GREENLIGHT CAPITAL RE, LTD. 10-Q

Item 1. FINANCIAL STATEMENTS GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, 2021 and December 31, 2020 (expressed in thousands of U.S. dollars, except per share and share amounts) September 30, 2021 December 31, 2020 Assets Investments Investment in related party investment fund $ 180,239 $ 166,735 Other investments 42,480 29,418 Total investments 222,719 196,153 Cash and cash equivalents 37,380 8,935 Restricted cash and cash equivalents 692,542 745,371 Reinsurance balances receivable (net of allowance for expected credit losses of $ 89 and $ 89 ) 380,417 330,232 Loss and loss adjustment expenses recoverable (net of allowance for expected credit losses of $ 47 and $ 47 ) 13,082 16,851 Deferred acquisition costs 60,634 51,014 Unearned premiums ceded 26 — Notes receivable — 6,101 Other assets 6,737 2,993 Total assets $ 1,413,537 $ 1,357,650 Liabilities and equity Liabilities Loss and loss adjustment expense reserves $ 540,779 $ 494,179 Unearned premium reserves 237,926 201,089 Reinsurance balances payable 77,525 92,247 Funds withheld 5,087 4,475 Other liabilities 5,228 5,009 Convertible senior notes payable 96,478 95,794 Total liabilities 963,023 892,793 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, 27,589,731 (2020: 28,260,075 ): Class B: par value $ 0.10 ; authorized, 25,000,000 ; issued and outstanding, 6,254,715 (2020: 6,254,715 )) 3,384 3,452 Additional paid-in capital 480,939 488,488 Retained earnings (deficit) ( 33,809 ) ( 27,083 ) Total shareholders' equity 450,514 464,857 Total liabilities and equity $ 1,413,537 $ 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 nine months ended September 30, 2021 and 2020 (expressed in thousands of U.S. dollars, except per share and share amounts) Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 Revenues Gross premiums written $ 128,735 $ 135,596 $ 440,249 $ 362,072 Gross premiums ceded ( 60 ) ( 1,464 ) ( 6 ) ( 2,274 ) Net premiums written 128,675 134,132 440,243 359,798 Change in net unearned premium reserves 6,849 ( 18,613 ) ( 36,844 ) ( 24,844 ) Net premiums earned 135,524 115,519 403,399 334,954 Income (loss) from investment in related party investment fund (net of related party expenses of $ 659 and $ 2,632 (three and nine months ended September 30, 2020: $ 703 and $ 1,981 , respectively)) ( 6,214 ) 6,431 ( 4,196 ) ( 34,086 ) Net investment income (loss) 10,303 466 28,999 11,237 Other income (expense), net ( 380 ) 1,569 ( 4,033 ) 2,570 Total revenues 139,233 123,985 424,169 314,675 Expenses Net loss and loss adjustment expenses incurred 110,400 88,053 295,078 252,944 Acquisition costs 35,048 27,018 106,060 76,660 General and administrative expenses 6,060 5,152 21,340 18,095 Interest expense 1,578 1,579 4,684 4,702 Total expenses 153,086 121,802 427,162 352,401 Income (loss) before income tax ( 13,853 ) 2,183 ( 2,993 ) ( 37,726 ) Income tax (expense) benefit — — ( 3,733 ) ( 424 ) Net income (loss) $ ( 13,853 ) $ 2,183 $ ( 6,726 ) $ ( 38,150 ) Earnings (loss) per share Basic $ ( 0.42 ) $ 0.06 $ ( 0.20 ) $ ( 1.07 ) Diluted $ ( 0.42 ) $ 0.06 $ ( 0.20 ) $ ( 1.07 ) Weighted average number of ordinary shares used in the determination of earnings and loss per share Basic 32,929,097 35,677,554 33,507,060 35,569,292 Diluted 32,929,097 35,779,703 33,507,060 35,569,292 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 4 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) For the three and nine months ended September 30, 2021 and 2020 (expressed in thousands of U.S. dollars) Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 Ordinary share capital Balance - beginning of period $ 3,417 $ 3,627 $ 3,452 $ 3,699 Issue of Class A ordinary shares, net of forfeitures 3 ( 19 ) 41 25 Repurchase of Class A ordinary shares ( 36 ) ( 71 ) ( 109 ) ( 187 ) Balance - end of period 3,384 3,537 3,384 3,537 Additional paid-in capital Balance - beginning of period 483,365 497,559 488,488 503,547 Repurchase of Class A ordinary shares ( 3,216 ) ( 4,828 ) ( 9,891 ) ( 12,484 ) Share-based compensation expense 790 ( 302 ) 2,342 1,366 Balance - end of period 480,939 492,429 480,939 492,429 Retained earnings (deficit) Balance - beginning of period ( 19,956 ) ( 71,282 ) ( 27,083 ) ( 30,063 ) Cumulative effect of adoption of accounting guidance for expected credit losses at January 1, 2020 — — — ( 886 ) Net income (loss) ( 13,853 ) 2,183 ( 6,726 ) ( 38,150 ) Balance - end of period ( 33,809 ) ( 69,099 ) ( 33,809 ) ( 69,099 ) Total shareholders' equity $ 450,514 $ 426,867 $ 450,514 $ 426,867 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 5 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the nine months ended September 30, 2021 and 2020 (expressed in thousands of U.S. dollars) Nine months ended September 30 2021 2020 Cash provided by (used in) operating activities Net income (loss) $ ( 6,726 ) $ ( 38,150 ) 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 4,196 34,086 Loss (income) from investment accounted for under the equity method — ( 870 ) Net change in unrealized gains and losses on investments and notes receivable ( 14,860 ) ( 19,153 ) Net realized (gains) losses on investments and notes receivable ( 14,210 ) 15,000 Foreign exchange (gains) losses on investments 14 232 Current expected credit losses recognized on notes receivable and reinsurance assets — 250 Share-based compensation expense 2,383 1,391 Amortization and interest expense, net of change in accruals 684 702 Depreciation expense 16 21 Net change in Reinsurance balances receivable ( 50,185 ) ( 33,932 ) Loss and loss adjustment expenses recoverable 3,769 7,535 Deferred acquisition costs ( 9,620 ) ( 2,031 ) Unearned premiums ceded ( 26 ) 901 Other assets, excluding depreciation ( 3,760 ) ( 1,121 ) Loss and loss adjustment expense reserves 46,600 11,182 Unearned premium reserves 36,837 24,395 Reinsurance balances payable ( 14,722 ) ( 42,301 ) Funds withheld 612 274 Other liabilities 219 ( 3,069 ) Net cash provided by (used in) operating activities ( 18,779 ) ( 44,658 ) Investing activities Proceeds from redemptions from related party investment fund 51,904 69,108 Contributions to related party investment fund ( 69,604 ) ( 48,094 ) Purchases of investments ( 4,761 ) ( 944 ) Sales of investments 20,755 — Net change in notes receivable 6,101 741 Net cash provided by (used in) investing activities 4,395 20,811 Financing activities Repurchase of Class A ordinary shares ( 10,000 ) ( 12,671 ) Net cash provided by (used in) financing activities ( 10,000 ) ( 12,671 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash — ( 122 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 24,384 ) ( 36,640 ) 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 $ 729,922 $ 731,266 Supplementary information Interest paid in cash $ 4,000 $ 4,000 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) September 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 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 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 that 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 of operations and cash flows for any interim period will not necessarily be indicative of the results of operations and cash flows for the full fiscal year or subsequent periods. 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 revenue and expenses during the period. Actual results could differ from these estimates. The significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, loss and loss adjustment expense reserves, 7 Return to table of contents premiums written, earned and receivable, variability underlying risk transfer assessments, allowances for credit losses, bonus accruals, share-based compensation, valuation allowances associated with deferred tax assets and investment impairments. 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: September 30, 2021 December 31, 2020 ($ in thousands) Cash and cash equivalents $ 37,380 $ 8,935 Restricted cash and cash equivalents 692,542 745,371 Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows $ 729,922 $ 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 include premiums and funds held at Lloyd’s, which is held in trust at Lloyd's as security for members’ underwriting activities. At September 30, 2021, funds held by cedents were $ 201.3 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. The PD / LGD approach considers the Company’s collectibility history on its reinsurance assets and representative external loss history. In calculating the probability of default, the Company also considers the estimated duration of its reinsurance assets. The Company evaluates each counterparty’s creditworthiness based on credit ratings that independent agencies assign to the counterparty. 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 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 September 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 its paid or received consideration. 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 September 30, 2021, deposit assets and deposit liabilities were $ 4.9 million and $ 14.0 million, respectively (December 31, 2020: $ 4.6 million and $ 31.0 million, respectively). For the three and nine months ended September 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 September 30 Nine months ended September 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) Deposit interest income $ — $ 560 $ — $ 1,812 Deposit interest expense $ ( 38 ) $ — $ ( 2,957 ) $ — Deposit interest income/(expense), net $ ( 38 ) $ 560 $ ( 2,957 ) $ 1,812 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 nine months ended September 30, 2021 and 2020: Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 Weighted average shares outstanding - basic 32,929,097 35,677,554 33,507,060 35,569,292 Effect of dilutive employee and director share-based awards — 102,149 — — Weighted average shares outstanding - diluted 32,929,097 35,779,703 33,507,060 35,569,292 Anti-dilutive stock options outstanding 735,627 835,627 735,627 835,627 Participating securities excluded from calculation of loss per share 946,556 — 946,556 878,498 Taxation Under current Cayman Islands law, no corporate entity, including GLRE and Greenlight Re, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company has an undertaking from the Governor-in-Cabinet of the Cayman Islands, pursuant to the provisions of the Tax Concessions Law, as amended, that, in the event that the Cayman Islands enacts any legislation that imposes tax on profits, income, gains or appreciations, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to GLRE, Greenlight Re nor their respective operations, or to the Class A or Class B ordinary shares or related obligations, before February 1, 2025. Verdant is incorporated in Delaware and therefore is subject to taxes in accordance with the U.S. federal rates and regulations prescribed by the U.S. Internal Revenue Service (“IRS”). Verdant’s taxable income is generally expected to be taxed at a marginal rate of 21% (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 is 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”). ASU 2020-01 clarifies interactions between the accounting guidance for (i) certain equity securities under Topic 321, (ii) investments under the equity method of accounting in Topic 323, and (iii) certain derivative instruments in Topic 815. 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 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 10 Return to table of contents 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 opening 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 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 presents its investment in SILP in its 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 September 30, 2021, the net asset value of the GLRE Limited Partners’ investment in SILP was $ 180.2 million (December 31, 2020: $ 166.7 million), representing 78.0 % (December 31, 2020: 75.7 %) of SILP’s total net assets. DME II held the remaining 22.0 % (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 September 30, 2021, the majority of SILP’s long investments were composed of cash and publicly traded equity 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 nine months ended September 30, 11 Return to table of contents 2021, was $( 6.2 ) million and $( 4.2 ) million, respectively, (three and nine months ended September 30, 2020: $ 6.4 million and $( 34.1 ) million, respectively), and shown in the caption “Income (loss) from investment in related party investment fund” in the Company’s condensed consolidated statements of operations. The summarized financial statements of SILP are presented below. Summarized Statement of Assets and Liabilities of Solasglas Investments, LP September 30, 2021 December 31, 2020 ($ in thousands) Assets Investments, at fair value $ 262,058 $ 272,398 Derivative contracts, at fair value 9,071 1,450 Due from brokers 77,638 92,053 Cash and cash equivalents 1,076 — Interest and dividends receivable 14 59 Total assets 349,857 365,960 Liabilities and partners’ capital Liabilities Investments sold short, at fair value ( 109,044 ) ( 131,902 ) Derivative contracts, at fair value ( 7,793 ) ( 4,156 ) Due to brokers ( 1,170 ) ( 9,179 ) Interest and dividends payable ( 603 ) ( 429 ) Other liabilities ( 133 ) ( 175 ) Total liabilities ( 118,743 ) ( 145,841 ) Net Assets $ 231,114 $ 220,119 GLRE Limited Partners’ share of Net Assets $ 180,239 $ 166,735 12 Return to table of contents Summarized Statement of Operations of Solasglas Investments, LP Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 ($ in thousands) Investment income Dividend income (net of withholding taxes) $ 146 $ 170 $ 509 $ 1,204 Interest income 51 36 770 262 Total Investment income 197 206 1,279 1,466 Expenses Management fee ( 883 ) ( 703 ) ( 2,632 ) ( 1,981 ) Interest ( 205 ) ( 176 ) ( 874 ) ( 518 ) Dividends ( 306 ) ( 213 ) ( 852 ) ( 612 ) Professional fees and other ( 227 ) ( 432 ) ( 786 ) ( 764 ) Total expenses ( 1,621 ) ( 1,524 ) ( 5,144 ) ( 3,875 ) Net investment income (loss) ( 1,424 ) ( 1,318 ) ( 3,865 ) ( 2,409 ) Realized and change in unrealized gains (losses) Net realized gain (loss) ( 1,411 ) ( 1,412 ) ( 14,809 ) ( 44,972 ) Net change in unrealized appreciation (depreciation) ( 5,437 ) 10,832 12,143 5,811 Net gain (loss) on investment transactions ( 6,848 ) 9,420 ( 2,666 ) ( 39,161 ) Net income (loss) $ ( 8,272 ) $ 8,102 $ ( 6,531 ) $ ( 41,570 ) GLRE Limited Partners’ share of net income (loss) (1) $ ( 6,214 ) $ 6,431 $ ( 4,196 ) $ ( 34,086 ) (1) Net income (loss) is net of management fees and performance allocation presented below: Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 ($ in thousands) Management fees $ 883 $ 703 $ 2,632 $ 1,981 Performance allocation $ ( 224 ) $ — $ — $ — Total $ 659 $ 703 $ 2,632 $ 1,981 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 September 30, 2021, the Company included the following securities in the caption “Other investments”: Cost Unrealized gains Unrealized losses Fair value / carrying value ($ in thousands) Private investments and unlisted equities $ 17,175 $ 24,017 $ ( 1,800 ) $ 39,392 Derivative financial instruments (not designated as hedging instruments) — 3,088 — 3,088 Total other investments $ 17,175 $ 27,105 $ ( 1,800 ) $ 42,480 At December 31, 2020, the Company included the following securities 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 September 30, 2021, the carrying value of private investments and unlisted equities was $ 39.4 million (December 31, 2020: $ 21.8 million). It incorporated upward adjustments of $ 7.6 million and $ 12.9 million during the three and nine months ended September 30, 2021, respectively (three and nine months ended September 30, 2020: $ 0.0 million and $ 4.1 million, respectively), excluding any unrealized gains or losses related to changes in foreign currency exchange rates. Since acquiring these private investments, the Company has recognized net upward adjustments of $ 22.1 million and $ 9.3 million as of September 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 nine months ended September 30, 2021, the Company sold its investment in AccuRisk and realized a pre-tax gain of $ 14.2 million. The Company’s derivative financial instruments are composed of warrants 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 any of its derivative financial instruments 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 supported by little or no market activity and 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 based on 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, the Company includes any change in unrealized gains or losses in the caption “Net investment income (loss)” in the condensed consolidated statements of operations. At September 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. It 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 September 30, 2021, the Company’s 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 measures, particularly in the United States; and • the ability of the cedents and insured to mitigate some or all of their losses. While the Company believes its estimate of loss and loss adjustment expense reserves for the COVID-19 pandemic is adequate as of September 30, 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 nine months ended September 30, 2021. At September 30, 2021 and December 31, 2020, loss and loss adjustment expense reserves were composed of the following: September 30, 2021 December 31, 2020 ($ in thousands) Case reserves $ 191,151 $ 176,805 IBNR 349,628 317,374 Total $ 540,779 $ 494,179 A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated for the nine months ended September 30, 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 296,333 247,559 Prior years ( 1,255 ) 5,385 Total incurred 295,078 252,944 Paid losses related to: Current year ( 96,442 ) ( 72,453 ) Prior years ( 146,545 ) ( 161,222 ) Total paid ( 242,987 ) ( 233,675 ) Foreign currency revaluation ( 1,722 ) ( 505 ) Net balance at September 30 527,697 461,821 Add: Losses recoverable 13,082 19,949 Gross balance at September 30 $ 540,779 $ 481,770 For the nine months ended September 30, 2021, the estimate of net losses incurred relating to prior accident years decreased by $ 1.3 million, due primarily to favorable development on catastrophe events, 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 workers’ compensation and multi-line casualty contracts written between 2014 and 2018. The favorable loss development on a mortgage contract was offset by increased profit commissions on the same contract. For the nine months ended September 30, 2020, the estimate of net losses incurred relating to prior accident years increased by $ 5.4 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 nine months ended September 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 31,189 25,032 Prior years ( 1,898 ) 1,341 Total incurred 29,291 26,373 Paid losses related to: Current year ( 20,224 ) ( 15,115 ) Prior years ( 13,824 ) ( 16,327 ) Total paid ( 34,048 ) ( 31,442 ) Foreign currency revaluation — — Net balance at September 30 12,728 12,994 Add: Losses recoverable — — Gross balance at September 30 $ 12,728 $ 12,994 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. The Company records loss and loss adjustment expenses recoverable from retrocessionaires as assets. For the three and nine months ended September 30, 2021, the Company’s earned ceded premiums were insignificant compared to $ 1.7 million and $ 3.2 million for the three and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2021, loss and loss expenses recovered were insignificant compared to $ 2.5 million and $ 6.2 million for the three and nine months ended September 30, 2020, 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 September 30, 2021, the Company’s loss reserves recoverable consisted of (i) $ 9.9 million (December 31, 2020: $ 12.6 million) from unrated retrocessionaires, of which $ 9.7 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) $ 3.2 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 September 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 February 1, 2019. Note holders have the option, under certain conditions, to redeem the Notes prior to maturity. If a 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 September 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 September 30, 2021, and December 31, 2020, the unamortized debt discount was $ 3.0 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 September 30, 2021, the unamortized portion of these costs attributed to the debt component was $ 1.2 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 September 30, 2021, including accrued interest of $ 0.7 million, was $ 96.5 million (December 31, 2020: $ 95.8 million). At September 30, 2021, the Company estimated the fair value of the Notes to be $ 94.6 million (December 31, 2020: $ 83.6 million) (see Note 4 Financial Instruments). For the three and nine months ended September 30, 2021, the Company recognized interest expenses of $ 1.6 million and $ 4.7 million, respectively (2020: $ 1.6 million and $ 4.7 million, respectively) 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 September 30, 2021, and December 31, 2020. 8. SHARE CAPITAL The Company’s share capital is made up of ordinary share capital and additional paid-in capital. Ordinary share capital represents the issued and outstanding Class A and Class B ordinary shares at their par values of $ 0.10 per share. Additional paid-in capital includes the premium paid per share by the subscribing shareholders for Class A and Class B ordinary shares, as well as the earned portion of the grant-date fair value of share-based awards. 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 September 30, 2021, 3,128,276 (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 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. The Company repurchased 1,079,544 Class A ordinary shares during the nine months ended September 30, 2021. 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: Nine months ended September 30 Nine months ended September 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 409,200 — 248,726 — Repurchase of ordinary shares ( 1,079,544 ) — ( 1,874,419 ) — Balance – end of period 27,589,731 6,254,715 29,113,702 6,254,715 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 nine months ended September 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 nine months ended September 30, 2021, grantees forfeited 20,592 (2020: 210,109 ) restricted shares. For the nine months ended September 30, 2021, the Company reversed $ 0.1 million of stock compensation expense (2020: $ 0.7 million) in relation to the forfeited restricted shares. The Company recorded $ 1.8 million of share-based compensation expense, net of forfeiture reversals, relating to restricted shares for the nine months ended September 30, 2021 (2020: $ 0.6 million). At September 30, 2021, there was $ 3.3 million (December 31, 2020: $ 1.9 million) of unrecognized compensation cost relating to non-vested restricted shares (excluding any restricted shares with performance conditions that the Company currently does not expect will be met), which the Company expects to recognize over a weighted-average period of 1.9 years (December 31, 2020: 1.5 years). For the nine months ended September 30, 2021, the total fair value of restricted shares vested was $ 1.6 million (2020: $ 2.8 million). For the nine months ended September 30, 2021, the Company also issued to non-employee directors an aggregate of 74,769 (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. The following table summarizes the activity for unvested outstanding restricted share awards during the nine months ended September 30, 2021: Number of non-vested restricted shares Weighted average grant date fair value Balance at December 31, 2020 697,549 $ 9.38 Granted 409,081 9.11 Vested ( 139,482 ) 11.53 Forfeited ( 20,592 ) 8.35 Balance at September 30, 2021 946,556 $ 8.97 19 Return to table of contents Employee and Director Stock Options For the nine months ended September 30, 2021, and 2020, no Class A ordinary share purchase options were granted or exercised by directors or employees. For the nine months ended September 30, 2021, 100,000 (2020: 40,000 ) stock options expired and 80,000 (2020: 80,000 ) stock options vested. When the Company grants stock options, it 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 nine months ended September 30, 2021, was $ 0.3 million (2020: $ 0.5 million). At September 30, 2021, the total compensation cost related to non-vested options not yet recognized was $ 0.3 million (December 31, 2020: $ 0.7 million), which will be recognized over a weighted-average period of 1.4 years (December 31, 2020: 1.8 years) assuming the grantee completes the service period for vesting of the options. At September 30, 2021, and December 31, 2020, 0.7 million and 0.8 million stock options were outstanding, respectively, with a weighted average exercise price of $ 22.35 and $ 22.22 per share, respectively, and a weighted average grant date fair value of $ 10.23 and $ 10.25 per share, respectively. The stock options’ weighted-average remaining contractual terms were 4.9 years and 5.1 years, at September 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 nine months ended September 30, 2021, the Company issued 58,123 (2020: 60,622 ) RSUs to employees pursuant to the Company’s stock incentive plan. For the nine months ended September 30, 2021, and 2020, no RSUs were forfeited. The Company recorded $ 0.3 million of share-based compensation expense relating to RSUs for the nine months ended September 30, 2021 (2020: $ 0.3 million). At September 30, 2021, the total compensation cost related to non-vested RSUs not yet recognized was $ 0.6 million (2020: $ 0.4 million), which the Company expects to recognize over a weighted-average period of 1.9 years (2020: 1.8 years). Employee RSU activity during the nine months ended September 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 September 30, 2021 154,134 $ 8.59 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 September 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 nine months ended September 30, 2021, and 2020. 20 Return to table of contents For the nine months ended September 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 $ 2.4 million and $ 1.4 million, respectively. 10. TAXATION At September 30, 2021, the Company recorded a gross deferred tax asset of $ 4.0 million (2020: $ 3.5 million) and a deferred tax asset valuation allowance of $ 3.5 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 to 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 nine months ended September 30, 2021 and 2020: Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) Current tax (expense) benefit $ 323 $ ( 33 ) $ ( 3,240 ) $ 272 Decrease (increase) in deferred tax valuation allowance ( 323 ) 33 ( 493 ) ( 696 ) Income tax (expense) benefit $ — $ — $ ( 3,733 ) $ ( 424 ) For the nine months ended September 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. 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 nine months ended September 30, 2021, and 2020, refer to Note 3 of the condensed consolidated financial statements. 21 Return to table of contents 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 September 30, 2021, SILP, along with certain affiliates of DME Advisors, collectively owned 34.3 % 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. 12. COMMITMENTS AND CONTINGENCIES Letters of Credit and Trusts At September 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 September 30, 2021, an aggregate amount of $ 138.4 million (December 31, 2020: $ 135.3 million) in letters of credit was issued under the credit facility. At September 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 September 30, 2021 and December 31, 2020. The Company has also established regulatory trust arrangements for certain cedents. At September 30, 2021, collateral of $ 550.2 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. 22 Return to table of contents Lease Obligations Greenlight Re 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. The Company determined that this agreement qualifies as an operating lease. At September 30, 2021, the right-of-use asset and a corresponding lease liability relating to the lease agreement were $ 2.2 million. The operating lease expense for the three and nine months ended September 30, 2021, was $ 0.1 million and $ 0.1 million, respectively. Greenlight Re’s previous lease arrangement qualified as a short-term lease. The short-term lease expense for the three and nine months ended September 30, 2021, was nil and $ 0.3 million, respectively (three and nine months ended September 30, 2020: $ 0.1 million and $ 0.4 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 $ 130 $ 588 $ 624 $ 640 $ 657 $ 788 $ 3,427 Interest and convertible note payable $ — $ 4,000 $ 104,000 — — — 108,000 $ 130 $ 4,588 $ 104,624 $ 640 $ 657 $ 788 $ 111,427 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 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 September 30 Nine months ended September 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) Property Commercial $ 3,398 2.6 % $ 3,396 2.5 % $ 9,700 2.2 % $ 9,426 2.6 % Motor 6,103 4.7 10,091 7.4 24,537 5.6 25,136 6.9 Personal 3,631 2.8 3,691 2.7 10,318 2.3 10,326 2.9 Total Property 13,132 10.2 17,178 12.6 44,555 10.1 44,888 12.4 Casualty General Liability 7,376 5.7 3,224 2.4 10,749 2.4 3,920 1.1 Motor Liability 19,823 15.4 41,679 30.7 96,795 22.0 96,729 26.7 Professional Liability 154 0.1 76 0.1 302 0.1 199 0.1 Workers' Compensation 17,117 13.3 21,979 16.2 55,237 12.5 60,908 16.8 Multi-line 40,162 31.2 25,820 19.0 137,857 31.3 67,379 18.6 Total Casualty 84,632 65.7 92,778 68.4 300,940 68.4 229,135 63.3 Other Accident & Health 4,175 3.2 12,418 9.3 26,427 6.0 40,522 11.2 Financial 17,920 13.9 1,817 1.3 40,134 9.1 15,704 4.3 Marine 2,462 1.9 127 0.1 8,412 1.9 749 0.2 Other Specialty 6,414 5.0 11,278 8.3 19,781 4.5 31,074 8.6 Total Other 30,971 24.1 25,640 19.0 94,754 21.5 88,049 24.3 $ 128,735 100.0 % $ 135,596 100.0 % $ 440,249 100.0 % $ 362,072 100.0 % Gross Premiums Written by Geographic Area of Risks Insured Three months ended September 30 Nine months ended September 30 2021 2020 2021 2020 ($ in thousands) ($ in thousands) U.S. and Caribbean $ 67,087 52.1 % $ 110,798 81.7 % $ 258,849 58.8 % $ 291,511 80.5 % Worldwide (1) 59,616 46.3 22,738 16.8 174,470 39.6 66,150 18.3 Europe 1,483 1.2 — — 2,787 0.6 — — Asia 549 0.4 2,060 1.5 4,143 0.9 4,411 1.2 $ 128,735 100.0 % $ 135,596 100.0 % $ 440,249 100.0 % $ 362,072 100.0 % (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