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Equity Price Risk
−Removed: As of December 31, 2020, our investments consisted primarily of an investment in SILP.
+Added: At December 31, 2021, our investments consisted primarily of an investment in SILP.
Among SILP’s holdings are equity securities, the carrying values of which are based primarily on quoted market prices.
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This risk is partly mitigated by the presence of both long and short equity securities as part of our investment strategy.
−Removed: As of December 31, 2020, a 10% decline in the price of each of the underlying listed equity securities and equity-based derivative instruments would result in a $9.2 million loss to our Investment Portfolio.
−Removed: Computations of the prospective effects of hypothetical equity price changes are based on numerous assumptions, including the maintenance of the existing level and composition of investment securities and should not be relied on as indicative of future results.
+Added: At December 31, 2021, a 10% decline in the price of each of the underlying listed equity securities and equity-based derivative instruments would result in a $8.8 million loss to our Investment Portfolio.
+Added: Computations of the prospective effects of hypothetical equity price changes are based on numerous assumptions, including the maintenance of the current composition of SILP’s portfolio.
+Added: The computations should not be relied on as indicative of future results.
Commodity Price Risk
Generally, market prices of commodities are subject to fluctuation.
−Removed: SILP’s investments periodically include long or short investments in commodities or in derivatives directly impacted by fluctuations in the prices of commodities.
−Removed: As of December 31, 2020, SILP’s investments included unhedged exposure to changes in gold prices, through physical gold holdings and derivative instruments with underlying exposure to changes in the price of natural gas.
−Removed: Link to Table of Contents
−Removed: The following table summarizes the net impact that a 10% increase and decrease in commodity prices would have on the value of our Investment Portfolio as of December 31, 2020.
+Added: SILP’s investments periodically include long or short investments in commodities or derivatives directly impacted by fluctuations in the prices of commodities.
+Added: At December 31, 2021, SILP’s investments incorporate unhedged exposure to changes in gold, silver, and crude oil prices.
+Added: The following table summarizes the net impact that a 10% increase and decrease in commodity prices would have on the value of our Investment Portfolio at December 31, 2021.
The below table excludes the indirect effect that changes in commodity prices might have on equity securities in our Investment Portfolio.
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Gold $ 2.1 $ (2.1)
−Removed: Natural Gas 0.5 (0.5)
+Added: Silver 0.4 (0.4)
+Added: Crude oil — (0.1)
Total $ 2.5 $ (2.6)
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Certain of our reinsurance contracts are denominated in foreign currencies, whereby premiums are receivable and losses are payable in foreign currencies.
−Removed: Foreign currency exchange rate risk exists to the extent that our foreign currency reinsurance balances are in excess of (or less than) the corresponding foreign currency cash balances and there is an increase (or decrease) in the exchange rate of that foreign currency.
−Removed: While we do not seek to precisely match our liabilities under reinsurance policies that are payable in foreign currencies with investments denominated in such currencies, we continually monitor our exposure to potential foreign currency losses and may use foreign currency cash and cash equivalents or forward foreign currency exchange contracts in an effort to mitigate against adverse foreign currency movements.
−Removed: As of December 31, 2020, our net exposure to GBP denominated liability balances was £1.3 million.
−Removed: As of December 31, 2020, a 10% decrease in the U.S.
−Removed: dollar against the GBP (all else constant) would result in an estimated $0.2 million foreign exchange loss.
−Removed: Alternatively, a 10% increase in the U.S dollar against the GBP, would result in an estimated $0.2 million foreign exchange gain.
−Removed: Similarly, as of December 31, 2020, our net exposure to Euro denominated liability balances was €1.5 million.
−Removed: As of December 31, 2020, a 10% decrease in the U.S.
+Added: Foreign currency exchange rate risk exists to the extent that our foreign currency reinsurance balances are more than (or less than) the corresponding foreign currency cash balances and there is an increase (or decrease) in the exchange rate of that foreign currency.
+Added: Link to Table of Contents
+Added: While we do not seek to precisely match our liabilities under reinsurance policies that are payable in foreign currencies with investments denominated in such currencies, we continually monitor our exposure to potential foreign currency losses and may use foreign currency cash and cash equivalents or forward foreign currency exchange contracts to mitigate against adverse foreign currency movements.
+Added: At December 31, 2021, our exposure to GBP denominated net reinsurance asset balance was £6.4 million.
+Added: At December 31, 2021, a 10% decrease in the U.S.
+Added: dollar against the GBP (all else constant) would result in an estimated $0.9 million foreign exchange gain.
+Added: Alternatively, a 10% increase in the U.S dollar against the GBP would result in an estimated $0.9 million foreign exchange loss.
+Added: Similarly, at December 31, 2021, our net exposure to Euro-denominated reinsurance liability balances was €5.7 million.
+Added: At December 31, 2021, a 10% decrease in the U.S.
dollar against the Euro (all else constant) would result in an estimated $0.7 million foreign exchange loss.
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We may also be exposed to foreign currency risk through SILP’s underlying cash, forwards, options, and investments in securities denominated in foreign currencies.
−Removed: As of December 31, 2020, some of our currency exposure resulting from foreign denominated securities (longs and shorts) was reduced by offsetting cash balances denominated in the corresponding foreign currencies.
−Removed: As of December 31, 2020, a 10% increase or decrease in the value of the U.S.
−Removed: dollar against other foreign currencies would have no meaningful impact on the value of our Investment Portfolio.
+Added: At December 31, 2021, most of our currency exposures resulting from foreign denominated securities (longs and shorts) were reduced by offsetting cash balances denominated in the corresponding foreign currencies.
+Added: At December 31, 2021, a 10% increase or decrease in the value of the U.S.
+Added: dollar against foreign currencies would have no meaningful impact on the value of our Investment Portfolio.
Interest Rate Risk
−Removed: Our investment in SILP includes interest rate sensitive securities, such as corporate and sovereign debt instruments and interest rate swaps.
+Added: Our investment in SILP includes interest-rate sensitive securities, such as corporate and sovereign debt instruments and interest rate options.
The primary market risk exposure for any debt instrument is interest rate risk.
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Similarly, falling interest rates generally lead to increases in the fair value of fixed-income securities.
−Removed: Additionally, some of the derivative investments may also be sensitive to interest rates and their value may indirectly fluctuate with changes in interest rates.
−Removed: As of December 31, 2020, a 100 basis points increase or decrease in interest rates would have no meaningful impact on the value of our Investment Portfolio.
+Added: Additionally, some derivative investments may be sensitive to interest rates, and their value may indirectly fluctuate with changes in interest rates.
+Added: At December 31, 2021, a 100 basis points increase or decrease in interest rates would have no meaningful impact on the value of our Investment Portfolio.
We, along with DME Advisors, monitor the net exposure to interest rate risk and generally do not expect changes in interest rates to have a materially adverse impact on our operations.
−Removed: Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with contractual terms of the instrument or contract.
+Added: Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with terms of the instrument or contract.
Our maximum exposure to credit risk is the carrying value of our financial assets.
−Removed: We evaluate the financial condition of our notes receivable counterparties and monitor our exposure to them on a regular basis.
−Removed: We are also exposed to credit risk from our business partners and clients relating to balances receivable under our
−Removed: Link to Table of Contents
−Removed: reinsurance contracts, including premiums receivable, losses recoverable and commission adjustments recoverable.
+Added: We evaluate the financial condition of our business partners and clients relating to balances receivable under our reinsurance contracts, including premiums receivable, losses recoverable, and commission adjustments recoverable.
We obtain collateral in the form of funds withheld, trusts, and letters of credit from our counterparties to mitigate this credit risk.
We monitor our net exposure to each counterparty relative to the financial strength of our counterparties and assess the collectibility of these balances on a regular basis.
−Removed: See Note 2 of the accompanying consolidated financial statements for further details on allowance for credit loss on reinsurance assets and notes receivable.
−Removed: In addition, the securities, commodities, and cash in SILP’s investment portfolio are held with several prime brokers and derivative counterparties, subjecting SILP, and indirectly us, to significant concentration of credit risk.
+Added: See Note 2 of the accompanying consolidated financial statements for further details on allowance for credit loss on reinsurance assets.
+Added: In addition, the securities, commodities, and cash in SILP’s investment portfolio are held with several prime brokers and derivative counterparties, subjecting SILP, and indirectly us, to a significant concentration of credit risk.
While we have no direct control over SILP, DME Advisors regularly monitors the concentration of credit risk with each counterparty and, if appropriate, transfers cash or securities between counterparties or requests collateral to diversify and mitigate this credit risk.
Political Risk
−Removed: Through our assumed reinsurance contracts, we currently provide a limited amount of political risk insurance coverage which is not expected to have a materially adverse impact on our underwriting results.
−Removed: We are exposed to political risk to the extent that we underwrite business from entities located in foreign markets and to the extent that DME Advisors, on behalf of SILP and subject to our investment guidelines, trades securities that are listed on various U.S.
+Added: Through our assumed reinsurance contracts, we currently provide a limited amount of political risk insurance coverage.
+Added: We do not expect this exposure to have a materially adverse impact on our underwriting results.
+Added: We are exposed to political risk to the extent that we underwrite business from entities located in foreign markets and to the extent that DME Advisors, on behalf of SILP and subject to our investment guidelines, trades securities listed on various U.S.
and foreign exchanges and markets.
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Risk Factors - We could face unanticipated losses from political instability which could have a material adverse effect on our financial condition and results of operations”
+Added: Link to Table of Contents
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.