31, 2020 resulting in a $17.8 million decrease in shareholders’ equity.

For details of other movements in shareholders’ equity see “Consolidated Statements of Shareholders’ Equity.”

Liquidity and Capital Resources

Greenlight Capital Re is organized as a holding company with no operations of its own.

As a holding company, Greenlight Capital Re has minimal continuing cash needs, most of which are related to the payment of administrative and interest expense.

As a holding company, Greenlight Capital Re has minimal continuing cash needs, most of which are related to the payment of administrative expenses and interest expense.

All of our underwriting operations are conducted through our wholly-owned reinsurance subsidiaries, Greenlight Re and GRIL, which underwrite property and casualty reinsurance.

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

On July 22, 2020, A.M.

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

The ratings reflect A.M.

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

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Sources and Uses of Funds

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For the years ended December 31, 2020, and 2019, the net cash provided by (used in) operating activities was $(91.3) million and $1.6 million, respectively.

The net cash primarily provided by (used for) our underwriting activities (which excludes investment related expenses) was $(9.6) million and $(65.6) million for the years ended December 31, 2019 and 2018 , respectively.

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

The net cash provided by (used in) our underwriting activities and for payment of corporate expenses was $(94.9) million and $(9.6) million for the years ended December 31, 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 year ended December 31, 2020, 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 year ended December 31, 2019 , our net withdrawals from SILP generated cash of $78.3 million which was used to post collateral to our cedents and to pay losses.

By comparison, for the same period in 2018 our investing activities used cash of $845.3 million .

For the year ended December 31, 2020, our investing activities provided cash of $95.6 million.

The source of cash was primarily net withdrawals from SILP which were used to pay losses, provide support for the Lloyds syndicated business, and fund collateral required by our ceding insurers.

By comparison, for the same period in 2019, our investing activities provided cash of $63.3 million.

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

We expect that our operational needs for liquidity will be met by cash, funds generated from underwriting activities and investment income, including withdrawals from SILP, if necessary.

As of December 31, 2019 , we expect to fund our operations for the next twelve months from operating cash flow.

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

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

Although GLRE is not subject to any significant legal prohibitions on the payment of dividends, Greenlight Re and GRIL are each subject to regulatory minimum capital requirements and regulatory constraints that affect their ability to pay dividends to us.

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 December 31, 2020, we expect to fund our operations for the next twelve months from operating and investing cash flows.

Additionally, during 2021, we expect the release of collateral held by certain cedents as the exposure relating to those contracts has decreased.

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

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

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

During the year ended December 31, 2020, we received regulatory approval for a return of $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 year ended December 31, 2020, we used $17.8 million to repurchase 2.5 million Class A ordinary shares.

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

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As of December 31, 2020, we had one (2019:

two) letter of credit facility available with an aggregate capacity of $400.0 million ( 2018 :

one) letter of credit facility available with an aggregate capacity of $275.0 million (2019:

$400.0 million).

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The letter of credit facility contains customary events of default and restrictive covenants, including but not limited to, limitations on liens on collateral, transactions with affiliates, mergers and sales of assets, as well as solvency and maintenance of certain minimum pledged equity requirements, and restricts issuance of any debt without the consent of the letter of credit provider.

Additionally, if an event of default exists, as defined in the letter of credit facility, Greenlight Re would be prohibited

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from paying dividends to its parent company.

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 December 31, 2020.

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We did not make any significant commitments for capital expenditures during the year ended December 31, 2020.

On May 2, 2019, the Board of Directors renewed the share repurchase plan, with effect from July 1, 2019 and expiring on June 30, 2020, authorizing the Company to purchase up to 2.5 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.

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

During the year ended December 31, 2019 , no Class A ordinary shares were repurchased by the Company.

As of March 6, 2020 , 2.5 million shares remained available for repurchase under the share repurchase plan.

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 .

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 year ended December 31, 2020, 2.5 million Class A ordinary shares were repurchased by the Company.

As of December 31, 2020, 2.5 million Class A ordinary shares and $25.0 million of the Notes, remained available for repurchase under the repurchase plans.

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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.

As of December 31, 2020, there were 3,474,888 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.

The Compensation Committee of the Board of Directors administers the stock incentive plan.

Contractual Obligations and Commitments

The following table shows our aggregate contractual obligations as of December 31, 2019 by time period remaining:

Due to the nature of our reinsurance operations, the amount and timing of the cash flows associated with our reinsurance contractual liabilities will fluctuate, perhaps materially, and, therefore, are highly uncertain.

As of December 31, 2020, the loss and loss adjustment expense reserves are expected to payout as follows:

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

5 years Total

($ in thousands)

Operating lease obligations (1)

$ 581 $ — $ — $ — $ 581

Interest and convertible note payable (2)

Loan facility (3)

Advisory fee (4)

4,000 108,000 — — 112,000

Loss and loss adjustment expense reserves (3)

242,148 144,794 53,371 53,866 494,179

$ 246,729 $ 252,794 $ 53,371 $ 53,866 $ 606,760

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

(2) Includes interest payments due on $100.0 million of senior convertible note payable at 4.0% per annum, as well as the payment of principal upon maturity on August 1, 2023.

As of December 31, 2019 , we had an outstanding commitment to fund $0.4 million under a $6.0 million loan facility (See Note 4 of the accompanying consolidated financial statements).

For purposes of the above table, we have assumed that the entire commitment will be made within one year.

Reflects our minimum contractual obligation pursuant to an advisory agreement.

(3) Due to the nature of our reinsurance operations, the amount and timing of the cash flows associated with our reinsurance contractual liabilities will fluctuate, perhaps materially, and, therefore, are highly uncertain.

Greenlight Re had entered into lease agreements for office space in the Cayman Islands.

The leases expired on June 30, 2018 and the Company has agreed to extend the lease until December 31, 2020.

The remaining obligations relating to the monthly lease are included in the above table in the caption “Operating lease obligation.”

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The leases expired on December 31, 2020 and the Company is currently in negotiations with the lessor for renewal of the leases.

Subsequent to December 31, 2020, both parties agreed to extend the lease until December 31, 2021.

GRIL has entered into a lease agreement for office space in Dublin, Ireland.

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The minimum lease payment obligations are included in the above table under operating lease obligations and in Note 15 to the accompanying consolidated financial statements.

The Company has $100.0 million of senior convertible notes payable which mature on August 1, 2023.

The Company is obligated to make semi-annual interest payments of $2.0 million at an interest rate of 4.0% per annum.

The Company has received regulatory approval to declare dividends from Greenlight Re in order to meet the interest payments obligation.

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 year ended December 31, 2019 and 2018 , management fees paid by SILP to DME Advisors were $4.9 million and $3.1 million , respectively.

For the year ended December 31, 2020 and December 31, 2019, management fees paid by SILP to DME Advisors were $2.8 million and $4.9 million, respectively.

Pursuant to the SILP LPA, DME II is entitled to a performance allocation equal to 20% of the net profit, calculated per annum, of each limited partner’s share of the capital account managed by DME Advisors, subject to a loss carry forward provision.

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The loss carry forward provision contained in the SILP LPA allows DME II to earn reduced performance allocation of 10% of net profits in years subsequent to the year in which the capital accounts of the limited partners incur a loss, until all losses are recouped and an additional amount equal to 150% of the loss is earned.

For the year ended December 31, 2019 , a performance allocation of $5.0 million was netted against income in the caption “Investment in related party investment fund” in the Company’s consolidated statement of operations.

No performance allocation was recorded for the year ended December 31, 2018 due to the investment loss.

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, 2020, the portion of the Investment Portfolio held in cash or cash equivalents will not be subject to any management fee or performance allocation.

We have 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.

For the year ended December 31, 2020, a performance allocation of $0.4 million (2019:

$5.0 million) was netted against income in the caption “Investment in related party investment fund” in the Company’s consolidated statement of operations.

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.

The service agreement had an initial term of one year, and continues for sequential one-year periods until terminated by us or DME Advisors.

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Our related party transactions are presented in Note 14 to the accompanying consolidated financial statements.

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Off-Balance Sheet Financing Arrangements

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Inflation generally affects the cost of claims and claim expenses, as well as asset values in our investment portfolio.

The anticipated effects of inflation on our claim costs are considered in our pricing and reserving models.

The onset, duration and severity of an inflationary period cannot be predicted or estimated with precision.The anticipated effects of inflation on our claim costs are considered in our pricing and reserving models.

However, the actual effect of increases in claim costs due to inflation cannot be accurately known until claims are ultimately settled, and may differ significantly from our estimate.

In addition, the onset, duration and severity of an inflationary period cannot be predicted or estimated with precision.

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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-K

Item 7. Management’s Discussion and Analysis