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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 298 added, 173 removed, 398 unchanged (54% of the section changed)

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The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear in our annual report on Form 10-K for the fiscal year ended December 31, 2021.

The following is a discussion and analysis of our results of operations for the three months ended March 31, 2022 and 2021 and financial condition at March 31, 2022 and December 31, 2021.

The following is a discussion and analysis of our results of operations for the six months ended June 30, 2022 and 2021 and financial condition at June 30, 2022 and December 31, 2021.

Special Note About Forward-Looking Statements

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We have included a detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements in the section entitled “Part II.

Risk Factors” included in this Form 10-Q for the three months ended March 31, 2022, and in the section entitled “Part I, Item 1A.

Risk Factors” contained in our Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2022.

Risk Factors” included in our Form 10-Q for the three months ended March 31, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on May 3, 2022, and in the section entitled “Part I, Item 1A.

Risk Factors” contained in our Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 8, 2022.

Such risks and uncertainties include, but are not limited to:

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Our condensed consolidated financial statements contain certain amounts that are inherently subjective and have required management to make assumptions and best estimates to determine reported values.

If certain factors, including those described in “Part I.

— Risk Factors” included in our Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 8, 2022, cause actual events or results to differ materially from our underlying assumptions or estimates, there could be a material adverse effect on our results of operations, financial condition or liquidity.

If certain factors, including those described in “Part II.

Risk Factors” included in our Form 10-Q for the three months ended March 31, 2022, as filed with the SEC on May 3, 2022, and in “Part I.

In that case, there could be a material adverse effect on our results of operations, financial condition, or liquidity.

— Management’s Discussion and Analysis of Financial Condition and Results on Operations” included in our annual report on Form 10-K for the fiscal year ended December 31, 2021, describes our critical accounting policies and estimates.

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The ongoing Russian-Ukrainian conflict has resulted in the U.S., United Kingdom, European Union, and other countries imposing financial and economic sanctions, which have caused disruption in the global economy and have increased economic and geopolitical uncertainty.

Our underwriting results for the quarter included $13.6 million of losses attributed to the Russian-Ukrainian conflict.

Our underwriting results for the first half of 2022 include $13.6 million of losses attributed to the Russian-Ukrainian conflict.

If this conflict is prolonged, we may incur additional losses in future periods.

During the January 1, 2022 renewal period, we saw improved rates in most of the classes of business we write, which enabled us to selectively expand our specialty book while taking advantage of improved rates.

During the first half of 2022 we saw improved rates in most of the classes of business we write, which enabled us to selectively expand our specialty book while taking advantage of improved rates.

Our in-force portfolio reflects increased diversification across the classes of business we write and a lower concentration of risk to individual counterparties than at any other time in our history.

After another year of significant property catastrophe losses in 2021 and several years of generally weak performance of reinsurers, premium rates continue to increase overall.

We believe that structural problems within the “pure catastrophe” class will limit premium rate increases in the class.

However, we believe that the recent property catastrophe losses, along with the Russian-Ukrainian conflict will help support and extend the generally favorable market conditions in most other classes.

We expect that the impact of inflation on our claims costs may partially reduce the extent of the overall premium adequacy, mainly with respect to longer-tailed classes.

Over the past four years, our underwriting portfolio has become considerably more diversified as we have shifted our underwriting away from being dominated by a small number of large accounts.

This diversification has also exposed us to a wider array of global insurance events.

However, we believe that taking on risk that is well priced, diversified and risk-managed, is key to achieving optimal underwriting results.

The widespread inflation we have seen is a significant concern to the industry, as it can add uncertainty to the cost of claims, particularly for classes of business with long payout tails.

As a result, it creates pricing challenges for new business and valuation challenges in claims reserves.

We are addressing these concerns in multiple ways:

• Our underwriting strategy focuses on relatively short-tailed business, which is inherently less exposed to high inflation than long-tailed lines.

We estimate the payout duration of our existing reserves at approximately two years.

• We incorporate inflation assumptions in all our pricing, and reassess these assumptions frequently.

• We are minimizing our exposure to classes that are experiencing severe supply-chain-driven inflation.

The rising costs also bring a benefit with increased demand for coverage limits, which we believe will extend the currently favorable market conditions.

We expect that the rising interest rate environment will have a mixed impact on our financial results.

While we have some exposure to interest rate risk from fixed income securities held by the Lloyd’s syndicates in which we participate, we expect that the higher interest rates will improve the yield on our restricted cash and cash equivalents.

We continue to be encouraged by our Innovations unit, whose central objective is to enhance our underwriting return and risk profile by establishing a range of strategic partnerships.

Our Innovations-related premiums accounted for approximately 10% of our net premiums written in the first quarter of 2022.

Our Innovations-related premiums accounted for approximately 13% of our net premiums written in the first half of 2022.

We see the potential for significant growth from Innovations-derived underwriting opportunities going forward.

In April 2022, we launched a Lloyd’s approved insurtech-focused syndicate (“Syndicate 3456”).

We expect Syndicate 3456 to enable us to provide capacity to our growing portfolio of Innovations partners.

Key Financial and Non-GAAP Measures

In the second quarter of 2022, we launched our Lloyd’s approved insurtech-focused syndicate (“Syndicate 3456”).

We have received a significant amount of interest from our current and prospective counterparties as we prepare for Syndicate 3456 to enable us to provide capacity to our growing portfolio of Innovations partners.

The underwriting volume in Syndicate 3456 was immaterial in the second quarter, but we are pleased with the volumes that are committed for the third quarter and beyond.

Key Financial Measures and Non-GAAP Measures

Management uses certain key financial measures, some of which are not prescribed under U.S.

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These non-GAAP measures are described below.

Basic Book Value Per Share and Fully Diluted Book Value Per Share

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Basic Book Value Per Share and Fully Diluted Book Value Per Share

We believe that long-term growth in fully diluted book value per share is the most relevant measure of our financial performance because it provides management and investors a yardstick to monitor the shareholder value generated.

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We calculate basic book value per share as (a) ending shareholders' equity, divided by (b) aggregate of Class A and Class B Ordinary shares issued and outstanding, including all unvested service-based restricted shares, and the earned portion of performance-based restricted shares granted after December 31, 2021.

We exclude shares potentially issuable in connection with convertible notes if the conversion price exceeds the share price.

Fully diluted book value per share represents basic book value per share combined with any dilutive impact of in-the-money stock options, unvested service-based RSUs, and the earned portion of unvested performance-based RSUs granted.

Fully diluted book value per share also includes the dilutive effect, if any, of ordinary shares expected to be issued upon settlement of the convertible notes.

Our primary financial goal is to increase adjusted fully diluted book value per share over the long term.

Our primary financial goal is to increase fully diluted book value per share over the long term.

We use fully diluted book value per share as a financial measure in our annual incentive compensation.

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The following table presents a reconciliation of the non-GAAP financial measures basic and fully diluted book value per share to the most comparable U.S.

GAAP measure:

March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021

June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021

($ in thousands, except per share and share amounts)

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Increase (decrease) in fully diluted book value per share (%) 3.3 % (2.4) % 4.2 % (2.6) % 0.8 %

(1) For periods prior to March 31, 2022, all unvested restricted shares are included in the “basic” and “fully diluted” denominators.

Restricted shares with performance-based vesting conditions granted after December 31, 2021, are included in

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the “basic” and “fully diluted” denominators to the extent that the Company has recognized the corresponding share-based compensation expense.

At March 31, 2022, the aggregate number of unearned restricted shares with performance conditions was 774,742 (December 31, 2021:

(1) For periods prior to January 1, 2022, all unvested restricted shares are included in the “basic” and “fully diluted” denominators.

Restricted shares with performance-based vesting conditions granted after December 31, 2021, are included in the “basic” and “fully diluted” denominators to the extent that the Company has recognized the corresponding share-based compensation expense.

At June 30, 2022, the aggregate number of unearned restricted shares with performance conditions not included in the “basic” and “fully diluted” denominators was 754,076 (March 31, 2022:

774,742, December 31, 2021:

193,149, September 30, 2021:

193,149, June 30, 2021:

193,149, March 31, 2021:

Net Underwriting Income (Loss)

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Net underwriting income (loss) is considered a non-GAAP financial measure because it excludes items used to calculate net income before taxes under U.S.

We calculate net underwriting income (loss) as net premiums earned, plus other income relating to reinsurance and deposit-accounted contracts, less deposit interest expense, less net loss and loss adjustment expenses, acquisition costs, and underwriting expenses.

We calculate net underwriting income (loss) as net premiums earned, plus other

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income relating to reinsurance and deposit-accounted contracts, less deposit interest expense, less net loss and loss adjustment expenses, acquisition costs, and underwriting expenses.

The measure excludes, on a recurring basis:

(1) investment income (loss);

(2) other income (expense) not related to underwriting, including foreign exchange gains or losses and adjustments to the allowance for expected credit losses;

(2) other income (expense) not related to underwriting, including foreign exchange gains or losses, Lloyd’s interest income or expense and adjustments to the allowance for expected credit losses;

(3) corporate general and administrative expenses;

and (4) interest expense.

We exclude total investment income or loss, foreign exchange gains or losses, and expected credit losses as we believe these items are influenced by market conditions and other factors not related to underwriting decisions.

We exclude total investment income or loss, foreign exchange gains or losses, Lloyd’s interest income or expense and expected credit losses as we believe these items are influenced by market conditions and other factors not related to underwriting decisions.

We exclude corporate and interest expenses because these costs are generally fixed and not incremental to or directly related to our underwriting operations.

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GAAP financial measure) on a consolidated basis are shown below:

Three months ended March 31

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands)

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Results of Operations

The table below summarizes our operating results for the three months ended March 31, 2022, and 2021:

Three months ended March 31

The table below summarizes our operating results for the three and six months ended June 30, 2022, and 2021:

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

(in thousands, except percentages)

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* The net financial impacts associated with changes in the estimate of losses incurred in prior years, which incorporate earned reinstatement premiums assumed and ceded, and adjustments to assumed and ceded acquisition costs, were a loss of $2.6 million and a gain of $0.2 million for the three months ended March 31, 2022, and 2021, respectively.

Three months ended March 31, 2022, and 2021

For the three months ended March 31, 2022, fully diluted book value per share decreased by $0.34, or 2.4%, to $13.65 per share from $13.99 per share at December 31, 2021.

For the three months ended March 31, 2022, basic book value per share decreased by $0.33, or 2.3%, to $13.72 per share from $14.05 per share at December 31, 2021.

The decrease in fully diluted book value per share included $0.07, or 0.50%, adverse impact relating to the adoption of ASU 2020-06 during the three months ended March 31, 2022 (see Note 2 of the accompanying condensed consolidated financial statements for recently issued accounting standards adopted).

For the three months ended March 31, 2022, our net loss was $5.7 million, compared to a net income of $6.5 million reported for the equivalent 2021 period.

The developments that most significantly affected our financial performance during the three months ended March 31, 2022, compared to the equivalent 2021 period, are summarized below:

* The net financial impacts associated with changes in the estimate of losses incurred in prior years, which incorporate earned reinstatement premiums assumed and ceded, and adjustments to assumed and ceded acquisition costs, were a loss of $3.5 million and $3.6 million for the three months ended June 30, 2022, and 2021, respectively, and a loss of $6.1 million and $3.4 million for the six months ended June 30, 2022, and 2021, respectively.

Three months ended June 30, 2022 and 2021

For the three months ended June 30, 2022, the fully diluted book value per share increased by $0.45 per share, or 3.3%, to $14.10 per share from $13.65 per share at March 31, 2022.

For the three months ended June 30, 2022, the basic book value per share increased by $0.46 per share, or 3.4%, to $14.18 per share from $13.72 per share at March 31, 2022.

For the three months ended June 30, 2022, our net income was $14.8 million, compared to net income of $0.6 million reported for the equivalent 2021 period.

The developments that most significantly affected our financial performance during the three months ended June 30, 2022, compared to the equivalent 2021 period, are summarized below:

• Underwriting:

The underwriting loss for the three months ended March 31, 2022, was $7.7 million, driven primarily by $13.6 million of losses related to the Russian-Ukrainian conflict and $2.8 million of losses related to Tennessee wildfires.

By comparison, the underwriting loss for the same period in 2021 was $2.0 million, driven by $2.9 million of deposit accounting interest expense.

Our overall combined ratio was 106.2% for the three months ended March 31, 2022, compared to 101.5% for the same period in 2021.

The Russian-Ukrainian conflict contributed 10.8 percentage points to the combined ratio for the three months ended March 31, 2022.

The underwriting income for the three months ended June 30, 2022, was $9.3 million.

By comparison, the equivalent period in 2021 reported an underwriting income of $4.6 million.

The improved underwriting result was driven primarily by a change in the business mix.

As we have been reducing our exposure to low-margin motor and workers’ compensation business, the higher-margin lines of business have elevated the underwriting income.

Our combined ratio was 91.6% for the three months ended June 30, 2022, compared to 96.5% during the equivalent 2021 period.

The casualty (including multi-line) business was the largest contributor to the improvement in our combined ratio.

• Investments:

Our total investment income for the three months ended March 31, 2022, was $7.7 million compared to a total investment income of $18.7 million incurred during the equivalent 2021 period.

For the three months ended March 31, 2022, our investment in SILP reported a gain of $4.1 million, while our Innovations-related investments reported an unrealized gain of $3.9 million.

The investment income during the equivalent 2021 period was driven by a $14.7 million gain realized on the sale of our investment in AccuRisk.

Our total investment income for the three months ended June 30, 2022, was $17.2 million, compared to total investment income of $2.0 million reported for the same period in 2021.

Our investment in SILP reported a gain of $11.9 million during the three months ended June 30, 2022, compared to a loss of $2.0 million during the equivalent period in 2021.

Other investment income totaled $5.3 million and $4.0 million during the three months ended June 30, 2022, and 2021, respectively, driven primarily by gains in our Innovations portfolio.

• Other income (expense):

For the three months ended June 30, 2022, we incurred $6.0 million of other non-underwriting expenses, primarily as a result of foreign exchange losses.

The weakening of the pound sterling against the U.S.

dollar drove the foreign exchange loss.

In addition, the other income (expense) included our share of Lloyd’s syndicates’ investment losses on the Funds at Lloyd’s business, which is generally conducted on a funds withheld basis.

The syndicates invest a portion of these funds in fixed-maturity securities and investment funds, which were negatively impacted by rising interest rates and market volatility.

We record our share of these mark-to-market adjustments when the syndicates report these to us, generally one quarter in arrears.

Six months ended June 30, 2022, and 2021

For the six months ended June 30, 2022, fully diluted book value per share increased by $0.11, or 0.8%, to $14.10 per share from $13.99 per share at December 31, 2021.

For the six months ended June 30, 2022, basic book value per share increased by $0.13, or 0.9%, to $14.18 per share from $14.05 per share at December 31, 2021.

The increase in fully diluted book value per share during the six months ended June 30, 2022, was net of $0.07, or 0.5%, adverse impact relating to the adoption of ASU 2020-06 (see Note 2 of the accompanying condensed consolidated financial statements for recently issued accounting standards adopted).

For the six months ended June 30, 2022, our net income was $9.1 million, compared to a net income of $7.1 million reported for the equivalent 2021 period.

The developments that most significantly affected our financial performance during the six months ended June 30, 2022, compared to the equivalent 2021 period, are summarized below:

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• Underwriting:

The underwriting income for the six months ended June 30, 2022, was $1.7 million, driven primarily by $13.6 million of losses related to the Russian-Ukrainian conflict and $2.8 million of losses related to Tennessee wildfires.

By comparison, the underwriting income for the equivalent period in 2021 was $2.6 million, driven by losses from the winter storm Uri and deposit-accounted contracts.

Our combined ratio was 99.3% for the six months ended June 30, 2022, compared to 99.0% for the same period in 2021.

The Russian-Ukrainian conflict contributed 5.8 percentage points to the combined ratio for the six months ended June 30, 2022.

• Investments:

Our total investment income for the six months ended June 30, 2022, was $24.9 million compared to a total investment income of $20.7 million incurred during the equivalent 2021 period.

For the six months ended June 30, 2022, our investment in SILP reported a gain of $16.0 million, while our Innovations-related investments reported an unrealized gain of $9.2 million.

The investment income during the equivalent 2021 period reflected a $14.2 million gain realized on the sale of our investment in AccuRisk.

• Other income (expense):

For the six months ended June 30, 2022, other expense of $6.6 million was driven primarily by the mark-to-market adjustments and foreign exchange losses for the reasons explained above for the three months ended June 30, 2022.

Underwriting results

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Details of gross premiums written are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands) ($ in thousands)

Property $ 23,129 17.2 % $ 16,508 11.7 % $ 41,664 14.8 % $ 31,423 10.1 %

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As a result of our underwriting philosophy, the total premiums we write and the mix of premiums between property, casualty, and other business, may vary significantly from period to period depending on the market opportunities we identify.

For the three months ended June 30, 2022, our gross premiums written decreased by $6.8 million, or 4.8%, compared to the equivalent 2021 period.

The primary drivers for this change are the following:

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For the three months ended March 31, 2022, our gross premiums written decreased by $24.0 million, or 14.2%, compared to the equivalent 2021 period.

Gross Premiums Written

Three months ended June 30, 2022

Increase (decrease)

($ in millions) % change Explanation

Property $6.6 40.1% The increase in property gross premiums written during the three months ended June 30, 2022, over the comparable 2021 period was due primarily to personal lines business, driven by the growth of one of our Innovations partners.

The increase was partially offset by our motor contracts on which we previously elected to reduce or not renew our participation.

Casualty $(26.8) (26.1)% The decrease in casualty gross premiums written during the three months ended June 30, 2022, over the comparable 2021 period was due primarily to non-renewed motor contracts as described above.

In addition, workers’ compensation premiums decreased as we elected not to renew certain contracts during 2021.

The decrease in casualty gross premiums written was partially offset by an increase in general liability premiums driven primarily by new contracts bound during 2022.

Other $13.4 59.8% The increase in “other” gross premiums written during the three months ended June 30, 2022 over the comparable 2021 period was related primarily to marine, energy, and financial lines.

New business drove most of the increase in marine and energy premiums.

The growth in financial lines was driven primarily by an increase in underlying transactional liability business.

The increase was partially offset by a decrease in premiums, due primarily to changing certain exposures from a proportional basis to excess of loss.

For the six months ended June 30, 2022, our gross premiums written decreased by $30.8 million, or 9.9%, compared to the equivalent 2021 period.

The primary drivers of this change are the following:

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Gross Premiums Written

Three months ended March 31, 2022

Six months ended June 30, 2022

Increase (decrease)

($ in millions) % change Explanation

Property $3.6 24.3% The increase in property premiums written during the three months ended March 31, 2022, over the comparable 2021 period was primarily attributable to growth in underlying business relating to one of our Innovations-related contracts.

To a lesser extent, the increase in property premiums was driven by new personal and commercial property contracts during 2022.

A decrease in motor premiums partially offset the increase in property premiums as we elected to reduce or not renew our participation on certain motor contracts.

Casualty $(35.4) (31.1)% The decrease in casualty premiums written during the three months ended March 31, 2022, over the comparable 2021 period was due primarily to motor and workers’ compensation contracts on which we elected to reduce or not renew our participation.

The decrease in casualty premiums was partially offset by growth in general liability and multi-line premiums resulting from new and renewed contracts, including Innovations-related business.

Other $7.7 18.7% The increase in “other” premiums written during the three months ended March 31, 2022, over the comparable 2021 period was due primarily to:

Property $10.2 32.6% The increase in property gross premiums written during the six months ended June 30, 2022, over the comparable 2021 period was due primarily to personal lines business as discussed above.

In addition, the commercial lines gross premiums written also increased, driven by new contracts bound during 2022.

The increase was partially offset by our motor contracts on which we had previously elected to reduce or not renew our participation.

Casualty $(62.2) (28.8)% The decrease in casualty premiums written during the six months ended June 30, 2022 over the comparable 2021 period was due primarily to motor and workers’ compensation contracts on which we elected to reduce or not renew our participation.

The decrease in casualty premiums was partially offset by growth in general liability and multi-line premiums, driven by new and renewed contracts, including Lloyd’s syndicates and Innovations-related business.

Other $21.1 33.2% The increase in “other” premiums written during the six months ended June 30, 2022, over the comparable 2021 period was due primarily to:

• financial lines, including transactional liability business;

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• new contracts bound during 2022 relating to other specialty classes.

These increases were partially offset by decreases in health premiums due primarily to a contract in which we shifted our participation from proportional basis to excess of loss basis.

The increase was partially offset by a decrease in premiums, due primarily to changing certain exposures from a proportional basis to excess of loss.

Premiums Ceded

For the three months ended March 31, 2022, premiums ceded were $6.0 million compared to $(0.1) million for the three months ended March 31, 2021.

We use retrocessional coverage to manage our net portfolio exposure, leverage areas of expertise, and improve our strategic position in meeting the needs of clients and brokers..

In 2022, we entered into new retrocession agreements, primarily to reduce our exposure to large marine and energy loss events and certain property losses.

For the three and six months ended June 30, 2022, premiums ceded were $(7.2) million and $(13.2) million, respectively, compared to insignificant premiums ceded for the three and six months ended June 30, 2021.

In 2022, we entered into new retrocession agreements to reduce our exposure to marine, energy, and property losses.

Net Premiums Written

Details of net premiums written are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands) ($ in thousands)

Property $ 16,891 13.2 % $ 16,506 11.7 % $ 33,326 12.5 % $ 31,462 10.1 %

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Total $ 127,617 100.0 % $ 141,578 100.0 % $ 267,494 100.0 % $ 311,568 100.0 %

For the three months ended March 31, 2022, net premiums written decreased by $30.1 million, or 17.7%, compared to the three months ended March 31, 2021.

For the three and six months ended June 30, 2022, net premiums written decreased by $14.0 million, or 9.9%, and by $44.1 million, or 14.1%, respectively, compared to the three and six months ended June 30, 2021.

The movement in net premiums written resulted from the changes in gross premiums written and ceded during the periods.

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Details of net premiums earned are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands) ($ in thousands)

Property $ 12,166 11.0 % $ 14,761 11.1 % $ 26,656 11.3 % $ 28,916 10.8 %

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Details of net losses incurred are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands) ($ in thousands)

Property $ 5,789 9.5 % $ 7,261 8.4 % $ 15,502 9.8 % $ 18,646 10.1 %

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Total $ 60,823 100.0 % $ 86,957 100.0 % $ 158,230 100.0 % $ 184,678 100.0 %

The below table summarizes the loss ratios for the three months ended March 31, 2022 and 2021:

Three months ended March 31

2022 2021 Increase / (decrease) in loss ratio points

The below table summarizes the loss ratios for the six months ended June 30, 2022, and 2021:

Three months ended June 30 Six months ended June 30

2022 2021 Increase / (decrease) in loss ratio points 2022 2021 Increase / (decrease) in loss ratio points

Property 47.6 % 49.2 % (1.6) 58.2 % 64.5 % (6.3)

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The changes in net losses incurred and loss ratios during the three months ended March 31, 2022, were attributable to the following:

The changes in net losses incurred for the three months ended June 30, 2022, as compared to the equivalent 2021 period, were attributable to the following:

Net Losses Incurred

Three months ended March 31, 2022

Three months ended June 30, 2022

Increase (decrease)

($ in millions) Increase / (decrease) in loss ratio points Explanation

Property $(1.7) (13.4) The decrease in property losses incurred during the three months ended March 31, 2022, compared to the same period in 2021, was due primarily to a reduction in motor business related to contracts on which we elected to reduce or non-renew our participation.

The decrease was partially offset by higher personal lines losses from Tennessee wildfires.

The property loss ratio decreased 13.4 percentage points during the three months ended March 31, 2022, over the equivalent 2021 period, due primarily to the reasons described above.

Casualty $(8.8) (5.5) The decrease in casualty losses incurred during the three months ended March 31, 2022, compared to the same period in 2021, was due primarily to a reduction in motor business related to contracts on which we elected to reduce or non-renew our participation.

The decrease was partially offset by higher incurred losses relating to the multi-line business driven by growth in Lloyd’s syndicate contracts.

The casualty loss ratio decreased 5.5 percentage points during the three months ended March 31, 2022, over the equivalent 2021 period, due primarily to the reasons described above.

Other $10.1 42.0 The increase in “other” losses incurred during the three months ended March 31, 2022, compared to the same period in 2021, was due primarily to losses relating to the Russian-Ukrainian conflict.

The increase was partially offset by lower losses incurred on health contracts on which we elected to reduce or not renew our participation.

The “other” loss ratio increased 42.0 percentage points during the three months ended March 31, 2022, over the equivalent 2021 period, due primarily to the reasons described above.

Property $(1.5) (1.6) The decrease in property losses incurred during the three months ended June 30, 2022, compared to the same period in 2021, was due primarily to a reduction in motor business related to contracts on which we elected to reduce or non-renew our participation.

Higher personal lines losses partially offset the decrease.

The property loss ratio decreased 1.6 percentage points during the three months ended June 30, 2022, over the equivalent 2021 period, due primarily to the reasons described above.

Casualty $(21.7) (11.6) The decrease in losses incurred during the three months ended June 30, 2022, over the comparable 2021 period was due primarily to reductions in motor and workers’ compensation exposures.

The decrease was partially offset by increased attritional losses on new and renewed general liability and multi-line contracts.

The casualty loss ratio decreased 11.6 percentage points during the three months ended June 30, 2022, over the equivalent 2021 period, due primarily to changes in our business mix.

We significantly reduced our motor and workers’ compensation exposures and increased our general liability and multi-line business, which generally incorporates lower loss ratios.

Adverse loss development on certain motor and workers’ compensation contracts partially offset the loss ratio decreases.

Other $(3.0) (7.4) The decrease in “other” losses incurred during the three months ended June 30, 2022, over the comparable 2021 period was due primarily to:

• health contracts on which we previously elected to reduce or not renew our participation;

• the release of loss reserves on certain mortgage contracts;

• crop losses incurred in the prior period.

The decrease was partially offset by increased losses on:

• new and renewed marine and energy contracts;

• our growing book of transactional liability business.

The “other” loss ratio decreased 7.4 percentage points during the three months ended June 30, 2022, over the equivalent 2021 period, due primarily to the reasons described above.

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The changes in net losses incurred and loss ratios during the six months ended June 30, 2022, were attributable to the following:

Net Losses Incurred

Six months ended June 30, 2022

Increase (decrease)

($ in millions) Increase / (decrease) in loss ratio points Explanation

Property $(3.1) (6.3) The decrease in property losses incurred during the six months ended June 30, 2022, compared to the same period in 2021, was due primarily to a reduction in motor business related to contracts on which we elected to reduce or non-renew our participation.

The decrease was partially offset by losses from a growing personal lines book and Tennessee wildfires that occurred during the first quarter of 2022.

The property loss ratio decreased 6.3 percentage points during the six months ended June 30, 2022 over the equivalent 2021 period.

This decrease was due primarily to the reduction in our motor business.

Higher personal lines losses partially offset the decrease.

Casualty $(30.5) (8.4) The decrease in casualty losses incurred during the six months ended June 30, 2022, compared to the same period in 2021, was due primarily to a reduction in motor and worker’s compensation business related to contracts on which we elected to reduce or non-renew our participation.

In addition, the prior period included losses from winter storm Uri.

The decrease was partially offset by higher incurred losses relating to general liability and multi-line business, reflecting the growth in our Lloyd’s syndicate business.

The casualty loss ratio decreased 8.4 percentage points during the six months ended June 30, 2022 over the equivalent 2021 period, due primarily to changes in our business mix.

We significantly reduced our motor and workers’ compensation exposures and increased our general liability and multi-line business, which generally incorporates lower loss ratios.

Adverse loss development on certain motor and workers’ compensation contracts partially offset the loss ratio decreases.

Other $7.2 16.8 The increase in “other” losses incurred during the six months ended June 30, 2022, compared to the same period in 2021, was due primarily to losses relating to the Russian-Ukrainian conflict.

Our growing book of transactional liability and marine and energy business also contributed to the increase.

The increase was partially offset by:

• lower losses incurred on health contracts on which we elected to reduce or not renew our participation;

• the release of loss reserves on certain mortgage contracts;

• crop losses incurred in the equivalent 2021 period.

The “other” loss ratio increased 16.8 percentage points during the six months ended June 30, 2022, over the equivalent 2021 period, due primarily to the reasons described above.

Russian-Ukrainian Conflict

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We have purchased excess of loss reinsurance to reduce our net exposure relating to MEPVT exposures.

As of March 31, 2022, we have not recorded any reinsurance recoveries, as the estimated losses had not impacted the excess layers.

As of June 30, 2022, we have not recorded any reinsurance recoveries, as the estimated losses had not impacted the excess layers.

However, we may generate recoveries under the retroceded contracts if we recognize significant further MEPVT losses from the Russian-Ukrainian conflict.

See Note 5 of the accompanying condensed consolidated financial statements for additional discussion of our reserving techniques and prior period development of net claims and claim expenses.

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See Note 5 of the accompanying condensed consolidated financial statements for additional discussion of our reserving techniques and prior period development of net claims and claim expenses.

Acquisition Costs, Net

Details of acquisition costs are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands) ($ in thousands)

Property $ 3,036 8.4 % $ 3,282 8.7 % $ 6,384 9.2 % $ 6,082 8.6 %

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Total $ 36,335 100.0 % $ 37,631 100.0 % $ 69,280 100.0 % $ 71,012 100.0 %

The acquisition cost ratios for the three months ended March 31, 2022 and 2021, were as follows:

Three months ended March 31

2022 2021 Increase / (decrease)

The acquisition cost ratios for the six months ended June 30, 2022 and 2021, were as follows:

Three months ended June 30 Six months ended June 30

2022 2021 Increase / (decrease) 2022 2021 Increase / (decrease)

Property 25.0 % 22.2 % 2.8 % 23.9 % 21.0 % 2.9 %

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Total 33.0 % 28.4 % 4.6 % 29.3 % 26.5 % 2.8 %

The changes in the acquisition cost ratios during the three months ended March 31, 2022, compared to the equivalent period in 2021, were attributable to the following:

The changes in the acquisition cost ratios for the three months ended June 30, 2022, compared to the equivalent period in 2021, were attributable to the following:

Change in Acquisition Cost Ratios

Three months ended March 31, 2022

Three months ended June 30, 2022

Increase / (decrease) in acquisition cost ratio points Explanation

Property 3.3 The increase in property acquisition cost ratio during the three months ended March 31, 2022, compared to the equivalent period in 2021, was due primarily to an increase in quota share commercial and personal property business.

This business had a higher acquisition cost ratio relative to motor business that decreased during the three months ended March 31, 2022, compared to the same period in 2021.

Casualty 1.2 The increase in the casualty acquisition cost ratio during the three months ended March 31, 2022, compared to the equivalent period in 2021, related primarily to growth in multi-line and Lloyd’s syndicate business.

Other 1.9 The increase in the “other” acquisition cost ratio was due primarily to the change in the mix of business during the three months ended March 31, 2022, compared to the equivalent period in 2021.

The “other” acquisition cost expense and earned premiums were lower due to decreased health business.

However, the growth in transactional liability business, which has a higher acquisition cost ratio relative to other specialty business, increased the overall “other” acquisition cost ratio.

Property 2.8 The increase in property acquisition cost ratio during the three months ended June 30, 2022, over the comparable 2021 period was due primarily to higher ceding commissions on the personal property quota share contracts relative to motor business that decreased during the current period.

Casualty 1.6 The increase in casualty acquisition cost ratio during the three months ended June 30, 2022, over the comparable 2021 period was due primarily to changes in the mix of business we write.

Our motor and workers’ compensation business, which decreased in 2022, generally incorporate lower ceding commission ratios than our general liability and multi-line business, which grew compared to the equivalent 2021 period.

Other 10.4 The increase in the “other” acquisition cost ratio during the three months ended June 30, 2022, over the comparable 2021 period was due primarily to:

• increased profit commissions on mortgage contracts driven by favorable loss development;

• growth in transactional liability business, which carries higher ceding commission ratios than other specialty business;

• new specialty quota share contracts bound in 2022, which incorporate relatively high acquisition costs.

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The changes in the acquisition cost ratios during the six months ended June 30, 2022, compared to the equivalent period in 2021, were attributable to the following:

Change in Acquisition Cost Ratios

Six months ended June 30, 2022

Increase / (decrease) in acquisition cost ratio points Explanation

Property 2.9 The year-to-date increase was driven by the same trends as those discussed above in reference to the second quarter.

Casualty 1.3 The year-to-date increase was driven by the same trends as those discussed above in reference to the second quarter.

Other 6.4 The year-to-date increase was driven by the same trends as those discussed above in reference to the second quarter.

A decrease in health business, which generally carries lower ceding commissions relative to other specialty business, was an additional driver of the increase in the acquisition cost ratio.

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Ratio Analysis

The following table provides our underwriting ratios by line of business:

Three months ended March 31 Three months ended March 31

Three months ended June 30 Three months ended June 30

Property Casualty Other Total Property Casualty Other Total

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Combined ratio 91.6 % 96.5 %

The underwriting expense ratio for the three months ended March 31, 2021, included 2.2% percentage points relating to interest expense on deposit-accounted contracts based on revised expectations of ultimate cash flows.

There was no similar impact on the underwriting expense ratio for the three months ended March 31, 2022.

Six months ended June 30 Six months ended June 30

Property Casualty Other Total Property Casualty Other Total

Loss ratio 58.2 % 66.5 % 72.0 % 67.0 % 64.5 % 74.9 % 55.2 % 68.9 %

Acquisition cost ratio 23.9 27.1 37.2 29.3 21.0 25.8 30.8 26.5

Composite ratio 82.1 % 93.6 % 109.2 % 96.3 % 85.5 % 100.7 % 86.0 % 95.4 %

Underwriting expense ratio 3.0 3.6

Combined ratio 99.3 % 99.0 %

The increase in underwriting expense ratio for the three months ended June 30, 2022, compared to the same period in 2021, was due partially to lower net earned premiums and partially to higher underwriting expenses driven by stock-based compensation expenses.

The underwriting expense ratio for the six months ended June 30, 2021, included 1.1 percentage points relating to interest expense on deposit-accounted contracts based on revised expectations of ultimate cash flows.

There was no similar impact on the underwriting expense ratio for the six months ended June 30, 2022.

Excluding the deposit-accounted contracts, the underwriting expense ratio for the six months ended June 30, 2022, was higher due to lower net earned premiums.

General and Administrative Expenses

Details of general and administrative expenses are provided in the following table:

Three months ended March 31

($ in thousands)

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands) ($ in thousands)

Underwriting expenses $ 3,528 $ 3,357 $ 6,749 $ 6,694

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General and administrative expenses $ 8,106 $ 7,739 $ 15,338 $ 15,280

For the three months ended March 31, 2022, and 2021, general and administrative expenses included $1.0 million and $0.8 million, respectively, of costs related to stock compensation granted to employees and directors.

For the three months ended June 30, 2022, general and administrative expenses increased by $0.4 million, or 4.7%, compared to the equivalent 2021 period.

The increase was due primarily to higher expenses relating to (i) stock-based compensation and (ii) legal and other professional fees compared to the same period in 2021.

The increase was partially offset by lower D&O insurance expenses and reductions in other personnel costs.

For the six months ended June 30, 2022, general and administrative expenses increased by $0.1 million, or 0.4%, compared to the equivalent 2021 period.

The increase was due primarily to higher expenses relating to (i) stock-based

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compensation, and (ii) legal and other professional fees.

The increase was partially offset by lower D&O insurance expenses and personnel costs.

For the six months ended June 30, 2022, and 2021, general and administrative expenses included $2.1 million and $1.6 million, respectively, of costs related to stock compensation granted to employees and directors.

Total Investment Income (Loss)

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A summary of our total investment income (loss) is as follows:

Three months ended March 31

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

($ in thousands)

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No performance compensation is allocated in periods of loss reported by SILP.

For detailed breakdowns of management fees and performance compensation for the three months ended March 31, 2022 and 2021, please refer to Note 3 of the condensed consolidated financial statements.

For the three months ended March 31, 2022, the Investment Portfolio managed by DME Advisors reported a gain of 1.7%, compared to a gain of 1.5% for the three months ended March 31, 2021.

The long portfolio lost 6.0%, while the short portfolio and macro positions gained 4.9% and 3.5%, respectively, during the three months ended March 31, 2022.

For the three months ended March 31, 2022, the most significant contributors to SILP’s investment return were long positions in Rheinmetall AG (RHM GY), Teck Resources (TECK), and The Chemours Company (CC).

During the three months ended March 31, 2022, the most significant detractors were Green Brick Partners (GRBK), Capri Holdings (CPRI), and various short positions.

During the three months ended March 31, 2022, we recorded a net unrealized gain of $3.9 million on our portfolio of Innovations-related investments.

For the three months ended March 31, 2022, and 2021, the gross investment return (loss) on our investments managed by DME Advisors (excluding investment advisor performance allocation) was composed of the following:

Three months ended March 31

For detailed breakdowns of management fees and performance compensation for the three and six months ended June 30, 2022 and 2021, please refer to Note 3 of the condensed consolidated financial statements.

For the three months ended June 30, 2022, the Investment Portfolio managed by DME Advisors reported a gain of 4.9%, compared to a loss of 0.9% for the three months ended June 30, 2021.

SILP’s long portfolio lost 10.0%, while the short portfolio and macro positions gained 15.3% and 0.7%, respectively, during the three months ended June 30, 2022.

For the three months ended June 30, 2022, the significant contributors to SILP’s investment return were short positions in the S&P 500 index and a consumer cyclical company and a macro position on a high-yield bond index.

The largest detractors were long positions in Brighthouse Financial and The ODP Corp, and a macro position in gold.

For the six months ended June 30, 2022, the Investment Portfolio managed by DME Advisors reported a gain of 6.7%, compared to a gain of 0.5% for the six months ended June 30, 2021.

The long portfolio lost 15.8%, while the short portfolio and macro positions gained 20.2% and 4.1%, respectively, during the six months ended June 30, 2022.

For the six months ended June 30, 2022, the most significant contributors to SILP’s investment return were short positions in the S&P 500 index and a basket of overvalued stocks and a macro position on a high-yield bond index For the six months ended June 30, 2022, the most significant detractors were long positions in Brighthouse Financial, Green Brick Partners, and Atlas Air Worldwide.

During the three and six months ended June 30, 2022, some of our Innovations-related investees completed new financing rounds contributing to a net unrealized gain of $5.3 million and $9.2 million, respectively.

The unrealized gains are net of a $2.2 million valuation allowance recorded during the three and six months ended June 30, 2022 on certain Innovations-related investments.

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For the three months ended June 30, 2022, and 2021, the gross investment return (loss) on our investments managed by DME Advisors (excluding investment advisor performance allocation) was composed of the following:

Three months ended June 30 Six months ended June 30

2022 2021 2022 2021

Long portfolio gains (losses) (10.0) % 4.2 % (15.8) % 16.0 %

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Other income and expenses 1

(0.5) (0.5) (1.1) (1.0)

Gross investment return 5.5 % (1.0) % 7.4 % 0.6 %

Net investment return 1

4.9 % (0.9) % 6.7 % 0.5 %

1 “Other income and expenses” excludes performance compensation but includes management fees.

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Effective January 1, 2021, the Investment Portfolio is calculated based on 50% of GLRE Surplus, or the Company’s shareholders’ equity, as reported in the Company’s then most recent quarterly U.S.

GAAP financial statements.

It is adjusted

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monthly for our share of the net profits and net losses reported by SILP during any intervening period.

GAAP financial statements, adjusted monthly for our share of the net profits and net losses reported by SILP during any intervening period.

Prior to January 1, 2021, the Investment Portfolio was calculated based on several factors, including our share of SILP’s net asset value and our posted collateral and net reserves.

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We expect Verdant’s future taxable income to be taxed at 21%.

At March 31, 2022, we have included a gross deferred tax asset of $3.8 million (December 31, 2021:

At June 30, 2022, we have included a gross deferred tax asset of $3.5 million (December 31, 2021:

$3.2 million) in the caption “Other assets” in the Company’s condensed consolidated balance sheets.

At March 31, 2022, a valuation allowance of $3.3 million (December 31, 2021:

At June 30, 2022, a valuation allowance of $3.0 million (December 31, 2021:

$2.7 million) partially offset this gross deferred tax asset.

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Total investments

The total investments reported in the condensed consolidated balance sheets at March 31, 2022, was $205.7 million, compared to $231.0 million at December 31, 2021,a decrease of $25.3 million, or 11.0%.

The decrease was primarily related to net redemptions from SILP which were used primarily to fund collateral required by our ceding insurers.

New Innovations-related investments, and the gains from SILP and the Innovations-related investments partially offset the decrease.

At March 31, 2022, 92.5% of SILP’s portfolio was valued based on quoted prices in actively traded markets (Level 1), 4.9% was composed of instruments valued based on observable inputs other than quoted prices (Level 2), and 0.2% was composed of instruments valued based on non-observable inputs (Level 3).

At March 31, 2022, 2.4% of SILP’s portfolio consisted of private equity funds valued using the funds’ net asset values as a practical expedient.

At March 31, 2022, our Innovations-related investments did not have readily determinable fair values and were carried at their original cost minus impairment plus changes resulting from observable price changes.

The total investments reported in the condensed consolidated balance sheets at June 30, 2022, was $255.1 million, compared to $231.0 million at December 31, 2021,an increase of $24.1 million, or 10.4%.

The increase was primarily related to gains on SILP and Innovations-related investments and purchase of certificates of deposit.

The increase was partially offset by net redemptions from SILP.

At June 30, 2022, 91.4% of SILP’s portfolio was valued based on quoted prices in actively traded markets (Level 1), 5.3% was composed of instruments valued based on observable inputs other than quoted prices (Level 2), and 0.4% was composed of instruments valued based on non-observable inputs (Level 3).

At June 30, 2022, 2.9% of SILP’s portfolio consisted of private equity funds valued using the funds’ net asset values as a practical expedient.

At June 30, 2022, 88% of our

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Innovations-related portfolio was carried at fair value on a nonrecurring basis, measured as of the investees’ most recent completed financing round, and 12% was carried at original cost.

Other than our investment in SILP (see Notes 3 of the accompanying condensed consolidated financial statements), we have not participated in transactions that created relationships with unconsolidated entities or financial partnerships, including VIEs, established to facilitate off-balance sheet arrangements.

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Restricted cash and cash equivalents

The unrestricted cash and cash equivalents decreased by $45.0 million, or 58.9%, from $76.3 million at December 31, 2021, to $31.3 million at March 31, 2022, primarily due to collateral posted to our ceding insurers.

The unrestricted cash and cash equivalents decreased by $48.3 million, or 63.3%, from $76.3 million at December 31, 2021, to $28.0 million at June 30, 2022, primarily due to collateral posted to our ceding insurers, and partially due to purchase of certificates of deposit.

We use our restricted cash and cash equivalents for funding trusts and letters of credit issued to our ceding insurers.

Our restricted cash increased by $66.6 million, or 10.5%, from $634.8 million at December 31, 2021, to $701.4 million, at March 31, 2022, primarily due to collateral required by our ceding insurers.

Our restricted cash increased by $34.8 million, or 5.5%, from $634.8 million at December 31, 2021, to $669.6 million at June 30, 2022, primarily due to collateral required by our ceding insurers.

The increase in collateral was partially funded from withdrawals from SILP and partially from unrestricted cash and cash equivalents.

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Reinsurance balances receivable

During the three months ended March 31, 2022, reinsurance balances receivable increased by $36.3 million, or 8.9%, to $441.6 million from $405.4 million at December 31, 2021.

This increase was related primarily to increases in (i) premiums receivable on new contracts bound during the first quarter of 2022 and (ii) funds withheld on reinsurance contracts with Lloyd’s syndicates.

During the six months ended June 30, 2022, reinsurance balances receivable increased by $40.9 million, or 10.1%, to $446.3 million from $405.4 million at December 31, 2021.

This increase was related primarily to increases in (i) premiums receivable on new contracts bound during the first half of 2022 and (ii) premium withheld by Lloyd’s syndicates on contracts in which we participate.

Loss and Loss Adjustment Expense Reserves;

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Reserves for loss and loss adjustment expenses were composed of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Reserves IBNR Total Case

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Total $ 182,624 $ 343,821 $ 526,445 $ 190,220 $ 333,790 $ 524,010

During the three months ended March 31, 2022, the total gross loss and loss adjustment expense reserves increased by $25.1 million, or 4.8%, to $549.1 million from $524.0 million at December 31, 2021.

During the six months ended June 30, 2022, the total gross loss and loss adjustment expense reserves increased by $2.4 million, or 0.5%, to $526.4 million from $524.0 million at December 31, 2021.

See Note 5 of the accompanying condensed consolidated financial statements for a summary of changes in outstanding loss and loss adjustment expense reserves and a description of prior period loss developments.

During the three months ended March 31, 2022, the total loss and loss adjustment expenses recoverable decreased by $0.3 million, or 2.4%, to $11.4 million from $11.1 million at December 31, 2021.

During the six months ended June 30, 2022, the total loss and loss adjustment expenses recoverable decreased by $1.7 million, or 15.1%, to $9.4 million from $11.1 million at December 31, 2021.

See Note 6 of the accompanying condensed consolidated financial statements for a description of the credit risk associated with our retrocessionaires.

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We anticipate that our PMLs will vary from period to period depending upon the modeled simulated losses and the composition of our in-force book of business.

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We monitor our natural peril PMLs on a worldwide basis, with a particular focus on our peak peril regions.

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Our PML estimates incorporate all significant exposure from our reinsurance operations, including coverage for property, marine and energy, motor, and catastrophe workers’ compensation.

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At April 1, 2022, our estimated largest PML (net of retrocession and reinstatement premiums) at a 1-in-250 year return period for a single event and in aggregate was $87.6 million and $95.9 million, respectively, both relating to the peril of North Atlantic Hurricane.

At July 1, 2022, our estimated largest PML (net of retrocession and reinstatement premiums) at a 1-in-250 year return period for a single event and in aggregate was $87.6 million and $95.9 million, respectively, both relating to the peril of North Atlantic Hurricane.

The below table contains the expected modeled loss for each of our peak peril regions and sub-regions, for both a single event loss and aggregate loss measures at the 1-in-250 year return period.

April 1, 2022

Net 1-in-250 Year Return Period

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Total shareholders’ equity

Total equity reported on the condensed consolidated balance sheet decreased by $7.3 million to $468.4 million at March 31, 2022, compared to $475.7 million at December 31, 2021.

The decrease in shareholders’ equity during the three months ended March 31, 2022, was primarily due to (i) the adoption of ASU 2020-06 (see Note 2 of the accompanying condensed consolidated financial statements) and (ii) the net loss of $5.7 million reported for the period.

For details of other movements in shareholders’ equity, see the “Condensed Consolidated Statements of Shareholders’ Equity.”

Total equity reported on the condensed consolidated balance sheet increased by $8.6 million to $484.3 million at June 30, 2022, compared to $475.7 million at December 31, 2021.

The increase in shareholders’ equity during the six months ended June 30, 2022, was primarily due to the net income of $9.1 million reported for the period, partially offset by the adoption of ASU 2020-06 (see Note 2 of the accompanying condensed consolidated financial statements).

For details of other movements in shareholders’ equity, please see the “Condensed Consolidated Statements of Shareholders’ Equity.”

Liquidity and Capital Resources

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We currently do not expect to pay dividends on our ordinary shares.

At March 31, 2022, Greenlight Re and GRIL were each rated “A- (Excellent)” with a stable outlook by A.M.

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At June 30, 2022, Greenlight Re and GRIL were each rated “A- (Excellent)” with a stable outlook by A.M.

The ratings reflect A.M.

1 unchanged sentence

They are not evaluations directed toward the protection of investors or a recommendation to buy, sell or hold our Class A ordinary shares.

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Sources and Uses of Funds

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We use cash from our operations to pay losses and loss adjustment expenses, profit commissions, interest, and general and administrative expenses.

At March 31, 2022, all of our investable assets, excluding strategic and Innovations investments and funds required for business operations and capital risk management, are invested by DME Advisors in SILP, subject to our investment guidelines.

At June 30, 2022, all of our investable assets, excluding strategic and Innovations investments and funds required for business operations and capital risk management, are invested by DME Advisors in SILP, subject to our investment guidelines.

We can redeem funds from SILP at any time for operational purposes by providing three days’ notice to the general partner.

At March 31, 2022, the majority of SILP’s long investments were composed of cash and cash equivalents and publicly traded equity securities, which can be readily liquidated to meet our redemption requests.

At June 30, 2022, the majority of SILP’s long investments were composed of cash and cash equivalents and publicly traded equity securities, which can be readily liquidated to meet our redemption requests.

We record all investment income (loss), including any changes in the net asset value of SILP, and any unrealized gains and losses, in our condensed consolidated statements of operations for each reporting period.

For the three months ended March 31, 2022 and 2021, the net cash used in operating activities was $11.6 million and $18.7 million, respectively.

The net cash used in operating activities was used primarily for our underwriting activities and for payment of corporate and general administrative expenses for the three months ended March 31, 2022 and 2021.

For the six months ended June 30, 2022 and 2021, the net cash used in operating activities was $14.0 million and $19.8 million, respectively.

The net cash used in operating activities was used primarily for our underwriting activities and for payment of corporate and general administrative expenses for the six months ended June 30, 2022 and 2021.

Generally, if the premiums collected exceed claim payments within a given period, we generate cash from our underwriting activities.

Our underwriting activities represented a net use of cash for the three months ended March 31, 2022 and 2021, as the losses we paid exceeded the premiums we collected.

Our underwriting activities represented a net use of cash for the six months ended June 30, 2022 and 2021, as the losses we paid exceeded the premiums we collected.

On our Lloyd’s syndicate contracts we do not receive any premiums until the year of account is settled, net of losses, at the end of three years.

The cash used in, and generated from, underwriting activities may vary significantly from period to period depending on the underwriting opportunities available and claims submitted to us by our cedents.

For the three months ended March 31, 2022, our investing activities provided $36.7 million of cash from redemptions from SILP (net of contributions) and used $3.4 million for new Innovations investments.

By comparison, for the same period in 2021 our investing activities used cash of $4.3 million.

For the three months ended March 31, 2022 and 2021, there were no financing activities.

At March 31, 2022, we believe we have sufficient cash flow from operating and investing activities to meet our foreseeable liquidity requirements.

Our Lloyd’s syndicate business has been growing in recent years, contributing to the net use of cash for underwriting activities.

The cash used in, and generated from, underwriting activities may vary significantly from period to period depending on the mix of business, the nature of underwriting opportunities available and volume of claims submitted to us by our cedents.

For the six months ended June 30, 2022, our investing activities provided $10.3 million of cash from redemptions from SILP (net of contributions) and used $9.7 million for new Innovations and other investments.

By comparison, for the same period in 2021 our investing activities provided cash of $17.2 million.

For the six months ended June 30, 2022, there were no financing activities compared to the same period in 2021 where we used $6.7 million to repurchase our Class A ordinary shares.

At June 30, 2022, we believe we have sufficient liquidity to meet our foreseeable financial requirements.

We do not expect that the recent global events, including the Russian-Ukrainian conflict and the COVID-19 pandemic, will materially impact our operational liquidity needs, which will be met by cash, funds generated from underwriting activities, and investment income, including withdrawals from SILP if necessary.

At March 31, 2022, we expect to fund our operations for the next twelve months from operating and investing cash flow.

However, we may explore various financing options, including capital raising alternatives, to fund our business strategy, improve our capital structure, increase surplus, pay claims or make acquisitions.

At June 30, 2022, we expect to fund our operations for the next twelve months from operating and investing cash flow.

However, we may explore various financing options, including debt refinancing and other capital raising alternatives, to fund our business strategy, improve our capital structure, increase surplus, pay claims or make acquisitions.

We can provide no assurances regarding the terms of such transactions or that any such transactions will occur.

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In addition, any dividend payment would have to be approved by the relevant regulatory authorities prior to payment.

At March 31, 2022, Greenlight Re and GRIL exceeded their regulatory minimum capital requirements.

At June 30, 2022, Greenlight Re and GRIL exceeded their regulatory minimum capital requirements.

Letters of Credit and Trust Arrangements

At March 31, 2022, neither Greenlight Re nor GRIL was licensed or admitted as a reinsurer in any jurisdiction other than the Cayman Islands and the European Economic Area, respectively.

At June 30, 2022, neither Greenlight Re nor GRIL was licensed or admitted as a reinsurer in any jurisdiction other than the Cayman Islands and the European Economic Area, respectively.

Many jurisdictions do not permit domestic insurance companies to take credit on their statutory financial statements for loss recoveries or ceded unearned premiums unless appropriate measures are in place for reinsurance obtained from unlicensed or non-admitted insurers.

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clients will require us to provide collateral through funds withheld, trust arrangements, letters of credit, or a combination thereof.

At March 31, 2022, we had one letter of credit facility available with an aggregate capacity of $275.0 million (December 31, 2021:

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At June 30, 2022, we had one letter of credit facility available with an aggregate capacity of $275.0 million (December 31, 2021:

$275.0 million).

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We provide collateral to cedents in the form of letters of credit and trust arrangements.

At March 31, 2022, the aggregate amount of collateral provided to cedents under such arrangements was $700.6 million (December 31, 2021:

At June 30, 2022, the aggregate amount of collateral provided to cedents under such arrangements was $668.8 million (December 31, 2021:

$633.9 million).

At March 31, 2022, the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of $701.4 million (December 31, 2021:

At June 30, 2022, the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of $669.6 million (December 31, 2021:

$634.8 million).

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The letter of 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 would be prohibited from paying dividends to its parent company.

The Company was in compliance with all the covenants of this facility at March 31, 2022.

The Company was in compliance with all the covenants of this facility at June 30, 2022.

Our capital structure currently consists of senior convertible notes and equity issued in two classes of ordinary shares.

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In addition, as noted above, we may explore various financing alternatives, although there can be no assurance that additional financing will be available on acceptable terms when needed or desired.

We did not make any significant commitments for capital expenditures during the three months ended March 31, 2022.

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.

On April 26, 2022, the Board of Directors renewed and extended the share repurchase plan until June 30, 2023.The Company is not required to repurchase any Class A ordinary shares, and the repurchase plan may be modified, suspended, or terminated at the election of our Board of Directors at any time without prior notice.

During the three months ended March 31, 2022, the Company repurchased no Class A ordinary shares.

We did not make any significant commitments for capital expenditures during the six months ended June 30, 2022.

The Board of Directors had previously approved a share repurchase plan 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.

On April 26, 2022, the Board of Directors renewed and extended the share repurchase plan until June 30, 2023.

The Company is not required to repurchase any Class A ordinary shares, and the repurchase plan may be modified, suspended, or terminated at the election of our Board of Directors at any time without prior notice.

During the six months ended June 30, 2022, the Company repurchased no Class A ordinary shares.

Under the Company’s stock incentive plan, the number of Class A ordinary shares authorized for issuance is 8.0 million shares.

At March 31, 2022, 2,092,276 Class A ordinary shares were available for future issuance under the Company’s stock incentive plan.

At June 30, 2022, 2,119,189 Class A ordinary shares were available for future issuance under the Company’s stock incentive plan.

The Compensation Committee of the Board of Directors administers the stock incentive plan.

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Due to the nature of our reinsurance operations, the amount and timing of the cash flows associated with our reinsurance contractual liabilities will fluctuate, perhaps materially, and, therefore, are highly uncertain.

At March 31, 2022, we estimate that we will pay the loss and loss adjustment expense reserves as follows:

At June 30, 2022, we estimate that we will pay the loss and loss adjustment expense reserves as follows:

1 year 1-3 years 3-5 years More than

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The aggregate annual lease obligation ranges from $0.5 million to $0.6 million.

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The Company has $100.0 million of senior convertible notes payable, which mature on August 1, 2023.

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The IAA has an initial term ending on August 31, 2023, subject to automatic extension for successive three-year terms.

Pursuant to the SILP

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LPA, DME II is entitled to a performance allocation equal to 20% of the net profit, calculated per annum, of each limited partner’s share of the capital account managed by DME Advisors, subject to a loss carry-forward provision.

Pursuant to the SILP LPA, DME II is entitled to a performance allocation equal to 20% of the net profit, calculated per annum, of each limited partner’s share of the capital account managed by DME Advisors, subject to a loss carry-forward provision.

DME II is not entitled to earn a performance allocation in a year in which SILP incurs a loss.

The loss carry-forward provision contained in the SILP LPA allows DME II to earn reduced performance allocation of 10% of net profits in years subsequent to the year in which the capital accounts of the limited partners incur a loss, until all losses are recouped and an additional amount equal to 150% of the loss is earned.

At March 31, 2022, we estimate the reduced performance allocation of 10% to continue to be applied until SILP achieves additional investment returns of 173%, at which point the performance allocation will revert to 20%.

For detailed breakdowns of management fees and performance compensation for the three months ended March 31, 2022 and 2021, please refer to Note 3 of the condensed consolidated financial statements.

At June 30, 2022, we estimate the reduced performance allocation of 10% to continue to be applied until SILP achieves additional investment returns of 176%, at which point the performance allocation will revert to 20%.

The Company has entered into a service agreement with DME Advisors pursuant to which DME Advisors will provide investor relations services to us for compensation of $5,000 per month plus expenses.

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Effects of Inflation

Inflation generally affects the cost of claims and claim expenses, as well as asset values in our investment portfolio.

Our pricing and reserving models incorporate the anticipated effects of inflation on our claim costs.

Inflation generally affects the cost of claims and claim expenses.

Long-tailed lines of business generally have greater exposure to inflation than short-tailed lines, with this differential becoming more pronounced as the severity of inflation increases.

Our underwriting portfolio is predominantly short-tailed, and we actively manage our exposures to classes that experience significant inflation.

Our pricing and reserving models incorporate the anticipated effects of inflation on our claim costs, and we regularly review and update our assumptions.

However, we cannot predict or estimate the onset, duration, and severity of an inflationary period with precision.

The actual effect of inflation may differ significantly from our estimate.

The actual effect of inflation may differ significantly from our assumptions.

Inflation can also affect the asset values in SILP’s investment portfolio.

DME Advisors regularly monitors and re-positions SILP’s investment portfolio to deal with the impact of inflation on its underlying investments, and holds macro positions to benefit from a rising inflationary environment.

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.

What changed 10-Q

Item 2. Management’s Discussion and Analysis