GREENLIGHT CAPITAL RE, LTD. 10-Q

Item 1. FINANCIAL STATEMENTS GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, 2021 and December 31, 2020 (expressed in thousands of U.S. dollars, except per share and share amounts) June 30, 2021 December 31, 2020 Assets Investments Investment in related party investment fund $ 175,136 $ 166,735 Other investments 31,418 29,418 Total investments 206,554 196,153 Cash and cash equivalents 35,204 8,935 Restricted cash and cash equivalents 709,672 745,371 Reinsurance balances receivable (net of allowance for expected credit losses of $ 89 and $ 89 ) 392,154 330,232 Loss and loss adjustment expenses recoverable (net of allowance for expected credit losses of $ 47 and $ 47 ) 14,332 16,851 Deferred acquisition costs 60,780 51,014 Notes receivable — 6,101 Other assets 3,838 2,993 Total assets $ 1,422,534 $ 1,357,650 Liabilities and equity Liabilities Loss and loss adjustment expense reserves $ 514,642 $ 494,179 Unearned premium reserves 244,597 201,089 Reinsurance balances payable 88,813 92,247 Funds withheld 5,092 4,475 Other liabilities 5,664 5,009 Convertible senior notes payable 96,900 95,794 Total liabilities 955,708 892,793 Shareholders' equity Preferred share capital (par value $ 0.10 ; authorized, 50,000,000 ; none issued) — — Ordinary share capital (Class A: par value $ 0.10 ; authorized, 100,000,000 ; issued and outstanding, 27,916,353 (2020: 28,260,075 ): Class B: par value $ 0.10 ; authorized, 25,000,000 ; issued and outstanding, 6,254,715 (2020: 6,254,715 )) 3,417 3,452 Additional paid-in capital 483,365 488,488 Retained earnings (deficit) ( 19,956 ) ( 27,083 ) Total shareholders' equity 466,826 464,857 Total liabilities and equity $ 1,422,534 $ 1,357,650 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 3 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the three and six months ended June 30, 2021 and 2020 (expressed in thousands of U.S. dollars, except per share and share amounts) Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 Revenues Gross premiums written $ 141,579 $ 116,689 $ 311,514 $ 226,476 Gross premiums ceded ( 1 ) ( 132 ) 54 ( 810 ) Net premiums written 141,578 116,557 311,568 225,666 Change in net unearned premium reserves ( 9,099 ) ( 8,143 ) ( 43,693 ) ( 6,231 ) Net premiums earned 132,479 108,414 267,875 219,435 Income (loss) from investment in related party investment fund (net of related party expenses of $ 672 and $ 1,973 (three and six months ended June 30, 2020: $ 616 and $ 1,278 , respectively)) ( 2,006 ) 1,609 2,018 ( 40,517 ) Net investment income (loss) 4,046 3,934 18,696 10,771 Other income (expense), net ( 3 ) 788 ( 3,653 ) 1,001 Total revenues 134,516 114,745 284,936 190,690 Expenses Net loss and loss adjustment expenses incurred 86,957 89,194 184,678 164,891 Acquisition costs 37,631 17,903 71,012 49,642 General and administrative expenses 7,739 6,149 15,280 12,943 Interest expense 1,562 1,562 3,106 3,123 Total expenses 133,889 114,808 274,076 230,599 Income (loss) before income tax 627 ( 63 ) 10,860 ( 39,909 ) Income tax (expense) benefit 1 — ( 3,733 ) ( 424 ) Net income (loss) $ 628 $ ( 63 ) $ 7,127 $ ( 40,333 ) Earnings (loss) per share Basic $ 0.02 $ 0.00 $ 0.21 $ ( 1.12 ) Diluted $ 0.02 $ 0.00 $ 0.21 $ ( 1.12 ) Weighted average number of ordinary shares used in the determination of earnings and loss per share Basic 34,667,114 35,776,736 34,560,246 35,958,965 Diluted 34,821,248 35,776,736 34,699,291 35,958,965 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 4 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) For the three and six months ended June 30, 2021 and 2020 (expressed in thousands of U.S. dollars) Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 Ordinary share capital Balance - beginning of period $ 3,485 $ 3,743 $ 3,452 $ 3,699 Issue of Class A ordinary shares, net of forfeitures 5 — 38 44 Repurchase of Class A ordinary shares ( 73 ) ( 116 ) ( 73 ) ( 116 ) Balance - end of period 3,417 3,627 3,417 3,627 Additional paid-in capital Balance - beginning of period 489,218 504,375 488,488 503,547 Repurchase of Class A ordinary shares ( 6,675 ) ( 7,656 ) ( 6,675 ) ( 7,656 ) Share-based compensation expense 822 840 1,552 1,668 Balance - end of period 483,365 497,559 483,365 497,559 Retained earnings (deficit) Balance - beginning of period ( 20,584 ) ( 71,219 ) ( 27,083 ) ( 30,063 ) Cumulative effect of adoption of accounting guidance for expected credit losses at January 1, 2020 — — — ( 886 ) Net income (loss) 628 ( 63 ) 7,127 ( 40,333 ) Balance - end of period ( 19,956 ) ( 71,282 ) ( 19,956 ) ( 71,282 ) Total shareholders' equity $ 466,826 $ 429,904 $ 466,826 $ 429,904 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 5 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the six months ended June 30, 2021 and 2020 (expressed in thousands of U.S. dollars) Six months ended June 30 2021 2020 Cash provided by (used in) operating activities Net income (loss) $ 7,127 $ ( 40,333 ) Adjustments to reconcile net income or loss to net cash provided by (used in) operating activities Loss (income) from investments in related party investment fund ( 2,018 ) 40,517 Loss (income) from investment accounted for under the equity method — ( 790 ) Net change in unrealized gains and losses on investments and notes receivable ( 5,224 ) ( 19,106 ) Net realized (gains) losses on investments and notes receivable ( 14,210 ) 15,000 Foreign exchange (gains) losses on investments ( 1 ) 276 Current expected credit losses recognized on notes receivable and reinsurance assets — 250 Share-based compensation expense 1,590 1,712 Amortization and interest expense, net of change in accruals 1,106 1,123 Depreciation expense 16 14 Net change in Reinsurance balances receivable ( 61,922 ) ( 20,868 ) Loss and loss adjustment expenses recoverable 2,519 7,259 Deferred acquisition costs ( 9,766 ) 438 Unearned premiums ceded — 736 Other assets, excluding depreciation ( 861 ) 629 Loss and loss adjustment expense reserves 20,463 ( 2,933 ) Unearned premium reserves 43,508 5,918 Reinsurance balances payable ( 3,434 ) ( 28,448 ) Funds withheld 617 ( 314 ) Other liabilities 655 ( 3,804 ) Net cash provided by (used in) operating activities ( 19,835 ) ( 42,724 ) Investing activities Proceeds from redemptions from related party investment fund 42,221 58,120 Contributions to related party investment fund ( 48,604 ) ( 36,239 ) Purchases of investments ( 3,320 ) ( 919 ) Sales of investments 20,755 — Net change in notes receivable 6,101 360 Net cash provided by (used in) investing activities 17,153 21,322 Financing activities Repurchase of Class A ordinary shares ( 6,748 ) ( 7,772 ) Net cash provided by (used in) financing activities ( 6,748 ) ( 7,772 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash — ( 122 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 9,430 ) ( 29,296 ) Cash, cash equivalents and restricted cash at beginning of the period 754,306 767,906 Cash, cash equivalents and restricted cash at end of the period $ 744,876 $ 738,610 Supplementary information Interest paid in cash $ 2,000 $ 2,000 Income tax paid in cash 3,700 — The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 6 Return to table of contents GREENLIGHT CAPITAL RE, LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2021 1. ORGANIZATION AND BASIS OF PRESENTATION Greenlight Capital Re, Ltd. (“GLRE”) was incorporated as an exempted company under the Companies Law of the Cayman Islands on July 13, 2004. GLRE’s wholly-owned subsidiary, Greenlight Reinsurance, Ltd. (“Greenlight Re”), provides global specialty property and casualty reinsurance. Greenlight Re has a Class D insurer license issued in accordance with the terms of The Insurance Act, 2010 (as amended) and underlying regulations thereto (the “Act”) and is subject to regulation by the Cayman Islands Monetary Authority, in terms of the Act. Greenlight Re commenced underwriting in April 2006. Verdant Holding Company, Ltd. (“Verdant”), a wholly-owned subsidiary of GLRE, was incorporated in 2008 in the state of Delaware. During 2010, GLRE established Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”), a wholly-owned reinsurance subsidiary based in Dublin, Ireland. GRIL is authorized as a non-life reinsurance undertaking in accordance with the provisions of the European Union (Insurance and Reinsurance) Regulations 2015. GRIL provides multi-line property and casualty reinsurance capacity to the European broker market and provides GLRE with an additional platform to serve clients located in Europe and North America. In 2020, GLRE established Greenlight Re Marketing (UK) Limited (“Greenlight Re UK”) as a wholly-owned subsidiary to increase the Company’s presence in the London market. As used herein, the “Company” refers collectively to GLRE and its consolidated subsidiaries. The Class A ordinary shares of GLRE are listed on Nasdaq Global Select Market under the symbol “GLRE.” These unaudited condensed consolidated financial statements include the results of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission on March 10, 2021. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. Significant estimates used in the preparation of the Company’s condensed consolidated financial statements, including those associated with premiums and the estimations of loss and loss adjustment expense reserves, including losses arising from the novel coronavirus (the “COVID-19 pandemic”), may be subject to significant adjustments in future periods (see Note 5 for the significant assumptions which served as the basis for the Company's estimates of reserves for the COVID-19 pandemic). All significant intercompany accounts and transactions have been eliminated. The results for the six months ended June 30, 2021, are not necessarily indicative of the results expected for the full calendar year. 2. SIGNIFICANT ACCOUNTING POLICIES There have been no material changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2020. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the period. Actual results could differ from these estimates. The significant estimates reflected in the Company’s 7 Return to table of contents condensed consolidated financial statements include, but are not limited to, loss and loss adjustment expense reserves, premium revenues and risk transfer, bonus accruals, and share-based payments. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents The Company maintains cash and cash equivalent balances to collateralize regulatory trusts and letters of credit issued to cedents (see Note 12). The following table reconciles the cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total presented in the condensed consolidated statements of cash flows: June 30, 2021 December 31, 2020 ($ in thousands) Cash and cash equivalents $ 35,204 $ 8,935 Restricted cash and cash equivalents 709,672 745,371 Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows $ 744,876 $ 754,306 Funds Held by Cedents The caption “Reinsurance balances receivable” in the Company’s condensed consolidated balance sheets includes amounts held by cedents. Such amounts held include premiums as well as Funds at Lloyd’s, which is held in trust at Lloyd's as security for members’ underwriting activities. At June 30, 2021, funds held by cedents were $ 184.1 million (December 31, 2020: $ 127.6 million). Reinsurance Assets The Company calculates an allowance for expected credit losses for its reinsurance balances receivable and loss and loss adjustment expenses recoverable by applying a Probability of Default (“PD”) / Loss Given Default (“LGD”) model that considers both the Company’s collectibility history on its reinsurance assets as well as representative external loss history. In calculating the probability of default, the Company also considers the estimated duration of its reinsurance assets. Each counterparty’s creditworthiness is evaluated individually on the basis of credit ratings assigned by independent agencies. The Company manages its credit risk in its reinsurance assets by transacting only with insurers and reinsurers that it considers financially sound. For its retrocessional counterparties that are unrated, the Company may hold collateral in the form of funds withheld, trust accounts, or irrevocable letters of credit. In evaluating credit risk associated with reinsurance balances receivable, the Company considers its right to offset loss obligations or unearned premiums against premiums receivable. The Company regularly evaluates its net credit exposure to assess the ability of cedents and retrocessionaires to honor their respective obligations. At June 30, 2021, the Company has recorded an allowance for expected credit loss on its Reinsurance Assets of $ 0.1 million (December 31, 2020: $ 0.1 million). Deposit Assets and Liabilities The Company applies deposit accounting to reinsurance contracts that do not transfer sufficient insurance risk to merit reinsurance accounting. Under deposit accounting, the Company recognizes an asset or liability based on the consideration it has paid or received. The deposit asset or liability balance is subsequently adjusted using the interest method with the corresponding income or expense recorded in the Company’s condensed consolidated statements of operations under the caption “Other income (expense).” The Company records deposit assets and liabilities in its condensed consolidated balance sheets in the caption “Reinsurance balances receivable” and “Reinsurance balances payable,” respectively. At June 30, 2021, deposit assets and deposit liabilities were $ 5.0 million and $ 19.5 million, respectively (December 31, 2020: $ 4.6 million and $ 31.0 million, respectively). For the three and six months ended June 30, 2021 and 2020, the interest income and (expense) on deposit accounted contracts were as follows: 8 Return to table of contents Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) Deposit interest income $ 28 $ 645 $ — $ 1,252 Deposit interest expense $ — $ — $ ( 2,919 ) $ — Deposit interest income/(expense), net $ 28 $ 645 $ ( 2,919 ) $ 1,252 Derivative instruments The Company recognizes derivative financial instruments in the condensed consolidated balance sheets at their fair values. It includes any realized gains and losses and changes in unrealized gains and losses in the caption “Net investment income (loss)” in the condensed consolidated statements of operations. The Company’s derivatives do not qualify as hedges for financial reporting purposes. The Company records the associated assets and liabilities in its condensed consolidated balance sheets on a gross basis. The Company does not offset these balances against collateral pledged or received. Other Assets The caption “Other assets” in the Company’s condensed consolidated balance sheets consists primarily of prepaid expenses, fixed assets, right-of-use lease assets, other receivables, and deferred tax assets. Other Liabilities The caption “Other liabilities” in the Company’s condensed consolidated balance sheets consists primarily of accruals for legal and other professional fees, employee bonuses, taxes payable, and lease liabilities. Earnings (Loss) Per Share The Company’s unvested restricted stock awards, which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered “participating securities” for the purposes of calculating earnings (loss) per share. Basic earnings per share is calculated on the basis of the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings (or loss) per share includes the dilutive effect of the following: • Restricted Stock Units (“RSUs”) issued that would convert to common shares upon vesting; • additional potential common shares issuable when in-the-money stock options are exercised, determined using the treasury stock method; and • those common shares with the potential to be issued in connection with convertible debt and other such convertible instruments, determined using the treasury stock method. Diluted earnings (or loss) per share contemplates a conversion to common shares of all convertible instruments only if they are dilutive with regards to earnings per share. In the event of a net loss, all RSUs, stock options, convertible debt, and participating securities are excluded from the calculation of both basic and diluted loss per share as their inclusion would be anti-dilutive. 9 Return to table of contents The table below presents the shares outstanding for the calculation of earnings (loss) per share for the three and six months ended June 30, 2021 and 2020: Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 Weighted average shares outstanding - basic 34,667,114 35,776,736 34,560,246 35,958,965 Effect of dilutive employee and director share-based awards 154,134 — 139,045 — Weighted average shares outstanding - diluted 34,821,248 35,776,736 34,699,291 35,958,965 Anti-dilutive stock options outstanding 835,627 875,627 835,627 875,627 Participating securities excluded from calculation of loss per share — 1,259,173 — 1,259,173 Taxation Under current Cayman Islands law, no corporate entity, including GLRE and Greenlight Re, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company has an undertaking from the Governor-in-Cabinet of the Cayman Islands, pursuant to the provisions of the Tax Concessions Law, as amended, that, in the event that the Cayman Islands enacts any legislation that imposes tax on profits, income, gains or appreciations, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to GLRE, Greenlight Re nor their respective operations, or to the Class A or Class B ordinary shares or related obligations, before February 1, 2025. Verdant is incorporated in Delaware and therefore is subject to taxes in accordance with the U.S. federal rates and regulations prescribed by the U.S. Internal Revenue Service (“IRS”). Verdant’s taxable income is generally expected to be taxed at a marginal rate of 21% (2020: 21%). Verdant’s tax years 2017 and beyond remain open and subject to examination by the IRS. GRIL is incorporated in Ireland and therefore is subject to the Irish corporation tax rate of 12.5% on its trading income and 25% on its non-trading income. The Company records a valuation allowance to the extent that the Company considers it more likely than not that all or a portion of the deferred tax asset will not be realized in the future. Other than this valuation allowance, the Company has not taken any income tax positions subject to significant uncertainty that are reasonably likely to have a material impact on the Company. Recent Accounting Pronouncements Recently Issued Accounting Standards Adopted In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (“ASU 2020-01”). The amendments in ASU 2020-01 clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. ASU 2020-01 is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The adoption of ASU 2020-01 during the first quarter of 2021 had no material impact on the Company’s consolidated financial statements. Recently Issued Accounting Standards Not Yet Adopted In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). ASU 2020-06 is designed to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. The amendments remove 10 Return to table of contents the separation models in Subtopic 470-20 for certain contracts. As a result, entities will no longer present embedded conversion features separately in equity; rather, the convertible debt instrument will be accounted for as a single liability measured at its amortized cost. ASU 2020-06 also addresses the computation of earnings per share for convertible debt instruments, requiring the application of the if-converted method when calculating diluted earnings per share. The Company intends to adopt ASU 2020-06 during the first quarter of 2022, using the “modified retrospective” transition method. The Company expects that its adoption of ASU 2020-06 will impact the accounting for its senior convertible notes (see Note 7) and will lead to a decrease in its total shareholders’ equity of approximately $ 2.5 million, with a corresponding increase in the carrying value of the senior convertible notes. The Company expects that in the periods in which the Company reports a net income, the number of shares outstanding for the diluted earnings per share calculation will be approximately 5.8 million higher under the if-converted method. The Company does not expect the adoption of ASU 2020-06 to have a material impact on net income, cash flows, or any other balances. 3. INVESTMENT IN RELATED PARTY INVESTMENT FUND On September 1, 2018, the Company entered into an amended and restated exempted limited partnership agreement (as amended by the letter agreement dated as of August 5, 2020, (the “Previous SILP LPA”) of Solasglas Investments, LP (“SILP”), with DME Advisors II, LLC (“DME II”), as General Partner, Greenlight Re, and GRIL, (together the “GLRE Limited Partners”), and the initial limited partner (each, a “Partner”). On September 1, 2018, SILP also entered into a SILP investment advisory agreement (“IAA”) with DME Advisors. LP (“DME Advisors”) pursuant to which DME Advisors is the investment manager for SILP. DME II and DME Advisors are related to the Company, and each is an affiliate of David Einhorn, Chairman of the Company’s Board of Directors. On January 7, 2021, the Company and DME II entered into the Second Amended and Restated Exempted Limited Partnership Agreement, effective as of January 1, 2021 (the “SILP LPA”). The SILP LPA amends, restates, supersedes, and incorporates all material terms of the Previous SILP LPA, as amended as of February 26, 2019, and the letter agreements dated June 18, 2019, December 27, 2019, and August 5, 2020 (collectively, the “Amendments”). The SILP LPA agreement also amended the definition of “Additional Investment Ratio” and amended each of the defined terms “Greenlight Re Surplus” and the “GRIL Surplus” so as to clarify that each of the respectively referenced “financial statements” are “U.S. GAAP financial statements.” In addition, the SILP LPA included the following: “The Investment Portfolio of each Partner will not exceed the product of (a) such Partner’s surplus (Greenlight Re Surplus or GRIL Surplus, as the case may be) multiplied by (b) the Investment Cap (50%), and the General Partner will designate any portion of a Partner’s Investment Portfolio as Designated Securities to effectuate such limit”. The SILP LPA also amended the investment guidelines to reflect the amended investment guidelines adopted by the Company’s Board of Directors effective as of January 1, 2021. The Company has concluded that SILP qualifies as a variable interest entity (“VIE”) under U.S. GAAP. In assessing its interest in SILP, the Company noted the following: • DME II serves as SILP’s general partner and has the power of appointing the investment manager. The Company does not have the power to appoint, change or replace the investment manager or the general partner except “for cause.” Neither of the GLRE Limited Partners can participate in the investment decisions of SILP as long as SILP adheres to the investment guidelines provided within the SILP LPA. For these reasons, the GLRE Limited Partners are not considered to have substantive participating rights or kick-out rights. • DME II holds an interest in excess of 10% of SILP’s net assets, which the Company considers to represent an obligation to absorb losses and a right to receive benefits of SILP that are significant to SILP. Consequently, the Company has concluded that DME II’s interests, not the Company’s, meet both the “power” and “benefits” criteria associated with VIE accounting guidance, and therefore DME II is SILP’s primary beneficiary. The Company’s investment in SILP is presented in the Company’s condensed consolidated balance sheets in the caption “Investment in related party investment fund.” The Company’s maximum exposure to loss relating to SILP is limited to the net asset value of the GLRE Limited Partners’ investment in SILP. At June 30, 2021, the net asset value of the GLRE Limited Partners’ investment in SILP was $ 175.1 million (December 31, 2020: $ 166.7 million), representing 76.8 % (December 31, 2020: 75.7 %) of SILP’s total net assets. DME II held the remaining 23.2 % (December 31, 2020: 24.3 %) of SILP’s total net assets. The investment in SILP is recorded at the GLRE Limited Partners’ share of the net asset value of SILP as reported by SILP’s third-party administrator. The GLRE Limited Partners can redeem their assets from SILP for operational purposes by providing three business days’ notice to DME II. At June 30, 2021, the majority of SILP’s long investments were composed of cash and publicly traded equity 11 Return to table of contents securities, which could be readily liquidated to meet the GLRE Limited Partners’ redemption requests. The Company’s share of the change in the net asset value of SILP for the three and six months ended June 30, 2021, was $( 2.0 ) million and $ 2.0 million, respectively, (three and six months ended June 30, 2020: $ 1.6 million and $( 40.5 ) million, respectively), and shown in the caption “Income (loss) from investment in related party investment fund” in the Company’s condensed consolidated statements of operations. The summarized financial statements of SILP are presented below. Summarized Statement of Assets and Liabilities of Solasglas Investments, LP June 30, 2021 December 31, 2020 ($ in thousands) Assets Investments, at fair value $ 260,235 $ 272,398 Derivative contracts, at fair value 8,895 1,450 Due from brokers 54,190 92,053 Cash and cash equivalents 4,494 — Interest and dividends receivable 19 59 Total assets 327,833 365,960 Liabilities and partners’ capital Liabilities Investments sold short, at fair value ( 91,071 ) ( 131,902 ) Derivative contracts, at fair value ( 4,947 ) ( 4,156 ) Due to brokers ( 3,111 ) ( 9,179 ) Interest and dividends payable ( 443 ) ( 429 ) Other liabilities ( 97 ) ( 175 ) Total liabilities ( 99,669 ) ( 145,841 ) Net Assets $ 228,164 $ 220,119 GLRE Limited Partners’ share of Net Assets $ 175,136 $ 166,735 12 Return to table of contents Summarized Statement of Operations of Solasglas Investments, LP Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 ($ in thousands) Investment income Dividend income (net of withholding taxes) $ 159 $ 287 $ 363 $ 1,034 Interest income 570 17 719 226 Total Investment income 729 304 1,082 1,260 Expenses Management fee ( 895 ) ( 616 ) ( 1,749 ) ( 1,278 ) Interest ( 427 ) ( 325 ) ( 669 ) ( 342 ) Dividends ( 301 ) ( 254 ) ( 546 ) ( 399 ) Professional fees and other ( 337 ) ( 124 ) ( 559 ) ( 332 ) Total expenses ( 1,960 ) ( 1,319 ) ( 3,523 ) ( 2,351 ) Net investment income (loss) ( 1,231 ) ( 1,015 ) ( 2,441 ) ( 1,091 ) Realized and change in unrealized gains (losses) Net realized gain (loss) ( 6,332 ) ( 31,607 ) ( 13,398 ) ( 43,560 ) Net change in unrealized appreciation (depreciation) 4,789 34,772 17,580 ( 5,021 ) Net gain (loss) on investment transactions ( 1,543 ) 3,165 4,182 ( 48,581 ) Net income (loss) $ ( 2,774 ) $ 2,150 $ 1,741 $ ( 49,672 ) GLRE Limited Partners’ share of net income (loss) (1) $ ( 2,006 ) $ 1,609 $ 2,018 $ ( 40,517 ) (1) Net income (loss) is net of management fees and performance allocation presented below: Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 ($ in thousands) Management fees $ 895 $ 616 $ 1,749 $ 1,278 Performance allocation $ ( 223 ) $ — $ 224 $ — Total $ 672 $ 616 $ 1,973 $ 1,278 See Note 11 for further details on management fees and performance allocation. 4. FINANCIAL INSTRUMENTS Investments Other I nvestments The Company’s “Other investments” are composed of the following: • Private investments and unlisted equities, which consist primarily of Innovations-related investments supporting technology innovators in the (re)insurance market; and • Derivative financial instruments associated with the Company’s Innovations investments. 13 Return to table of contents At June 30, 2021, the following securities were included in the caption “Other investments”: Cost Unrealized gains Unrealized losses Fair value / carrying value ($ in thousands) Private investments and unlisted equities $ 15,735 $ 16,383 $ ( 1,800 ) $ 30,318 Derivative financial instruments (not designated as hedging instruments) — 1,100 — 1,100 Total other investments $ 15,735 $ 17,483 $ ( 1,800 ) $ 31,418 At December 31, 2020, the following securities were included in the caption “Other investments”: Cost Unrealized gains Unrealized losses Fair value / carrying value ($ in thousands) Private investments and unlisted equities $ 12,414 $ 10,679 $ ( 1,300 ) $ 21,793 Derivative financial instruments (not designated as hedging instruments) — 1,080 — 1,080 Other investments 12,414 11,759 ( 1,300 ) 22,873 Investment accounted for under the equity method 6,545 Total other investments $ 29,418 Private investments and unlisted equities include securities that do not have readily determinable fair values. The carrying values of these holdings are determined based on their original cost minus impairment, if any, plus or minus changes resulting from observable price changes. At June 30, 2021, the carrying value of private investments and unlisted equities was $ 30.3 million (December 31, 2020: $ 21.8 million). It incorporated upward adjustments of $ 4.0 million and $ 5.2 million during the three and six months ended June 30, 2021, respectively (three and six months ended June 30, 2020: $ 3.3 million and $ 4.1 million, respectively), excluding any unrealized gains or losses related to changes in foreign currency exchange rates. The net upward adjustments since the acquisition of these private investments were $ 14.5 million and $ 9.3 million as of June 30, 2021, and December 31, 2020, respectively. At December 31, 2020, the investment accounted for under the equity method represented an investment in AccuRisk Holdings LLC (“AccuRisk”), a Chicago, Illinois-based managing general underwriter focused on employee and health insurance benefits. During the six months ended June 30, 2021, the Company sold its investment in AccuRisk and realized a gain (pre-tax) of $ 14.2 million. Derivative instruments include warrants issued by certain entities granting the Company the right, but not the obligation, to purchase shares at a specified price on or before the maturity date. The Company has not designated warrants issued to it in connection with Innovations-related investments as hedging instruments. The Company’s maximum exposure to loss relating to these warrants is limited to the warrants’ carrying amount. Fair Value Hierarchy The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows: 14 Return to table of contents • Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. • Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. The term “unobservable inputs” includes certain pricing models, discounted cash flow methodologies, and similar techniques. The Company values its derivative instruments using the Black-Scholes option pricing model on the basis of Level 3 inputs. The Company uses the carrying value of the underlying stock as an input in the option pricing model. The underlying stock does not have a readily determinable fair value. Its carrying value is determined based on its original cost minus impairment, if any, plus or minus changes resulting from observable price changes. The other assumptions applied to the option pricing model include a risk-free rate of 0.50 % and estimated volatility of 50 %. The carrying value of the derivative instruments represents the fair value. For the derivative instruments valued on the basis of Level 3 inputs, any change in unrealized gains or losses is included in the caption “Net investment income (loss)” in the Company’s condensed consolidated statements of operations. At June 30, 2021, and December 31, 2020, the Company did not carry any other investments at fair value with an assigned Level within the fair value hierarchy. The Company’s investment in the related party investment fund is measured at fair value using the net asset value practical expedient and is therefore not classified within the fair value hierarchy. (See Note 3 for further details on the related party investment fund.) Financial Instruments Disclosed, But Not Carried, at Fair Value The caption “Convertible senior notes payable” represents financial instruments that the Company carries at amortized cost. The fair value of the convertible senior notes payable is estimated based on the bid price observed in an inactive market for the identical instrument (Level 2 input) (see Note 7). 5. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES At June 30, 2021, the loss and loss adjustment expense reserves included estimated amounts for several catastrophe events. For significant catastrophe events, including, but not limited to, hurricanes, typhoons, floods, wildfires, and pandemics, loss reserves are generally established based on loss payments and case reserves reported by clients when, and if, received. To establish IBNR loss estimates, the Company makes use of, among other things, the following: • estimates communicated by ceding companies; • information received from clients, brokers, and loss adjusters; • an understanding of the underlying business written and its exposures to catastrophe event-related losses; • industry data; • catastrophe scenario modeling software; and • management’s judgment. The COVID-19 pandemic is unprecedented, and the Company does not have previous loss experience on which to base the associated estimate for loss and loss adjustment expenses. The Company based its estimate on the following: • a review of in-force treaties that may provide coverage and incur losses; • catastrophe and scenario modeling analyses and results shared by cedents; • preliminary loss estimates received from clients and their analysts and loss adjusters; • reviews of industry insured loss estimates and market share analyses; and • management’s judgment. Significant assumptions which served as the basis for the Company's estimates of reserves for the COVID-19 pandemic losses and loss adjustment expenses include: • the scope of coverage provided by the underlying policies, particularly those that provide for business interruption coverage; 15 Return to table of contents • the regulatory, legislative, and judicial actions that could influence contract interpretations across the insurance industry; • the extent of economic contraction caused by the COVID-19 pandemic and associated actions, particularly in the United States; and • the ability of the cedents and insured to mitigate some or all of their losses. While the Company believes its estimate of loss and loss adjustment expense reserves for the COVID-19 pandemic is adequate as of June 30, 2021, based on available information, actual losses may ultimately differ materially from the Company's current estimates. The Company will continue to monitor the appropriateness of its assumptions as new information becomes available and will adjust its estimates accordingly. Such adjustments may be material to the Company's results of operations and financial condition. The Company made no significant changes in the actuarial methodology or reserving process related to its loss and loss adjustment expense reserves for the six months ended June 30, 2021. At June 30, 2021 and December 31, 2020, loss and loss adjustment expense reserves were composed of the following: June 30, 2021 December 31, 2020 ($ in thousands) Case reserves $ 186,395 $ 176,805 IBNR 328,247 317,374 Total $ 514,642 $ 494,179 A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated for the six months ended June 30, 2021 and 2020 is as follows: Consolidated 2021 2020 ($ in thousands) Gross balance at January 1 $ 494,179 $ 470,588 Less: Losses recoverable ( 16,851 ) ( 27,531 ) Net balance at January 1 477,328 443,057 Incurred losses related to: Current year 185,281 159,225 Prior years ( 603 ) 5,666 Total incurred 184,678 164,891 Paid losses related to: Current year ( 47,262 ) ( 35,874 ) Prior years ( 114,680 ) ( 122,532 ) Total paid ( 161,942 ) ( 158,406 ) Foreign currency revaluation 246 ( 2,112 ) Net balance at June 30 500,310 447,430 Add: Losses recoverable 14,332 20,225 Gross balance at June 30 $ 514,642 $ 467,655 For the six months ended June 30, 2021, the estimate of net losses incurred relating to prior accident years decreased by $ 0.6 million, due primarily to favorable development on catastrophe and a mortgage contract associated with the COVID-19 pandemic and certain health contracts. The decrease in prior accident years was partially offset by adverse loss development on certain casualty contracts written between 2014 and 2018. The favorable loss development on a mortgage contract was offset by an increase in profit commissions on the same contract. For the six months ended June 30, 2020, the estimate of net losses incurred relating to prior accident years increased by $ 5.7 million, due primarily to certain general liability, health and multi-line contracts, partially offset by favorable loss development on professional liability contracts. 16 Return to table of contents The changes in the outstanding loss and loss adjustment expense reserves for health claims for the six months ended June 30, 2021 and 2020 are as follows: Health 2021 2020 ($ in thousands) Gross balance at January 1 $ 17,485 $ 18,063 Less: Losses recoverable — — Net balance at January 1 17,485 18,063 Incurred losses related to: Current year 22,895 15,811 Prior years ( 1,667 ) 1,972 Total incurred 21,228 17,783 Paid losses related to: Current year ( 11,941 ) ( 7,063 ) Prior years ( 12,188 ) ( 13,909 ) Total paid ( 24,129 ) ( 20,972 ) Foreign currency revaluation — — Net balance at June 30 14,584 14,874 Add: Losses recoverable — — Gross balance at June 30 $ 14,584 $ 14,874 6. RETROCESSION From time to time, the Company purchases retrocessional coverage for one or more of the following reasons: to manage its overall exposure, reduce its net liability on individual risks, obtain additional underwriting capacity and balance its underwriting portfolio. Loss and loss adjustment expenses recoverable from retrocessionaires are recorded as assets. For the three and six months ended June 30, 2021, the Company’s earned ceded premiums were $ 0.0 million and $ 0.1 million, respectively (2020: $ 0.5 million and $ 1.5 million). For the three and six months ended June 30, 2021, loss and loss adjustment expenses incurred of $ 87.0 million and $ 184.7 million, respectively (2020: $ 89.2 million and $ 164.9 million, respectively), reported on the condensed consolidated statements of operations are net of loss and loss expenses recovered of $( 0.1 ) million and $( 0.1 ) million, respectively (2020: $ 0.2 million and $ 3.7 million, respectively). Retrocession contracts do not relieve the Company from its obligations to its cedents. Failure of retrocessionaires to honor their obligations could result in losses to the Company. At June 30, 2021, the Company’s loss reserves recoverable consisted of (i) $ 10.6 million (December 31, 2020: $ 12.6 million) from unrated retrocessionaires, of which $ 10.4 million (December 31, 2020: $ 11.9 million) were secured by cash, letters of credit and collateral held in trust accounts for the benefit of the Company and (ii) $ 3.7 million (December 31, 2020: $ 4.3 million) from retrocessionaires rated A- or above by A.M. Best. The Company regularly evaluates its net credit exposure to assess the ability of the retrocessionaires to honor their respective obligations. At June 30, 2021, the Company had recorded an allowance for expected credit losses of $ 47.0 thousand (December 31, 2020: $ 47.0 thousand). 7. SENIOR CONVERTIBLE NOTES On August 7, 2018, the Company issued $ 100.0 million of senior unsecured convertible notes (the “Notes”), which mature on August 1, 2023. The Notes bear interest at 4.0 % payable semi-annually on February 1 and August 1 of each year beginning on February 1, 2019. Note holders have the option, under certain conditions, to redeem the Notes prior to maturity. If the holder redeems the Notes, the Company shall have the option to settle the conversion obligation in cash, ordinary shares of the Company, or a combination thereof pursuant to the terms of the indenture governing the Notes. The Company has therefore bifurcated the Notes into liability and equity components. 17 Return to table of contents At June 30, 2021, the Company’s share price was lower than the conversion price of $ 17.19 per share. The Company’s effective borrowing rate for non-convertible debt at the time of issuance of the Notes was estimated to be 6.0 %, which equated to an $ 8.2 million discount. At June 30, 2021 and December 31, 2020, the unamortized debt discount was $ 3.4 million and $ 4.2 million, respectively. The debt discount also represents the portion of the Note’s principal amount allocated to the equity component. The Company incurred issuance costs in connection with the issuance of the Notes. At June 30, 2021, the unamortized portion of these costs attributed to the debt component was $ 1.3 million (December 31, 2020: $ 1.6 million), which the Company expects to amortize through the maturity date. The Company netted the portion of these issuance costs attributed to the equity component against the gross proceeds allocated to equity, resulting in the Company including $ 7.9 million in the caption “Additional paid-in capital” in the Company’s condensed consolidated balance sheets. The carrying value of the Notes at June 30, 2021, including accrued interest of $ 0.7 million, was $ 96.9 million (December 31, 2020: $ 95.8 million). At June 30, 2021, the Company estimated the fair value of the Notes to be $ 97.0 million (December 31, 2020: $ 83.6 million) (see Note 4 Financial Instruments). For the three and six months ended June 30, 2021, the Company recognized interest expense of $ 1.6 million and $ 3.1 million (2020: $ 1.6 million and $ 3.1 million) in connection with the interest coupon, amortization of issuance costs, and amortization of the discount. The Company was in compliance with all covenants relating to the Notes at June 30, 2021, and December 31, 2020. 8. SHARE CAPITAL On October 29, 2020, the Company’s shareholders approved an amendment to the stock incentive plan to increase the number of Class A ordinary shares available for issuance by 3.0 million shares from 5.0 million to 8.0 million. At June 30, 2021, 3,056,065 (December 31, 2020: 3,474,888 ) Class A ordinary shares remained available for future issuance under the Company’s stock incentive plan. The Compensation Committee of the Board of Directors administers the Company’s stock incentive plan. The Board has adopted a share repurchase plan. The timing of such repurchases and the actual number of shares repurchased will depend on various factors, including price, market conditions, and applicable regulatory and corporate requirements. On March 26, 2020, the Board of Directors extended the share repurchase plan to June 30, 2021. It 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 or more tender offers. The Company repurchased 725,133 Class A ordinary shares during the six months ended June 30, 2021. The Company did not repurchase any Notes under the repurchase plan. On May 4, 2021, the Board of Directors approved a new share repurchase plan effective from July 1, 2021, until June 30, 2022, authorizing the Company to purchase up to $ 25 million of 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 or the Notes. The repurchase plans may be modified, suspended, or terminated at the election of our Board of Directors at any time without prior notice. All Class A ordinary shares repurchased are canceled immediately upon repurchase. 18 Return to table of contents The following table is a summary of ordinary shares issued and outstanding: Six months ended June 30 Six months ended June 30 2021 2020 Class A Class B Class A Class B Balance – beginning of period 28,260,075 6,254,715 30,739,395 6,254,715 Issue of ordinary shares, net of forfeitures 381,411 — 440,134 — Repurchase of ordinary shares ( 725,133 ) — ( 1,161,659 ) — Balance – end of period 27,916,353 6,254,715 30,017,870 6,254,715 Additional paid-in capital includes the premium per share paid by the subscribing shareholders for Class A and B ordinary shares, which have a par value of $ 0.10 each. It also includes the earned portion of the grant-date fair value of share-based awards. 9. SHARE-BASED COMPENSATION The Company has a stock incentive plan for directors, employees, and consultants administered by the Compensation Committee of the Board of Directors. Employee and Director Restricted Shares For the six months ended June 30, 2021, the Company issued 334,312 (2020: 306,264 ) Class A ordinary shares to employees pursuant to the Company’s stock incentive plan. These shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment, and transferability. The restricted shares cliff vest three years after the date of issuance, subject to the grantee’s continued service with the Company. During the vesting period, the holder of the restricted shares retains voting rights and is entitled to any dividends declared by the Company. For the six months ended June 30, 2021, grantees forfeited 20,592 (2020: 18,701 ) restricted shares. For the six months ended June 30, 2021, the Company reversed $ 0.1 million of stock compensation expense (2020: $ 0.1 million) in relation to the forfeited restricted shares. The Company recorded $ 1.2 million of share-based compensation expense, net of forfeiture reversals, relating to restricted shares for the six months ended June 30, 2021 (2020: $ 1.2 million). At June 30, 2021, there was $ 3.5 million (December 31, 2020: $ 1.9 million) of unrecognized compensation cost relating to non-vested restricted shares (excluding any restricted shares with performance conditions the Company currently does not expect to meet), which the Company expects to recognize over a weighted-average period of 2.1 years (December 31, 2020: 1.5 years). For the six months ended June 30, 2021, the total fair value of restricted shares vested was $ 1.6 million (2020: $ 2.8 million). For the six months ended June 30, 2021, the Company also issued to non-employee directors an aggregate of 46,980 (2020: 0 ) restricted Class A ordinary shares as part of their remuneration for services to the Company. Each of these restricted shares issued to non-employee directors contains similar restrictions to those issued to employees and will vest on the earlier of the first anniversary of the date of the share issuance or the Company’s next annual general meeting, subject to the grantee’s continued service with the Company. 19 Return to table of contents The following table summarizes the activity for unvested outstanding restricted share awards during the six months ended June 30, 2021: Number of non-vested restricted shares Weighted average grant date fair value Balance at December 31, 2020 697,549 $ 9.38 Granted 381,292 9.15 Vested ( 139,482 ) 11.53 Forfeited ( 20,592 ) 8.35 Balance at June 30, 2021 918,767 $ 8.98 Employee and Director Stock Options For the six months ended June 30, 2021, no Class A ordinary share purchase options were granted or exercised by directors or employees, and no stock options expired or vested. When stock options are granted, the Company reduces the corresponding number from the shares authorized for issuance as part of the Company’s stock incentive plan. The Board of Directors does not currently anticipate that the Company will declare any dividends during the expected term of the options. The Company uses graded vesting for expensing employee stock options. The total compensation cost expensed relating to stock options for the six months ended June 30, 2021, was $ 0.2 million (2020: $ 0.4 million). At June 30, 2021, the total compensation cost related to non-vested options not yet recognized was $ 0.4 million (December 31, 2020: $ 0.7 million), which will be recognized over a weighted-average period of 1.6 years (December 31, 2020: 1.8 years) assuming the grantee completes the service period for vesting of the options. At June 30, 2021 and December 31, 2020, 0.8 million stock options were outstanding, with a weighted average exercise price of $ 22.22 per share and a weighted average grant date fair value of $ 10.25 per share. The weighted-average remaining contractual term of the stock options was 4.6 years and 5.1 years, at June 30, 2021, and December 31, 2020, respectively. Employee Restricted Stock Units The Company issues RSUs to certain employees as part of the stock incentive plan. These RSUs contain restrictions relating to vesting, forfeiture in the event of termination of employment, transferability, and other matters. Each RSU grant cliff vests three years after the date of issuance, subject to the grantee’s continued service with the Company. On the vesting date, the Company converts each RSU into one Class A ordinary share and issues new Class A ordinary shares from the shares authorized for issuance as part of the Company’s stock incentive plan. For the six months ended June 30, 2021, the Company issued 58,123 (2020: 60,622 ) RSUs to employees pursuant to the Company’s stock incentive plan. For the six months ended June 30, 2021 and 2020, no RSUs were forfeited. The Company recorded $ 0.2 million of share-based compensation expense relating to RSUs for the six months ended June 30, 2021 (2020: $ 0.2 million). Employee RSU activity during the six months ended June 30, 2021, was as follows: Number of non-vested RSUs Weighted average grant date fair value Balance at December 31, 2020 116,722 $ 9.60 Granted 58,123 9.18 Vested ( 20,711 ) 15.90 Balance at June 30, 2021 154,134 $ 8.59 20 Return to table of contents For the six months ended June 30, 2021 and 2020, the combined stock compensation expense (net of forfeitures) included in the caption “General and administrative expenses” in the Company’s statements of operations was $ 1.6 million and $ 1.7 million, respectively. Performance Restricted Shares Prior to 2021, the Company issued Class A ordinary shares to the Chief Executive Officer (“CEO”) pursuant to the Company’s stock incentive plan. These shares contain performance and service conditions and certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of the CEO’s employment, and transferability. These restricted shares cliff vest five years after the date of issuance, subject to the performance condition being met and the CEO’s continued service with the Company. The weighted average grant date fair value of these restricted shares subject to performance conditions was $ 6.72 per share. At June 30, 2021, 193,149 unvested performance restricted shares were outstanding (December 31, 2020: 193,149 ). As the performance conditions associated with these restricted shares have not been met, the Company recognized no compensation cost relating to the unvested shares for the six months ended June 30, 2021 and 2020. 10. TAXATION At June 30, 2021, the Company recorded a gross deferred tax asset of $ 3.7 million (2020: $ 3.5 million) and a deferred tax asset valuation allowance of $ 3.2 million (2020: $ 3.0 million). The net deferred tax asset is included in the caption “Other assets” in the Company’s condensed consolidated balance sheets. The Company has determined that it is more likely than not that it will fully realize the recorded deferred tax asset (net of the valuation allowance) in the future. The Company based this determination on the expected timing of the reversal of the temporary differences and the likelihood of generating sufficient taxable income to realize the future tax benefit. The following table sets forth our current and deferred income tax benefit (expense) on a consolidated basis for the six months ended June 30, 2021 and 2020: Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) Current tax (expense) benefit $ 171 $ 134 $ ( 3,563 ) $ 305 Deferred tax (expense) benefit ( 184 ) — — — Increase in deferred tax valuation allowance 14 ( 134 ) ( 170 ) ( 729 ) Income tax (expense) benefit $ 1 $ — $ ( 3,733 ) $ ( 424 ) For the six months ended June 30, 2021, the income tax expense of $ 3.7 million resulted from Verdant’s gain on the sale of its AccuRisk investment. 11. RELATED PARTY TRANSACTIONS Investment Advisory Agreement DME, DME II, and DME Advisors are each an affiliate of David Einhorn, Chairman of the Company’s Board of Directors, and therefore, are related parties to the Company. 21 Return to table of contents The Company has entered into the SILP LPA (as described in Note 3 of the condensed consolidated financial statements). DME II receives a performance allocation equal to (with capitalized terms having the meaning provided under the SILP LPA) (a) 10 % of the portion of the Positive Performance Change for each limited partner’s capital account that is less than or equal to the positive balance in such limited partner’s Carryforward Account, plus (b) 20 % of the portion of the Positive Performance Change for each limited partner’s capital account that exceeds the positive balance in such limited partner’s Carryforward Account. The Carryforward Account for Greenlight Re and GRIL includes the amount of losses that were to be recouped under the Joint Venture as well as any loss generated on the assets invested in SILP, subject to adjustments for redemptions. The loss carry-forward provision contained in the SILP LPA allows DME II to earn a reduced performance allocation of 10 % of profits in years subsequent to any year in which SILP has incurred a loss until all losses are recouped, and an additional amount equal to 150 % of the loss is earned. In accordance with the SILP LPA, DME Advisors constructs a levered investment portfolio as agreed by the Company (the “Investment Portfolio” as defined in the SILP LPA). On September 1, 2018, SILP entered into the IAA with DME Advisors, which entitles DME Advisors to a monthly management fee equal to 0.125 % ( 1.5 % on an annual basis) of each limited partner’s Investment Portfolio. The IAA has an initial term ending on August 31, 2023, subject to an automatic extension for successive three-year terms. For a detailed breakdown of management fees and performance compensation for the three and six months ended June 30, 2021 and 2020, refer to Note 3 of the condensed consolidated financial statements. Pursuant to the SILP LPA and the IAA, the Company has agreed to indemnify DME, DME II, and DME Advisors for any expense, loss, liability, or damage arising out of any claim asserted or threatened in connection with DME Advisors serving as the Company’s or SILP’s investment advisor. The Company will reimburse DME, DME II, and DME Advisors for reasonable costs and expenses of investigating and defending such claims provided such claims were not caused due to gross negligence, breach of contract, or misrepresentation by DME, DME II, or DME Advisors. The Company incurred no indemnification amounts during the periods presented. Green Brick Partners, Inc. David Einhorn also serves as the Chairman of the Board of Directors of Green Brick Partners, Inc. (“GRBK”), a publicly traded company. At June 30, 2021, SILP, along with certain affiliates of DME Advisors, collectively owned 34.4 % of the issued and outstanding common shares of GRBK. Under applicable securities laws, DME Advisors may be limited at times in its ability to trade GRBK shares on behalf of SILP. Service Agreement The Company has entered into a service agreement with DME Advisors, pursuant to which DME Advisors provides certain investor relations services to the Company for compensation of five thousand dollars per month (plus expenses). The agreement is automatically renewed annually until terminated by either the Company or DME Advisors for any reason with 30 days prior written notice to the other party. Collateral Assets Investment Management Agreement Effective January 1, 2019, the Company (and its subsidiaries) entered into a collateral assets investment management agreement (the “CMA”) with DME Advisors, pursuant to which DME Advisors manages certain assets of the Company that are not subject to the SILP LPA and are held by the Company to provide collateral required by the cedents in the form of trust accounts and letters of credit. In accordance with the CMA, DME Advisors receives no fees and is required to comply with the collateral investment guidelines. The CMA can be terminated by any of the parties upon 30 days’ prior written notice to the other parties. 22 Return to table of contents 12. COMMITMENTS AND CONTINGENCIES Letters of Credit and Trusts At June 30, 2021, the Company had one letter of credit facility, which automatically renews each year unless terminated by either party in accordance with the applicable required notice period: Maximum Facility Limit Termination Date Notice period required for termination ($ in thousands) Citibank Europe plc $ 275,000 August 20, 2022 120 days before the termination date At June 30, 2021, an aggregate amount of $ 138.9 million (December 31, 2020: $ 135.3 million) in letters of credit were issued under the credit facility. At June 30, 2021, the Company had pledged total cash and cash equivalents with a fair value in the aggregate of $ 142.4 million (December 31, 2020: $ 137.6 million) as collateral against the letters of credit issued and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets. The credit facility contains customary events of default and restrictive covenants, including but not limited to limitations on liens on collateral, transactions with affiliates, mergers, and sales of assets, as well as solvency and maintenance of certain minimum pledged equity requirements, and restricts issuance of any debt without the consent of the letter of credit provider. Additionally, if an event of default exists, as defined in the letter of credit facility, Greenlight Re will be prohibited from paying dividends to its parent company. The Company was in compliance with all the credit facility covenants at June 30, 2021 and December 31, 2020. The Company has also established regulatory trust arrangements for certain cedents. At June 30, 2021, collateral of $ 567.3 million (December 31, 2020: $ 607.8 million) was provided to cedents in the form of regulatory trust accounts and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets. Lease Obligations Greenlight Re has entered into a new lease agreement for office space in the Cayman Islands commencing July 1, 2021. The lease expires on June 30, 2026, unless Greenlight Re exercises its right to renew the lease for another five-year period. The annual lease obligation ranges from $ 0.5 million to $ 0.6 million. Greenlight Re’s previous lease arrangement qualified as a short-term lease for the three and six months ended June 30, 2021.. The short-term lease expense for the three and six months ended June 30, 2021, was $ 0.1 million and $ 0.3 million, respectively (three and six months ended June 30, 2020: $ 0.1 million and $ 0.3 million, respectively). Schedule of Commitments and Contingencies The following is a schedule of future minimum payments required under the above commitments: 2021 2022 2023 2024 2025 Thereafter Total ($ in thousands) Operating lease obligations $ 257 $ 522 $ 537 $ 553 $ 570 $ 289 $ 2,728 Interest and convertible note payable $ 2,000 $ 4,000 $ 104,000 — — — 110,000 $ 2,257 $ 4,522 $ 104,537 $ 553 $ 570 $ 289 $ 112,728 Litigation From time to time, in the normal course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation. The outcomes of these procedures determine the rights and obligations under the Company’s reinsurance contracts and other contractual agreements. In some disputes, the Company may seek to enforce its rights under an agreement or to collect funds owed. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. While the Company cannot predict the outcome of legal disputes with certainty, the Company does not believe that any existing dispute, when finally resolved, will have a material adverse effect on the Company’s business, financial condition, or operating results. 23 Return to table of contents 13. SEGMENT REPORTING The Company has one operating segment, Property & Casualty Reinsurance. Substantially all of the Company’s business is sourced through reinsurance brokers. The following table sets forth the premiums generated through our largest brokers and their subsidiaries and affiliates (totals may not sum due to rounding): Gross Premiums Written by Line of Business Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) Property Commercial $ 4,154 2.9 % $ 3,065 2.6 % $ 6,302 2.0 % $ 6,030 2.7 % Motor 8,725 6.2 6,812 5.9 18,434 5.9 15,045 6.6 Personal 3,629 2.6 3,674 3.1 6,687 2.1 6,635 2.9 Total Property 16,508 11.7 13,551 11.6 31,423 10.1 27,710 12.2 Casualty General Liability 1,678 1.2 528 0.5 3,373 1.1 696 0.3 Motor Liability 35,408 25.0 25,655 22.0 76,972 24.7 55,050 24.3 Professional Liability (1) ( 3 ) — 33 — 148 — 123 0.1 Workers' Compensation 15,971 11.3 28,605 24.5 38,120 12.2 38,929 17.2 Multi-line 49,580 35.0 19,973 17.1 97,695 31.4 41,559 18.4 Total Casualty 102,634 72.5 74,794 64.1 216,308 69.4 136,357 60.3 Other Accident & Health 7,588 5.4 10,228 8.8 22,252 7.1 28,104 12.4 Financial 8,884 6.3 3,725 3.2 22,214 7.1 13,887 6.1 Marine 1,420 1.0 266 0.2 5,950 1.9 622 0.3 Other Specialty 4,545 3.2 14,125 12.1 13,367 4.3 19,796 8.7 Total Other 22,437 15.8 28,344 24.3 63,783 20.5 62,409 27.5 $ 141,579 100.0 % $ 116,689 100.0 % $ 311,514 100.0 % $ 226,476 100.0 % (1) The negative balance represents the reversal of premiums due to premium adjustments, termination of contracts, or premium returned upon novation or commutation of contracts. Gross Premiums Written by Geographic Area of Risks Insured Three months ended June 30 Six months ended June 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) U.S. and Caribbean $ 86,908 61.4 % $ 94,663 81.1 % $ 191,762 61.6 % $ 180,713 79.8 % Worldwide (1) 51,863 36.6 20,616 17.7 114,854 36.9 43,412 19.2 Europe 384 0.3 — — 1,304 0.4 — — Asia 2,424 1.7 1,410 1.2 3,594 1.2 2,351 1.0 $ 141,579 100.0 % $ 116,689 100.0 % $ 311,514 100.0 % $ 226,476 100.0 % (1) “Worldwide” is composed of contracts that reinsure risks in more than one geographic area and may include risks in the U.S. 24 Return to table of contents