GREENLIGHT CAPITAL RE, LTD. 10-Q

Item 1. FINANCIAL STATEMENTS GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, 2022 and December 31, 2021 (expressed in thousands of U.S. dollars, except per share and share amounts) March 31, 2022 December 31, 2021 Assets Investments Investment in related party investment fund $ 151,010 $ 183,591 Other investments 54,647 47,384 Total investments 205,657 230,975 Cash and cash equivalents 31,327 76,307 Restricted cash and cash equivalents 701,412 634,794 Reinsurance balances receivable (net of allowance for expected credit losses of $ 89 ) 441,645 405,365 Loss and loss adjustment expenses recoverable (net of allowance for expected credit losses of $ 47 ) 11,369 11,100 Deferred acquisition costs 66,378 63,026 Unearned premiums ceded 4,878 42 Other assets 5,882 5,885 Total assets $ 1,468,548 $ 1,427,494 Liabilities and equity Liabilities Loss and loss adjustment expense reserves $ 549,141 $ 524,010 Unearned premium reserves 246,130 227,584 Reinsurance balances payable 95,692 91,224 Funds withheld 3,929 3,792 Other liabilities 5,503 7,164 Convertible senior notes payable 99,746 98,057 Total liabilities 1,000,141 951,831 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, 28,466,516 (2021: 27,589,731 ): Class B: par value $ 0.10 ; authorized, 25,000,000 ; issued and outstanding, 6,254,715 (2021: 6,254,715 )) 3,472 3,384 Additional paid-in capital 474,805 481,784 Retained earnings (deficit) ( 9,870 ) ( 9,505 ) Total shareholders' equity 468,407 475,663 Total liabilities and equity $ 1,468,548 $ 1,427,494 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 months ended March 31, 2022 and 2021 (expressed in thousands of U.S. dollars, except per share and share amounts) Three months ended March 31 2022 2021 Revenues Gross premiums written $ 145,886 $ 169,935 Gross premiums ceded ( 6,009 ) 55 Net premiums written 139,877 169,990 Change in net unearned premium reserves ( 13,952 ) ( 34,594 ) Net premiums earned 125,925 135,396 Income (loss) from investment in related party investment fund (net of related party expenses of $ 1,344 (three months ended March 31, 2021: $ 1,301 ) 4,077 4,024 Net investment income (loss) 3,660 14,650 Other income (expense), net ( 633 ) ( 703 ) Total revenues 133,029 153,367 Expenses Net loss and loss adjustment expenses incurred 97,407 97,721 Acquisition costs 32,945 33,381 General and administrative expenses 7,232 7,541 Deposit interest expense 34 2,947 Interest expense 1,154 1,544 Total expenses 138,772 143,134 Income (loss) before income tax ( 5,743 ) 10,233 Income tax (expense) benefit 16 ( 3,734 ) Net income (loss) $ ( 5,727 ) $ 6,499 Earnings (loss) per share Basic $ ( 0.17 ) $ 0.19 Diluted $ ( 0.17 ) $ 0.19 Weighted average number of ordinary shares used in the determination of earnings and loss per share Basic 32,926,227 34,522,994 Diluted 32,926,227 34,646,783 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 months ended March 31, 2022 and 2021 (expressed in thousands of U.S. dollars) Three months ended March 31 2022 2021 Ordinary share capital Balance - beginning of period $ 3,384 $ 3,452 Issue of Class A ordinary shares, net of forfeitures 88 33 Balance - end of period 3,472 3,485 Additional paid-in capital Balance - beginning of period 481,784 488,488 Cumulative effect of adoption of accounting guidance for convertible debt at January 1, 2022 ( 7,896 ) — Share-based compensation expense 917 730 Balance - end of period 474,805 489,218 Retained earnings (deficit) Balance - beginning of period ( 9,505 ) ( 27,083 ) Cumulative effect of adoption of accounting guidance for convertible debt at January 1, 2022 5,362 — Net income (loss) ( 5,727 ) 6,499 Balance - end of period ( 9,870 ) ( 20,584 ) Total shareholders' equity $ 468,407 $ 472,119 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 three months ended March 31, 2022 and 2021 (expressed in thousands of U.S. dollars) Three months ended March 31 2022 2021 Cash provided by (used in) operating activities Net income (loss) $ ( 5,727 ) $ 6,499 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 ( 4,077 ) ( 4,024 ) Net change in unrealized gains and losses on investments and notes receivable ( 3,899 ) ( 1,228 ) Net realized (gains) losses on investments and notes receivable — ( 14,210 ) Foreign exchange (gains) losses on investments 38 19 Share-based compensation expense 1,005 763 Amortization and interest expense, net of change in accruals ( 845 ) ( 456 ) Depreciation expense — 7 Net change in Reinsurance balances receivable ( 36,280 ) ( 56,626 ) Loss and loss adjustment expenses recoverable ( 269 ) 1,842 Deferred acquisition costs ( 3,352 ) ( 7,577 ) Unearned premiums ceded ( 4,836 ) — Other assets, excluding depreciation 3 ( 1,408 ) Loss and loss adjustment expense reserves 25,131 18,664 Unearned premium reserves 18,546 34,636 Reinsurance balances payable 4,468 1,812 Funds withheld 137 ( 853 ) Other liabilities ( 1,661 ) 3,397 Net cash provided by (used in) operating activities ( 11,618 ) ( 18,743 ) Investing activities Proceeds from redemptions from related party investment fund 46,658 19,481 Contributions to related party investment fund ( 10,000 ) ( 48,604 ) Purchases of investments ( 3,402 ) ( 2,070 ) Proceeds from sales of investments — 20,755 Change in notes receivable — 6,101 Net cash provided by (used in) investing activities 33,256 ( 4,337 ) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash — — Net increase (decrease) in cash, cash equivalents and restricted cash 21,638 ( 23,080 ) Cash, cash equivalents and restricted cash at beginning of the period 711,101 754,306 Cash, cash equivalents and restricted cash at end of the period $ 732,739 $ 731,226 Supplementary information Interest paid in cash $ 2,000 $ 2,000 Income tax paid in cash — — 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) March 31, 2022 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. 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, 2021, as filed with the U.S. Securities and Exchange Commission on March 8, 2022. The condensed consolidated financial statements include the accounts of GLRE and its wholly-owned subsidiaries, Greenlight Re, GRIL, Verdant, and Greenlight Re UK. All significant intercompany transactions and balances have been eliminated on consolidation. Certain amounts in the prior periods presented have been reclassified to confirm to the current period financial statements presentation. These reclassifications have no effect on previously reported net income or retained earnings. 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, may be subject to significant adjustments in future 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, 2021. 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, premiums written, earned and receivable, variability underlying risk transfer assessments, allowances for credit losses, share-based compensation, valuation allowances associated with deferred tax assets and investment impairments. 7 Return to table of contents 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: March 31, 2022 December 31, 2021 ($ in thousands) Cash and cash equivalents $ 31,327 $ 76,307 Restricted cash and cash equivalents 701,412 634,794 Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows $ 732,739 $ 711,101 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 March 31, 2022, funds held by cedents were $ 272.3 million (December 31, 2021: $ 246.9 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. Credit ratings of the counterparties are forward-looking and consider a variety of economic scenarios. The Company's evaluation of the required allowance for reinsurance balances receivable and loss and loss adjustment expenses recoverable considers the current economic environment as well as potential macroeconomic outcomes. 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 March 31, 2022, the Company has recorded an allowance for expected credit loss on its Reinsurance Assets of $ 0.1 million (December 31, 2021: $ 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 captions “Other income (expense)” and “Deposit interest expense”, respectively. 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 March 31, 2022, deposit assets and deposit liabilities were $ 3.5 million and $ 17.8 million, respectively (December 31, 2021: $ 3.5 million and $ 18.6 million, respectively). For the three months ended March 31, 2022, and 2021, the interest income and expense on deposit accounted contracts were as follows: 8 Return to table of contents Three months ended March 31 2022 2021 ($ in thousands) Deposit interest income $ — $ — Deposit interest expense $ ( 34 ) $ ( 2,947 ) Deposit interest income/(expense), net $ ( 34 ) $ ( 2,947 ) 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, taxes recoverable, 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 has issued unvested restricted stock awards containing non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid. These awards 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 convert to common shares upon vesting; • Unvested restricted stock awards which are not considered “participating securities”; • Additional potential common shares issuable when in-the-money stock options are exercised, determined using the treasury stock method; • For periods prior to January 1, 2022, those common shares with the potential to be issued in connection with convertible notes and other such convertible instruments, determined using the treasury stock method; and • Effective from January 1, 2022, the maximum number of additional common shares required to settle the convertible notes, as required under the if-converted 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, shares potentially issuable in connection with convertible notes, 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 months ended March 31, 2022 and 2021: Three months ended March 31 2022 2021 Weighted average shares outstanding - basic 32,926,227 34,522,994 Effect of dilutive employee and director share-based awards — 123,789 Weighted average shares outstanding - diluted 32,926,227 34,646,783 Anti-dilutive stock options outstanding 735,627 835,627 Participating securities excluded from calculation of loss per share 815,847 — Shares potentially issuable in connection with convertible notes excluded from calculation of loss per share 5,818,182 — 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 Act, as amended, that, in the event that the Cayman Islands enacts any legislation that imposes a 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% (2021: 21%). Verdant’s tax years 2018 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 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; instead, 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. Under the if-converted method, the shares potentially issuable in connection with convertible debt are assumed to be converted at the beginning of the period. The resulting common shares are included in the denominator of the diluted earnings per share calculation for the period being presented. The Company adopted ASU 2020-06 during the first quarter of 2022, using the “modified retrospective” transition method. The adoption of ASU 2020-06 resulted in a decrease in the Company’s opening shareholders’ equity of approximately $ 2.5 million, with a corresponding increase in the carrying value of the senior convertible notes (see Note 7). For the periods in which the Company reports a net income, the number of shares outstanding for the diluted earnings per share calculation will be 10 Return to table of contents approximately 5.8 million higher under the if-converted method. The adoption of ASU 2020-06 did not have a material impact on the Company’s net income, cash flows, or any other balances. 3. INVESTMENT IN RELATED PARTY INVESTMENT FUND The Company has entered into the Second Amended and Restated Exempted Limited Partnership Agreement, (the “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”). SILP has 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. The SILP LPA includes the following proviso: “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 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 March 31, 2022, the net asset value of the GLRE Limited Partners’ investment in SILP was $ 151.0 million (December 31, 2021: $ 183.6 million), representing 74.2 % (December 31, 2021: 78.2 %) of SILP’s total net assets. DME II held the remaining 25.8 % (December 31, 2021: 21.8 %) 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 March 31, 2022, 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 months ended March 31, 2022, was $ 4.1 million (three months ended March 31, 2021: $ 4.0 million), 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. 11 Return to table of contents Summarized Statement of Assets and Liabilities of Solasglas Investments, LP March 31, 2022 December 31, 2021 ($ in thousands) Assets Investments, at fair value $ 290,759 $ 297,937 Derivative contracts, at fair value 8,640 2,542 Due from brokers 50,467 84,775 Interest and dividends receivable 18 28 Total assets 349,884 385,282 Liabilities and partners’ capital Liabilities Investments sold short, at fair value ( 130,704 ) ( 132,360 ) Derivative contracts, at fair value ( 12,001 ) ( 7,253 ) Capital withdrawals payable ( 379 ) ( 10,000 ) Due to brokers ( 2,737 ) — Interest and dividends payable ( 259 ) ( 580 ) Other liabilities ( 178 ) ( 358 ) Total liabilities ( 146,258 ) ( 150,551 ) Net Assets $ 203,626 $ 234,731 GLRE Limited Partners’ share of Net Assets $ 151,010 $ 183,591 12 Return to table of contents Summarized Statement of Operations of Solasglas Investments, LP Three months ended March 31 2022 2021 ($ in thousands) Investment income Dividend income (net of withholding taxes) $ 320 $ 204 Interest income 49 149 Total Investment income 369 353 Expenses Management fee ( 891 ) ( 854 ) Interest ( 256 ) ( 242 ) Dividends ( 382 ) ( 245 ) Professional fees and other ( 264 ) ( 222 ) Total expenses ( 1,793 ) ( 1,563 ) Net investment income (loss) ( 1,424 ) ( 1,210 ) Realized and change in unrealized gains (losses) Net realized gain (loss) 24,148 ( 7,066 ) Net change in unrealized appreciation (depreciation) ( 16,792 ) 12,791 Net gain (loss) on investment transactions 7,356 5,725 Net income (loss) $ 5,932 $ 4,515 GLRE Limited Partners’ share of net income (loss) (1) $ 4,077 $ 4,024 (1) Net income (loss) is net of management fees and performance allocation presented below: Three months ended March 31 2022 2021 ($ in thousands) Management fees $ 891 $ 854 Performance allocation 453 447 Total $ 1,344 $ 1,301 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 March 31, 2022, 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 $ 20,812 $ 35,300 $ ( 1,800 ) $ 54,312 Derivative financial instruments (not designated as hedging instruments) — 335 — 335 Total other investments $ 20,812 $ 35,635 $ ( 1,800 ) $ 54,647 At December 31, 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 $ 17,411 $ 31,438 $ ( 1,800 ) $ 47,049 Derivative financial instruments (not designated as hedging instruments) — 335 — 335 Total other investments $ 17,411 $ 31,773 $ ( 1,800 ) $ 47,384 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. Private investments and unlisted equity securities without readily determinable fair values The Company measures its private investments and unlisted equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from identical or similar investments of the same issuers (the “measurement alternative”), with such changes recognized in the caption “Net investment income (loss)” in the condensed consolidated statements of operations. The Company considers the need for impairment on a by-investment basis, based on certain indicators. Under the measurement alternative, the Company makes two types of valuation adjustments: • When the Company observes an orderly transaction of an investee’s identical or similar equity securities, the Company adjusts the carrying value based on the observable price as of the transaction date. Once the Company records such an adjustment, the investment is considered an “asset measured at fair value on a nonrecurring basis.” • If the Company determines that the investment is impaired and the fair value is less than its carrying value, it writes down the investment to its fair value. The following table presents the carrying values of the private investments and unlisted equity securities carried under the measurement alternative at March 31, 2022, and 2021, and the related adjustments recorded during the years then ended. Three months ended March 31 2022 2021 ($ in thousands) Carrying value (1) $ 54,312 $ 25,062 Upward carrying value changes (2) $ 3,827 $ 1,218 Downward carrying value changes and impairment (3) $ — $ — (1) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes. (2) The cumulative upward carrying value changes from inception to March 31, 2022, totaled $ 35.4 million. (3) The cumulative downward carrying value changes and impairments from inception to March 31, 2022, totaled $ 2.0 million. 14 Return to table of contents 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: • 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. Assets measured at fair value on a nonrecurring basis At March 31, 2022, and December 31, 2021, the Company held $ 44.3 million and $ 40.5 million, respectively, of private investments and unlisted equities measured at fair value on a nonrecurring basis. The Company classifies these assets as Level 3 within the fair value hierarchy due to their illiquidity. At March 31, 2022, and December 31, 2021, the Company held $ 10.0 million and $ 6.6 million, respectively, of private investments and unlisted equities measured at cost. Derivative instruments 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 March 31, 2022, and December 31, 2021, 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 March 31, 2022, 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, tornados, typhoons, floods, earthquakes, wildfires, and pandemics, loss reserves are generally established based on loss payments and case reserves reported by clients when received. To establish IBNR loss estimates, the Company makes use of, among other things, the following information: • 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; 15 Return to table of contents • catastrophe scenario modeling software; and • management’s judgment. At March 31, 2022, the Company’s loss and loss adjustment expense reserves included $ 13.6 million from the Russian-Ukrainian conflict. Additional information the Company considered in estimating its loss reserves included 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, brokers, and loss adjusters; • reviews of industry insured loss estimates and market share analyses; and • management’s judgment. The Company’s Russian-Ukrainian conflict loss estimates include actuarial assumptions, including: • the areas within the affected regions that have incurred losses; • the scope of coverage provided by the underlying policies; • the interpretation of contract terms; • the determination of loss-triggering events; • regulatory, legislative, and judicial actions that could influence contract interpretations across the insurance industry; and • the ability of the cedents and insured to mitigate some or all of their losses. Due to the uncertainty associated with these assumptions, the Company’s loss estimates are subject to significant variability, and actual losses may ultimately differ materially from the Company's current estimates. The Company will evaluate its assumptions as new information becomes available and may adjust its loss estimates in future periods. Such adjustments may be material to the Company's results of operations and financial condition. Additionally, if the Russian-Ukrainian conflict is prolonged, the Company may incur additional losses in subsequent periods. The Company made no significant changes in the actuarial methodology or reserving process related to its loss and loss adjustment expense reserves for the three months ended March 31, 2022. At March 31, 2022 and December 31, 2021, loss and loss adjustment expense reserves were composed of the following: March 31, 2022 December 31, 2021 ($ in thousands) Case reserves $ 189,312 $ 190,220 IBNR 359,829 333,790 Total $ 549,141 $ 524,010 16 Return to table of contents A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated for the three months ended March 31, 2022 and 2021 is as follows: Consolidated 2022 2021 ($ in thousands) Gross balance at January 1 $ 524,010 $ 494,179 Less: Losses recoverable ( 11,100 ) ( 16,851 ) Net balance at January 1 512,910 477,328 Incurred losses related to: Current year 95,082 97,861 Prior years 2,325 ( 140 ) Total incurred 97,407 97,721 Paid losses related to: Current year ( 9,903 ) ( 11,860 ) Prior years ( 59,901 ) ( 65,500 ) Total paid ( 69,804 ) ( 77,360 ) Foreign currency revaluation ( 2,741 ) 145 Net balance at March 31 537,772 497,834 Add: Losses recoverable 11,369 15,009 Gross balance at March 31 $ 549,141 $ 512,843 For the three months ended March 31, 2022, the estimate of net losses incurred relating to prior accident years increased by $ 2.3 million, primarily due to adverse development on a health contract and additional losses from the COVID-19 pandemic. For the three months ended March 31, 2021, the estimate of net losses incurred relating to prior accident years decreased by $ 0.1 million. The changes in the outstanding loss and loss adjustment expense reserves for health claims for the three months ended March 31, 2022 and 2021 are as follows: Health 2022 2021 ($ in thousands) Gross balance at January 1 $ 9,939 $ 17,485 Less: Losses recoverable — — Net balance at January 1 9,939 17,485 Incurred losses related to: Current year 3,118 12,997 Prior years 1,561 ( 1,317 ) Total incurred 4,679 11,680 Paid losses related to: Current year ( 683 ) ( 3,362 ) Prior years ( 6,662 ) ( 7,904 ) Total paid ( 7,346 ) ( 11,266 ) Foreign currency revaluation — — Net balance at March 31 7,272 17,899 Add: Losses recoverable — — Gross balance at March 31 $ 7,272 $ 17,899 17 Return to table of contents 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 months ended March 31, 2022, the Company’s earned ceded premiums were $ 1.2 million (2021: $ 0.1 million). For the three months ended March 31, 2022, loss and loss adjustment expenses recovered and changes in losses recoverable were $ 0.7 million. The recoveries recognized by the Company for the three months ended March 31, 2021, were insignificant. 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 March 31, 2022, the Company’s loss reserves recoverable consisted of (i) $ 8.8 million (December 31, 2021: $ 8.4 million) recoverable from unrated retrocessionaires, of which $ 8.3 million (December 31, 2021: $ 8.2 million) were secured by cash, letters of credit and collateral held in trust accounts for the benefit of the Company and (ii) $ 2.7 million (December 31, 2021: $ 2.8 million) recoverable 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 March 31, 2022, the Company had recorded an allowance for expected credit losses of $ 47.0 thousand (December 31, 2021: $ 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. At March 31, 2022, the Company’s share price was lower than the conversion price of $ 17.19 per share. 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. Prior to January 1, 2022, the Company bifurcated the Notes into liability and equity components. Effective January 1, 2022, upon adoption of ASU 2020-06, the Company no longer bifurcates the Notes and presents the entire balance as a single liability on the Company’s condensed consolidated balance sheets (see Note 2 for recently issued accounting standards adopted). The Company’s effective borrowing rate for non-convertible debt at the time of issuance of the Notes was estimated to be 6.0 %. The Company incurred issuance costs in connection with the issuance of the Notes. At March 31, 2022, the unamortized portion of these costs was $ 0.9 million (December 31, 2021: $ 1.0 million), which the Company expects to amortize through the maturity date. The carrying value of the Notes at March 31, 2022, including accrued interest of $ 0.7 million, was $ 99.7 million (December 31, 2021: $ 98.1 million). At March 31, 2022, the Company estimated the fair value of the Notes to be $ 95.5 million (December 31, 2021: $ 97.5 million) (see Note 4 Financial Instruments). For the three months ended March 31, 2022, the Company recognized interest expenses of $ 1.2 million (2021: $ 1.5 million) in connection with the interest coupon and amortization of issuance costs. The Company was in compliance with all covenants relating to the Notes at March 31, 2022, and December 31, 2021. At March 31, 2022, the Company had a remaining obligation for interest and principal payments of $ 2.0 million and $ 104.0 million during 2022 and 2023, respectively. 8. SHARE CAPITAL 18 Return to table of contents 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 March 31, 2022, 2,092,276 (December 31, 2021: 3,128,276 ) 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 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 May 4, 2021, the Board of Directors approved a share repurchase plan effective from July 1, 2021, until June 30, 2022, authorizing the Company to repurchase up to $ 25.0 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. The repurchase plan may be modified, suspended, or terminated at the election of our Board of Directors at any time without prior notice. The Company repurchased no Class A ordinary shares during the three months ended March 31, 2022. All Class A ordinary shares repurchased are canceled immediately upon repurchase. The following table is a summary of ordinary shares issued and outstanding: Three months ended March 31 Three months ended March 31 2022 2021 Class A Class B Class A Class B Balance – beginning of period 27,589,731 6,254,715 28,260,075 6,254,715 Issue of ordinary shares, net of forfeitures 876,785 — 335,738 — Balance – end of period 28,466,516 6,254,715 28,595,813 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 that have not yet vested. 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 The restricted shares issued to certain employees contain restrictions relating to vesting, forfeiture in the event of termination of employment, transferability, and other matters. For the three months ended March 31, 2022, the Company issued 885,261 (2021: 334,312 ) Class A ordinary shares to employees pursuant to the Company’s stock incentive plan. The Restricted Shares granted to employees in 2022 include (i) restricted shares with both performance and service-based vesting conditions (“Performance RSs”) and (ii) restricted shares with only service-based vesting conditions (“Service RSs”). The Service RSs vest evenly each year on January 1, subject to the grantees’ continued service with the Company. If performance goals are achieved, the Performance RSs will cliff vest at the end of a three-year performance period within a range of 25 % and 100 % of the awarded Performance RSs, with a target of 50 %. During the vesting period, the holder of the Service RSs and Performance RSs retains voting rights but is entitled to any dividends declared by the Company only upon vesting. Prior to fiscal year 2022, the restricted shares granted to employees cliff vested 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 retained voting rights and was entitled to any dividends declared by the Company. 19 Return to table of contents Prior to fiscal year 2021, the Company issued Class A ordinary shares to the Chief Executive Officer (“CEO”) pursuant to the Company’s stock incentive plan (“CEO RSs”). 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. The CEO RSs 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. At March 31, 2022, there were 193,149 non-vested CEO RSs with a weighted average grant date fair value of $ 10.10 per share. 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 three months ended March 31, 2022, and 2021. The Company recognizes compensation expense associated with Performance RSs and Service RSs based on the fair value of the Company's Class A ordinary shares measured at the grant date. For Service RSs, the Company recognizes this expense on a straight-line basis over the requisite service period. For Performance RSs, the Company recognizes the associated compensation expense based on achieving established performance criteria during the performance period. For the three months ended March 31, 2022, grantees forfeited 8,476 (2021: 19,285 ) restricted shares. For the three months ended March 31, 2022, the Company reversed $ 26 thousand of stock compensation expense (2021: $ 0.1 million) in relation to the forfeited restricted shares. The Company recorded $ 0.7 million of share-based compensation expense, net of forfeiture reversals, relating to restricted shares for the three months ended March 31, 2022 (2021: $ 0.5 million). At March 31, 2022, there was $ 5.1 million (December 31, 2021: $ 2.7 million) of unrecognized compensation cost relating to non-vested restricted shares (excluding CEO RSs), which the Company expects to recognize over a weighted-average period of 2.1 years (2021: 1.8 years). For the three months ended March 31, 2022, the total fair value of restricted shares vested was $ 1.3 million (2021: $ 1.1 million). The following table summarizes the activity for unvested outstanding restricted share awards during the three months ended March 31, 2022: Performance Restricted Stock Service Restricted Stock Number of non-vested restricted shares Weighted average grant date fair value Number of non-vested restricted shares Weighted average grant date fair value Balance at December 31, 2021 193,149 $ 10.10 753,407 $ 8.68 Granted 601,213 6.82 248,659 6.82 Vested — — ( 122,233 ) 10.84 Forfeited — — ( 8,476 ) 7.67 Balance at March 31, 2022 794,362 $ 7.62 871,357 $ 7.86 Employee Restricted Stock Units The Company issues RSUs to certain employees as part of the stock incentive plan and contain restrictions relating to vesting, forfeiture in the event of termination of employment, transferability, and other matters. 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. The RSUs granted to employees in 2022 include (i) RSUs with both performance and service-based vesting conditions (“Performance RSUs”) and (ii) RSUs with only service-based vesting conditions (“Service RSUs”). The Service RSUs vest evenly each year on January 1, subject to the grantee’s continued service with the Company. If performance goals are achieved, the Performance RSUs will cliff vest at the end of a three-year performance period within a range of 25 % and 100 % of the awarded Performance RSUs, with a target of 50 %. The Company recognizes compensation expense associated with Performance RSUs and Service RSUs based on the fair value of the Company's Class A ordinary shares measured at the grant date. For Service RSUs, the Company recognizes this expense on a straight-line basis over the requisite service period. For Performance RSUs, the Company recognizes the associated compensation expense based on achieving established performance criteria during the performance period. 20 Return to table of contents Prior to 2022, the RSUs issued to employees cliff vested three years after the date of issuance, subject to the grantee’s continued service with the Company. For the three months ended March 31, 2022, the Company issued 159,215 (2021: 58,123 ) RSUs to employees pursuant to the Company’s stock incentive plan. For the three months ended March 31, 2022, and 2021, no RSUs were forfeited. The Company recorded $ 0.1 million of share-based compensation expense relating to RSUs for the three months ended March 31, 2022 (2021: $ 0.1 million). At March 31, 2022, the total compensation cost related to non-vested RSUs not yet recognized was $ 1.0 million (2021: $ 0.5 million), which the Company expects to recognize over a weighted-average period of 2.0 years (2021: 1.8 years). Employee RSU activity during the three months ended March 31, 2022, was as follows: Performance Restricted Stock Units Service Restricted Stock Units Number of non-vested RSUs Weighted average grant date fair value 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 December 31, 2021 — $ — 154,134 $ 8.59 Granted 105,008 6.82 54,207 6.82 Vested — — ( 35,389 ) 10.84 Balance at March 31, 2022 105,008 $ 6.82 172,952 $ 7.58 Employee and Director Stock Options For the three months ended March 31, 2022, and 2021, no Class A ordinary share purchase options were granted or exercised by directors or employees and no stock options expired or 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 three months ended March 31, 2022, was $ 0.1 million (2021: $ 0.1 million). At March 31, 2022, the total compensation cost related to non-vested options not yet recognized was $ 0.2 million (December 31, 2021: $ 0.3 million), which will be recognized over a weighted-average period of 1.1 years (December 31, 2021: 1.2 years) assuming the grantee completes the service period for vesting of the options. Employee and director stock option activity during the three months ended March 31, 2022 was as follows: Number of options outstanding Weighted average exercise price Weighted average grant date fair value Intrinsic value ($ in millions) Weighted average remaining contractual term Balance at December 31, 2021 735,627 $ 22.35 $ 10.23 $ — 4.7 years Granted — — — — — Exercised — — — — — Expired — — — — — Balance at March 31, 2022 735,627 $ 22.35 $ 10.23 $ — 4.4 years Stock Compensation Expense For the three months ended March 31, 2022, and 2021, the combined stock compensation expenses (net of forfeitures) included in the caption “General and administrative expenses” in the Company’s condensed consolidated statements of operations were $ 1.0 million and $ 0.8 million, respectively. 21 Return to table of contents 10. TAXATION At March 31, 2022, the Company recorded a gross deferred tax asset of $ 3.8 million (December 31, 2021: $ 3.2 million) and a deferred tax asset valuation allowance of $ 3.3 million (December 31, 2021: $ 2.7 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 three months ended March 31, 2022 and 2021: Three months ended March 31 2022 2021 ($ in thousands) Current tax (expense) benefit $ ( 412 ) $ ( 3,734 ) Tax recovered 428 — Deferred tax (expense) benefit 556 184 Decrease (increase) in deferred tax valuation allowance ( 556 ) ( 184 ) Income tax (expense) benefit $ 16 $ ( 3,734 ) 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 investment losses to be recouped, including any loss generated on the assets invested in SILP, subject to adjustments for redemptions. The loss carry-forward provision 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 months ended March 31, 2022, and 2021, 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 22 Return to table of contents 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 March 31, 2022, 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 sometimes be limited in its ability to trade GRBK shares held in SILP. At March 31, 2022, SILP held 2.7 million shares of GRBK. 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 automatically renews 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 March 31, 2022, 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 March 31, 2022, an aggregate amount of $ 184.7 million (December 31, 2021: $ 136.8 million) in letters of credit was issued under the credit facility. At March 31, 2022, the Company had pledged total cash and cash equivalents with a fair value in the aggregate of $ 185.5 million (December 31, 2021: $ 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 March 31, 2022 and December 31, 2021. The Company has also established regulatory trust arrangements for certain cedents. At March 31, 2022, collateral of $ 515.9 million (December 31, 2021: $ 497.1 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. 23 Return to table of contents Lease Obligations The Company has determined that its lease agreements for office space qualify as operating lease arrangements. At the commencement date, the Company determined the lease term by assuming the exercise of those renewal options deemed to be reasonably certain. The exercise of lease renewal options is at the Company's sole discretion, and these options do not contain any material residual value guarantees or material restrictive covenants. The Company’s weighted-average remaining operating lease term is approximately 4.5 years at March 31, 2022. As the lease contracts generally do not provide an implicit discount rate, the Company used the weighted-average discount rate of 6 %, representing its incremental borrowing rate based on information available at the commencement date, to determine the present value of lease payments. The incremental borrowing rate is based on a borrowing with a term similar to that of the associated lease. The Company has made an accounting policy election not to include renewal, termination, or purchase options that are not reasonably certain of exercise when determining the term of the borrowing. At March 31, 2022, the right-of-use assets and lease liabilities relating to the operating leases were $ 2.3 million and $ 2.4 million, respectively. The operating expense for the three months ended March 31, 2022, was $ 0.2 million (2021: $ 0.04 million). At March 31, 2022, the commitment for operating lease liabilities for future annual periods was as follows: Year ending December 31, ($ in thousands) 2022 $ 454 2023 621 2024 637 2025 653 2026 352 Thereafter — Total lease payments 2,717 Less Imputed Interest ( 358 ) Present value of lease liabilities $ 2,359 Litigation From time to time, in the ordinary 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. 24 Return to table of contents 13. SEGMENT REPORTING The Company has one operating segment, Property & Casualty Reinsurance. The following tables provide a breakdown of the Company’s gross premiums written by line and class of business, and by geographic area of risks insured for the periods indicated: Gross Premiums Written by Line of Business Three months ended March 31 2022 2021 ($ in thousands) Property Commercial $ 3,986 2.7 % $ 2,148 1.3 % Motor 1,446 1.0 9,709 5.7 Personal 13,103 9.0 3,058 1.8 Total Property 18,535 12.7 14,915 8.8 Casualty General Liability 10,005 6.9 1,695 1.0 Motor Liability 5,109 3.5 41,564 24.5 Professional Liability 141 0.1 151 0.1 Workers' Compensation 9,920 6.8 22,149 13.0 Multi-line 53,094 36.4 48,115 28.3 Total Casualty 78,269 53.7 113,674 66.9 Other Accident & Health 1,894 1.3 14,664 8.6 Financial 21,036 14.4 13,330 7.8 Marine 8,399 5.7 4,530 2.7 Other Specialty 17,753 12.2 8,822 5.2 Total Other 49,082 33.6 41,346 24.3 $ 145,886 100.0 % $ 169,935 100.0 % Gross Premiums Written by Geographic Area of Risks Insured Three months ended March 31 2022 2021 ($ in thousands) U.S. and Caribbean $ 76,037 52.1 % $ 104,854 61.7 % Worldwide (1) 66,271 45.4 62,991 37.1 Europe 2,874 2.0 920 0.5 Asia 704 0.5 1,170 0.7 $ 145,886 100.0 % $ 169,935 100.0 % (1) “Worldwide” is composed of contracts that reinsure risks in more than one geographic area and may include risks in the U.S. 25 Return to table of contents