QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
−Removed: We believe we are principally exposed to the following types of market risk:
+Added: We believe we are exposed to the following types of market risk:
• equity price risk;
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Equity Price Risk
−Removed: As of September 30, 2020, our investments consisted primarily of an investment in SILP.
+Added: At March 31, 2021, our investments consisted primarily of an investment in SILP.
Among SILP’s holdings are equity securities, the carrying values of which are based primarily on quoted market prices.
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This risk is partly mitigated by the presence of both long and short equity securities as part of our investment strategy.
−Removed: As of September 30, 2020, a 10% decline in the price of each of the underlying listed equity securities and equity-based derivative instruments would result in a loss of $6.4 million, or 1.4%, of our Investment Portfolio.
−Removed: Computations of the prospective effects of hypothetical equity price changes are based on numerous assumptions, including the maintenance of the existing level and composition of investment securities and should not be relied on as indicative of future results.
+Added: At March 31, 2021, a 10% decline in the price of each of the underlying listed equity securities and equity-based derivative instruments would result in a $4.6 million loss to our Investment Portfolio.
+Added: Computations of the prospective effects of hypothetical equity price changes are based on numerous assumptions, including the maintenance of the current composition of SILP’s portfolio.
+Added: They should not be relied on as indicative of future results.
Commodity Price Risk
Generally, market prices of commodities are subject to fluctuation.
−Removed: SILP’s investments periodically include long or short investments in commodities or in derivatives directly impacted by fluctuations in the prices of commodities.
−Removed: As of September 30, 2020, SILP’s investments included unhedged exposure to changes in gold prices, through physical gold holdings and derivative instruments with underlying exposure to changes in the price of natural gas.
−Removed: The following table summarizes the net impact that a 10% increase and decrease in commodity prices would have on the value of our Investment Portfolio as of September 30, 2020.
+Added: SILP’s investments periodically include long or short investments in commodities or derivatives directly impacted by fluctuations in the prices of commodities.
+Added: At March 31, 2021, SILP’s investments incorporate unhedged exposure to changes in gold and silver prices.
+Added: The following table summarizes the net impact that a 10% increase and decrease in commodity prices would have on the value of our Investment Portfolio at March 31, 2021.
The below table excludes the indirect effect that changes in commodity prices might have on equity securities in our Investment Portfolio.
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Gold $ 1.7 $ (1.7)
−Removed: Natural Gas 0.5 (0.5)
+Added: Silver 0.4 (0.4)
Total $ 2.1 $ (2.1)
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Certain of our reinsurance contracts are denominated in foreign currencies whereby premiums are receivable and losses are payable in foreign currencies.
−Removed: Foreign currency exchange rate risk exists to the extent that our foreign currency reinsurance balances are in excess of (or less than) the corresponding foreign currency cash balances and there is an increase (or decrease) in the exchange rate of that foreign currency.
−Removed: While we do not seek to precisely match our liabilities under reinsurance policies that are payable in foreign currencies with investments denominated in such currencies, we continually monitor our exposure to potential foreign currency losses and may use foreign currency cash and cash equivalents or forward foreign currency exchange contracts in an effort to mitigate against adverse foreign currency movements.
−Removed: As of September 30, 2020, our net exposure to GBP denominated balances was £7.7 million.
−Removed: As of September 30, 2020, a 10% decrease in the U.S.
+Added: Foreign currency exchange rate risk exists to the extent that our foreign currency reinsurance balances are more than (or less than) the corresponding foreign currency cash balances and there is an increase (or decrease) in the exchange rate of that foreign currency.
+Added: While we do not seek to precisely match our liabilities under reinsurance policies that are payable in foreign currencies with investments denominated in such currencies, we continually monitor our exposure to potential foreign currency losses and may use foreign currency cash and cash equivalents or forward foreign currency exchange contracts to mitigate against adverse foreign currency movements.
+Added: At March 31, 2021, our exposure to GBP denominated net asset balance was £13.1 million.
+Added: At March 31, 2021, a 10% decrease in the U.S.
dollar against the GBP (all else constant) would result in an estimated $1.8 million foreign exchange gain.
Alternatively, a 10% increase in the U.S dollar against the GBP would result in an estimated $1.8 million foreign exchange loss.
+Added: Similarly, at March 31, 2021, our net exposure to Euro-denominated liability balances was €1.7 million.
+Added: At March 31, 2021, a 10% decrease in the U.S.
+Added: dollar against the Euro (all else constant) would result in an estimated $0.2 million foreign exchange loss.
+Added: Alternatively, a 10% increase in the U.S dollar against the Euro would result in an estimated $0.2 million foreign exchange gain.
We may also be exposed to foreign currency risk through SILP’s underlying cash, forwards, options, and investments in securities denominated in foreign currencies.
−Removed: As of September 30, 2020, some of our currency exposure resulting from foreign denominated securities (longs and shorts) was reduced by offsetting cash balances denominated in the corresponding foreign currencies.
−Removed: As of September 30, 2020, a 10% increase or decrease in the value of the U.S.
+Added: At March 31, 2021, some of our currency exposure resulting from foreign denominated securities (longs and shorts) was reduced by offsetting cash balances denominated in the corresponding foreign currencies.
+Added: At March 31, 2021, a 10% increase or decrease in the value of the U.S.
dollar against foreign currencies would have no meaningful impact on the value of our Investment Portfolio.
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Additionally, some of the derivative investments may also be sensitive to interest rates, and their value may indirectly fluctuate with changes in interest rates.
−Removed: As of September 30, 2020, a 100 basis points increase or decrease in interest rates would have no meaningful impact on the value of our Investment Portfolio.
+Added: At March 31, 2021, a 100 basis points increase or decrease in interest rates would have no meaningful impact on the value of our Investment Portfolio.
We, along with DME Advisors, monitor the net exposure to interest rate risk and generally do not expect changes in interest rates to have a materially adverse impact on our operations.
−Removed: Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with contractual terms of the instrument or contract.
+Added: Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with terms of the instrument or contract.
Our maximum exposure to credit risk is the carrying value of our financial assets.
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See Note 2 of the accompanying condensed consolidated financial statements for further details on allowance for credit loss on reinsurance assets and notes receivable.
−Removed: In addition, the securities, commodities, and cash in SILP’s investment portfolio are held with several prime brokers and derivative counterparties, subjecting SILP, and indirectly us, to significant concentration of credit risk.
+Added: In addition, the securities, commodities, and cash in SILP’s investment portfolio are held with several prime brokers and derivative counterparties, subjecting SILP, and indirectly us, to a significant concentration of credit risk.
While we have no direct control over SILP, DME Advisors regularly monitors the concentration of credit risk with each counterparty and, if appropriate, transfers cash or securities between counterparties or requests collateral to diversify and mitigate this credit risk.
Political Risk
−Removed: Through our assumed reinsurance contracts, we currently provide a limited amount of political risk insurance coverage which is not expected to have a materially adverse impact on our underwriting results.
−Removed: We are exposed to political risk to the extent that we underwrite business from entities located in foreign markets and to the extent that DME Advisors, on behalf of SILP and subject to our investment guidelines, trades securities that are listed on various U.S.
+Added: Through our assumed reinsurance contracts, we currently provide a limited amount of political risk insurance coverage.
+Added: We do not expect this exposure to have a materially adverse impact on our underwriting results.
+Added: We are exposed to political risk to the extent that we underwrite business from entities located in foreign markets and to the extent that DME Advisors, on behalf of SILP and subject to our investment guidelines, trades securities listed on various U.S.
and foreign exchanges and markets.
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See “Item 1A.
−Removed: Risk Factors - We could face unanticipated losses from political instability which could have a material adverse effect on our financial condition and results of operations.” included in our Amendment No.
−Removed: 1 to Form 10-K for the fiscal year ended December 31, 2019.
+Added: Risk Factors - We could face unanticipated losses from political instability which could have a material adverse effect on our financial condition and results of operations” included in our Form 10-K for the fiscal year ended December 31, 2020.
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.