What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-02 · 231 added, 216 removed, 480 unchanged (48% of the section changed)

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(“GLRE”) and its wholly-owned subsidiaries, Greenlight Reinsurance, Ltd, (“Greenlight Re”), Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”), Greenlight Re Marketing (UK) Limited (“Greenlight Re UK”), and Verdant Holding Company, Ltd.

(“Verdant”), unless the context dictates otherwise.

(“Verdant”), as well as Greenlight Innovation Syndicate 3456 (“Syndicate 3456”), unless the context dictates otherwise.

References to our “Ordinary Shares” refer collectively to our Class A Ordinary Shares and Class B Ordinary Shares.

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 six months ended June 30, 2022 and 2021 and financial condition at June 30, 2022 and December 31, 2021.

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

Special Note About Forward-Looking Statements

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Our investment portfolio is managed according to a value-oriented philosophy, in which our investment advisor takes long positions in perceived undervalued securities and short positions in perceived overvalued securities.

Through Greenlight Re Innovations, we support technology innovators in the (re)insurance market by providing investment, risk capacity, and access to a broad insurance network.

Through Greenlight Re Innovations, we support technology innovators in the (re)insurance market by providing investment capital, risk capacity, and access to a broad insurance network.

Because we seek to capitalize on favorable market conditions and opportunities, period-to-period comparisons of our underwriting results may not be meaningful.

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Outlook and Trends

In February 2022, the Russian army commenced military actions against Ukraine.

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 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 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.

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.

We operate in a business where we expect volatility in our underwriting results.

Hurricane Ian, which struck the southeast U.S.

in September, 2022, is likely to prove one of the costliest natural disasters ever in terms of insured losses.

This storm, along with the Russian-Ukraine conflict and several smaller events, have combined to make the first nine months of 2022 another challenging period for companies that participate in the global reinsurance market.

We were not immune from these events;

our combined ratio for the nine months ended September 30, 2022, was 104.8%.

Further, 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.

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

The continuing widespread inflation 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.

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• 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 13% of our net premiums written in the first half of 2022.

The combination of the recent loss events, continued inflation and rising interest rates have led to a significant reduction in the amount of reinsurance capital available for deployment.

As we approach the January 1 renewal season, we see market conditions that we consider more favorable than any we have experienced in more than a decade.

Additionally, 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 12% of our net premiums written in the first nine months of 2022.

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

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

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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:

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

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

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

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Increase (decrease) in fully diluted book value per share (%) (3.9) % 3.3 % (2.4) % 4.2 % (2.6) %

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(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:

At September 30, 2022, the aggregate number of unearned restricted shares with performance conditions not included in the “basic” and “fully diluted” denominators was 732,310 (June 30, 2022:

754,076, March 31, 2022:

774,742, December 31, 2021:

193,149, September 30, 2021:

193,149, June 30, 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

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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.

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.

The measure excludes, on a recurring basis:

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

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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Results of Operations

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

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

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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Net income (loss) $ (18,469) $ (13,853) $ (9,408) $ (6,726)

Earnings (loss) per share

Earnings (loss) per share (Class A and Class B)

Basic $ (0.56) $ (0.42) $ (0.28) $ (0.20)

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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 $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:

* 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 $2.9 million and a gain of $0.2 million for the three months ended September 30, 2022, and 2021, respectively, and losses of $9.0 million and $3.2 million for the nine months ended September 30, 2022, and 2021, respectively.

Three months ended September 30, 2022, and 2021

For the three months ended September 30, 2022, the fully diluted book value per share decreased by $0.55 per share, or 3.9%, to $13.55 per share from $14.10 per share at June 30, 2022.

For the three months ended September 30, 2022, basic book value per share decreased by $0.56 per share, or 3.9%, to $13.62 per share from $14.18 per share at June 30, 2022.

For the three months ended September 30, 2022, our net loss was $18.5 million, compared to a net loss of $13.9 million reported for the equivalent 2021 period.

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

• Underwriting:

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.

The underwriting loss for the three months ended September 30, 2022, was $18.9 million.

This underwriting loss included $19.5 million of losses estimated from Hurricane Ian and $3.2 million from Typhoons Nanmadol and Hinnamnor.

By comparison, the equivalent period in 2021 reported an underwriting loss of $12.6 million, which included $25.9 million of catastrophe losses from Hurricane Ida, the European floods and hailstorms, and South African riots.

The underwriting loss for the three months ended September 30, 2022, also included $6.1 million of expense relating to deposit-accounted contracts.

Our combined ratio was 115.4% for the three months ended September 30, 2022, compared to 109.3% during the equivalent 2021 period.

The catastrophe losses and the expense relating to deposit-accounted contracts contributed 23.6 percentage points to the combined ratio for the three months ended September 30, 2022.

• Investments:

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.

Our total investment income for the three months ended September 30, 2022, was $11.6 million, compared to total investment income of $4.1 million reported for the same period in 2021.

Our investment in SILP reported a gain of $8.5 million during the three months ended September 30, 2022, compared to a loss of $6.2 million during the equivalent period in 2021.

Other investment income totaled $3.0 million and $10.3 million during the three months ended September 30, 2022, and 2021, respectively.

• 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.

For the three months ended September 30, 2022, we incurred $6.8 million of other non-underwriting expenses, primarily as a result of foreign exchange losses.

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

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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:

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

Nine months ended September 30, 2022, and 2021

For the nine months ended September 30, 2022, fully diluted book value per share decreased by $0.44, or 3.1%, to $13.55 per share from $13.99 per share at December 31, 2021.

For the nine months ended September 30, 2022, basic book value per share decreased by $0.43, or 3.1%, to $13.62 per share from $14.05 per share at December 31, 2021.

The decrease in fully diluted book value per share during the nine months ended September 30, 2022, included $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 nine months ended September 30, 2022, our net loss was $9.4 million, compared to a net loss of $6.7 million reported for the equivalent 2021 period.

The developments that most significantly affected our financial performance during the nine months ended September 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.

The underwriting loss for the nine months ended September 30, 2022, was $17.2 million, driven primarily by $13.6 million of losses related to the Russian-Ukrainian conflict and $25.5 million of losses related to Hurricane Ian, Typhoon Nanmadol, and wildfires in Tennessee.

By comparison, the underwriting loss for the equivalent period in 2021 was $10.0 million, driven by losses from Hurricane Ida, the winter storm Uri, the European floods and hailstorms, and South African riots.

Our combined ratio was 104.8% for the nine months ended September 30, 2022, compared to 102.4% for the same period in 2021.

The Russian-Ukrainian conflict and natural catastrophe losses contributed 10.9 percentage points to the combined ratio for the nine months ended September 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.

Our total investment income for the nine months ended September 30, 2022, was $36.5 million, compared to $24.8 million earned during the equivalent 2021 period.

For the nine months ended September 30, 2022, our investment in SILP reported a gain of $24.5 million, compared to a loss of $4.2 million during the equivalent period in 2021.

Other investment income totaled $12.0 million and $29.0 million during the nine months ended September 30, 2022, and 2021, respectively.

• 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.

For the nine months ended September 30, 2022, other expense of $13.4 million was driven primarily by the mark-to-market adjustments and foreign exchange losses for the reasons explained above for the three months ended September 30, 2022.

Underwriting results

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

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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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.

For the three months ended September 30, 2022, our gross premiums written increased by $26.4 million, or 20.5%, compared to the equivalent 2021 period.

The primary drivers for this change are the following:

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Gross Premiums Written

Three months ended June 30, 2022

Three months ended September 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.

Property $6.9 52.5% The increase in property gross premiums written during the three months ended September 30, 2022, over the comparable 2021 period was due primarily to personal lines business, driven by the growth of our Innovations partners.

Our decision to reduce or terminate our participation in certain motor business partially offset this increase.

Casualty $6.6 7.8% The increase in casualty gross premiums written during the three months ended September 30, 2022, over the comparable 2021 period was due primarily to new contracts bound during 2022 relating to general liability and multi-line business.

The growth in Lloyd’s syndicate business was also a significant driver of the increase in casualty gross premiums written.

Our decision to reduce or terminate our participation in certain motor business partially offset this increase.

Other $12.9 41.7% The increase in “other” gross premiums written during the three months ended September 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 growth in financial lines was driven primarily by an increase in transactional liability business.

For the nine months ended September 30, 2022, our gross premiums written decreased by $4.4 million, or 1.0%, compared to the equivalent 2021 period.

The primary drivers of this change are the following:

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Gross Premiums Written

Six months ended June 30, 2022

Nine months ended September 30, 2022

Increase (decrease)

($ in millions) % change Explanation

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;

Property $14.3 32.1% The increase in property gross premiums written during the nine months ended September 30, 2022, over the comparable 2021 period was due primarily to personal lines business, as discussed above.

Our decision to reduce or terminate our participation in certain motor business partially offset this increase.

Casualty $(52.7) (17.5)% The decrease in casualty premiums written during the nine months ended September 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.

Growth in general liability and multi-line premiums, driven by new and renewed Lloyd’s and Innovations-related business, partially offset the decrease in casualty premiums.

Other $34.0 35.9% The increase in “other” premiums written during the nine months ended September 30, 2022, over the comparable 2021 period was due primarily to the following:

• increased financial lines business, including transactional liability contracts;

• new marine and energy contracts bound during 2022;

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

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

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

Premiums Ceded

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.

For the three and nine months ended September 30, 2022, premiums ceded were $8.8 million and $22.0 million, respectively, compared to insignificant premiums ceded for the three and nine months ended September 30, 2021.

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

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

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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Total $ 146,345 100.0 % $ 128,675 100.0 % $ 413,839 100.0 % $ 440,243 100.0 %

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.

For the three and nine months ended September 30, 2022, net premiums written increased by $17.7 million, or 13.7%, and decreased by $26.4 million, or 6.0%, respectively, compared to the three and nine months ended September 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 June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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Total $ 94,559 100.0 % $ 110,400 100.0 % $ 252,789 100.0 % $ 295,078 100.0 %

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

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

Three months ended September 30 Nine months ended September 30

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

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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:

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

Net Losses Incurred

Three months ended June 30, 2022

Three months ended September 30, 2022

Increase (decrease)

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

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.

Property $(1.9) 18.2 The decrease in property losses incurred during the three months ended September 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 business and losses from Hurricane Ian and Typhoons Nanmadol and Hinnamnor partially offset the decrease.

The property loss ratio increased 18.2 percentage points during the three months ended September 30, 2022, over the equivalent 2021 period, due primarily to losses from Hurricane Ian and Typhoons Nanmadol and Hinnamnor.

Casualty $(9.3) (0.2) The decrease in losses incurred during the three months ended September 30, 2022, over the comparable 2021 period was due primarily to reductions in motor and workers’ compensation exposures.

Partially offsetting the decrease were losses driven by the following:

• Hurricane Ian;

• new and renewed multi-line contracts;

• adverse prior-year development

The casualty loss ratio decreased 0.2 percentage points during the three months ended September 30, 2022, over the equivalent 2021 period, due primarily to changes in our business mix.

Our underlying casualty loss ratios have improved as we significantly reduced our motor and workers’ compensation exposures and increased our multi-line business.

However, losses from Hurricane Ian on certain multi-line contracts mostly offset the improvement in the casualty loss ratio.

Other $(4.7) (17.4) The decrease in “other” losses incurred during the three months ended September 30, 2022, over the comparable 2021 period was due primarily to the following:

• our decision to reduce or terminate our participation in certain health and crop contracts;

• losses incurred during the comparable 2021 period from South African riots and Hurricane Ida.

Increased losses on marine and energy contracts and our growing transactional liability business partially offset this overall decrease.

The “other” loss ratio decreased 17.4 percentage points during the three months ended September 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:

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

Net Losses Incurred

Six months ended June 30, 2022

Nine months ended September 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.

Property $(5.0) (0.9) Our decision to reduce or terminate our participation in certain motor business was the primary driver of the decrease in property losses incurred during the nine months ended September 30, 2022, compared to the same period in 2021.

The decrease was partially offset by losses relating to the following:

• our growing personal lines portfolio;

• catastrophes that occurred during 2022, including Hurricane Ian, Typhoons Nanmadol and Hinnamnor, and Tennessee wildfires.

The property loss ratio decreased 0.9 percentage points during the nine months ended September 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.

Catastrophe losses partially offset the decrease.

Casualty $(39.7) (5.6) Our decision to reduce or terminate our participation in certain motor business was the primary driver of the decrease in casualty losses incurred during the nine months ended September 30, 2022, compared to the same period in 2021.

The decrease was partially offset by higher incurred losses in our Lloyd’s syndicate business relating to the following:

• Hurricane Ian;

• general liability and multi-line contracts.

Additionally, the prior period incurred losses included losses from winter storm Uri.

The casualty loss ratio decreased 5.6 percentage points during the nine months ended September 30, 2022, over the equivalent 2021 period, due primarily to changes in our business mix.

We increased our general liability and multi-line business, which generally incorporates lower loss ratios than the motor and workers’ compensation business it replaced.

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

Other $2.5 5.1 The increase in “other” losses incurred during the nine months ended September 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:

The increase was partially offset by the following:

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

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• 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.

The “other” loss ratio increased 5.1 percentage points during the nine months ended September 30, 2022, over the equivalent 2021 period, due primarily to the reasons described above.

Russian-Ukrainian Conflict

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Our loss and loss adjustment expenses from the Russian-Ukrainian conflict relate primarily to marine, energy, political violence, and terrorism (“MEPVT”) policies and whole account contracts, all of which are included in our Specialty book of business.

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

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

As of September 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.

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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.

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Details of acquisition costs are provided in the following table:

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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Total $ 36,821 100.0 % $ 35,048 100.0 % $ 106,101 100.0 % $ 106,060 100.0 %

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

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

Three months ended September 30 Nine months ended September 30

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

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Total 30.2 % 25.9 % 4.3 % 29.6 % 26.3 % 3.3 %

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:

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

Change in Acquisition Cost Ratios

Three months ended June 30, 2022

Three months ended September 30, 2022

Increase / (decrease) in acquisition cost ratio points Explanation

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;

Property (2.6) The decrease in the property acquisition cost ratio during the three months ended September 30, 2022, over the comparable 2021 period, was due primarily to a change in our business mix.

During the 2022 period, a higher proportion of the property business we wrote related to excess of loss contracts, which incorporate lower commissions than the quota share contracts that comprised a larger proportion of the business we wrote during the third quarter of 2021.

Casualty 5.5 The increase in the casualty acquisition cost ratio during the three months ended September 30, 2022, over the comparable 2021 period, was due primarily to changes in our business mix.

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

Other 3.4 The increase in the “other” acquisition cost ratio during the three months ended September 30, 2022, over the comparable 2021 period was due primarily to the following:

• 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:

The changes in the acquisition cost ratios during the nine months ended September 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

Nine months ended September 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.

Property 1.4 The year-to-date increase was driven by the higher ceding commissions on the growing personal property quota share contracts relative to the shrinking motor business.

Casualty 2.7 The year-to-date increase was driven by the same trends as those discussed above in reference to the third quarter.

Other 5.2 The year-to-date increase was driven by the same trends as those discussed above in reference to the third quarter.

A decrease in health business, which generally carries relatively low ceding commissions, was an additional driver of the increase.

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

Three months ended June 30 Three months ended June 30

Three months ended September 30 Three months ended September 30

Property Casualty Other Total Property Casualty Other Total

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Combined ratio 115.4 % 109.3 %

Six months ended June 30 Six months ended June 30

Nine months ended September 30 Nine months ended September 30

Property Casualty Other Total Property Casualty Other Total

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Combined ratio 104.8 % 102.4 %

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.

The higher underwriting expense ratio for the three months ended September 30, 2022, compared to the same period in 2021, was due to the following:

• interest expense on deposit-accounted contracts based on revised expectations of ultimate cash flows;

• lower net earned premiums compared to the same period in 2021;

• expenses related to forming and managing Syndicate 3456;

• share-based compensation expenses.

The underwriting expense ratio for the three and nine months ended September 30, 2022, included 5.0 and 1.7 percentage points, respectively, (2021:

nil and 0.7 percentage points, respectively) relating to expense on deposit-accounted contracts based on revised expectations of ultimate cash flows.

Excluding deposit-accounted contracts, the higher underwriting expense ratio for the nine months ended September 30, 2022, compared to the same period in 2021, was due to the same reasons provided above for the three-month period.

General and Administrative Expenses

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

Three months ended June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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General and administrative expenses $ 7,389 $ 6,060 $ 22,727 $ 21,340

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

For the three months ended September 30, 2022, general and administrative expenses increased by $1.3 million, or 21.9%, compared to the equivalent 2021 period.

The increase was due primarily to higher expenses relating to (i) Syndicate

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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.

3456-related expenses, (ii) share-based compensation, and (iii) information technology costs, compared to the same period in 2021.

For the nine months ended September 30, 2022, general and administrative expenses increased by $1.4 million, or 6.5%, compared to the equivalent 2021 period.

The increase was due primarily to higher expenses relating to (i) share-based compensation, (ii) Syndicate 3456-related expenses, (iii) information technology costs, and (iv) legal and other professional fees.

Lower D&O insurance and personnel costs partially offset the increase.

For the nine months ended September 30, 2022, and 2021, general and administrative expenses included $3.3 million and $2.4 million, respectively, of costs related to share-based 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 June 30 Six months ended June 30

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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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 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.

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

For the three months ended September 30, 2022, the Investment Portfolio managed by DME Advisors reported a gain of 3.6%, compared to a loss of 2.7% for the three months ended September 30, 2021.

SILP’s long portfolio gained 6.0%, while the short portfolio and macro positions lost 0.1% and 1.4%, respectively, during the three months ended September 30, 2022.

For the three months ended September 30, 2022, the significant contributors to SILP’s investment return were long positions in Atlas Air Worldwide and Green Brick Partners (GRBK) and a short position in a basket of housing-sensitive stocks to hedge the GRBK exposure.

The largest detractors were gold and two short positions.

For the three months ended September 30, 2022, there were no notable increases or decreases in our Innovations-related investments, compared to $9.6 million net unrealized gains recorded for the three months ended September 30, 2021.

For the nine months ended September 30, 2022, the Investment Portfolio managed by DME Advisors reported a gain of 10.5%, compared to a loss of 2.2% for the nine months ended September 30, 2021.

The long portfolio lost 10.5%, while the short portfolio and macro positions gained 21.1% and 2.6%, respectively, during the nine months ended September 30, 2022.

For the nine months ended September 30, 2022, the most significant contributors to SILP’s investment return were short positions in the S&P 500 index and a basket of stocks perceived to be overvalued, and a long position in CONSOL Energy.

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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

the nine months ended September 30, 2022, the most significant detractors were long positions in Brighthouse Financial, GRBK, and gold.

During the nine months ended September 30, 2022, some of our Innovations-related investees completed new financing rounds.

The associated carry-value increases contributed to a net unrealized gain of $9.2 million.

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

The increase in interest income for the three and nine months ended September 30, 2022, was primarily related to our restricted cash and cash equivalents, which benefited from rising U.S.

interest rates.

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

Three months ended September 30 Nine months ended September 30

2022 2021 2022 2021

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

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

At September 30, 2022, we have included a gross deferred tax asset of $3.7 million (December 31, 2021:

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

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

At September 30, 2022, a valuation allowance of $3.2 million (December 31, 2021:

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

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We have not taken any other tax positions that we believe are subject to uncertainty or reasonably likely to have a material impact on the Company.

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Financial Condition

Total investments

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 total investments reported in the condensed consolidated balance sheets at September 30, 2022, was $260.3 million, compared to $231.0 million at December 31, 2021, an increase of $29.3 million, or 12.7%.

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.

At September 30, 2022, 91.5% of SILP’s portfolio was valued based on quoted prices in actively traded markets (Level 1), 6.0% was composed of instruments valued based on observable inputs other than quoted prices (Level 2), and 0.0% was composed of instruments valued based on non-observable inputs (Level 3).

At September 30, 2022, 2.5% of SILP’s portfolio consisted of private equity funds valued using the funds’ net asset values as a practical expedient.

At September 30, 2022, 87% of our Innovations-related portfolio was carried at fair value on a nonrecurring basis, measured as of the investees’ most recent completed financing round, and 13% 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 $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.

The unrestricted cash and cash equivalents decreased by $44.0 million, or 57.7%, from $76.3 million at December 31, 2021, to $32.3 million at September 30, 2022, primarily due to cash used for operations, including the repurchase of senior convertible debt, purchase of Innovations-related investments and collateral posted to our ceding insurers.

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 $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.

Our restricted cash increased by $14.1 million, or 2.2%, from $634.8 million at December 31, 2021, to $648.9 million at September 30, 2022, primarily due to collateral required by our ceding insurers.

Reinsurance balances receivable

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.

During the nine months ended September 30, 2022, reinsurance balances receivable increased by $68.2 million, or 16.8%, to $473.6 million from $405.4 million at December 31, 2021.

This increase was related primarily to funds withheld by cedents.

At September 30, 2022, funds held by cedents were $303.1 million, compared to $246.9 million at December 31, 2021.

The remaining increases related to premiums receivable on new contracts bound during nine months ended September 30, 2022.

Loss and Loss Adjustment Expense Reserves;

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Reserves IBNR Total Case

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Total $ 186,945 $ 353,882 $ 540,827 $ 190,220 $ 333,790 $ 524,010

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.

During the nine months ended September 30, 2022, the total gross loss and loss adjustment expense reserves increased by $16.8 million, or 3.2%, to $540.8 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 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.

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During the nine months ended September 30, 2022, the total loss and loss adjustment expenses recoverable decreased by $0.5 million, or 4.5%, to $10.6 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.

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.

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At October 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 $88.7 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.

October 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 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).

Total equity reported on the condensed consolidated balance sheet decreased by $8.7 million to $467.0 million at September 30, 2022, compared to $475.7 million at December 31, 2021.

The decrease in shareholders’ equity during the nine months ended September 30, 2022, was primarily due to the net loss of $9.4 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.”

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

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

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

The ratings reflect A.M.

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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 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.

At September 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 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.

At September 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 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.

For the nine months ended September 30, 2022 and 2021, the net cash used in operating activities was $27.4 million and $18.8 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 nine months ended September 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 six months ended June 30, 2022 and 2021, as the losses we paid exceeded the premiums we collected.

Our underwriting activities represented a net use of cash for the nine months ended September 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.

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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 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.

For the nine months ended September 30, 2022, our investing activities provided $12.9 million of cash from redemptions from SILP (net of contributions) and used $8.6 million for new Innovations and other investments.

By comparison, for the same period in 2021 our investing activities provided net cash of $4.4 million.

For the nine months ended September 30, 2022, we used $6.4 million to repurchase our convertible senior notes.

During the same period in 2021, we used $10.0 million to repurchase our Class A ordinary shares.

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

We do not expect the recent global events, including Hurricane Ian, the Russian-Ukrainian conflict, and the COVID-19 pandemic, to materially impact our operational liquidity needs.

These needs will be met by cash, funds generated from underwriting activities, and investment income, including withdrawals from SILP if necessary.

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

We are evaluating various alternatives in relation to the convertible senior notes that mature in August 2023.

In addition, 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.

If we are unable to refinance the convertible senior notes, we will be required to fund settlement at maturity using cash on hand, or withdrawals from SILP, which may significantly and negatively affect our ability to implement our business strategy.

Although GLRE is not subject to any significant legal prohibitions on the payment of dividends, Greenlight Re and GRIL are each subject to regulatory minimum capital requirements and regulatory constraints that affect their ability to pay dividends to us.

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

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

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

Letters of Credit and Trust Arrangements

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.

At September 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.

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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:

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

$275.0 million).

See Note 12 of the accompanying condensed consolidated financial statements for details on the letter of credit facility.

See Note 12 of the accompanying condensed consolidated financial statements for details

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on the letter of credit facility.

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

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

At September 30, 2022, the aggregate amount of collateral provided to cedents under such arrangements was $648.2 million (December 31, 2021:

$633.9 million).

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:

At September 30, 2022, the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of $648.9 million (December 31, 2021:

$634.8 million).

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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 June 30, 2022.

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

We did not make any significant commitments for capital expenditures during the nine months ended September 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.

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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.

During the nine months ended September 30, 2022, the Company repurchased 4,933 Class A ordinary shares at an average share price of $7.04.

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

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

At September 30, 2022, 2,011,426 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 June 30, 2022, we estimate that we will pay the loss and loss adjustment expense reserves as follows:

At September 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.

At September 30, 2022, the Company has $93.4 million of senior convertible notes payable, which mature on August 1, 2023.

The Company is obligated to make semiannual interest payments of $2.0 million at an interest rate of 4.0% per annum.

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

The Company is obligated to make semi-annual interest payments of $2.0 million at an interest rate of 4.0% per annum.

The Company has received regulatory approval to declare dividends from Greenlight Re to meet the interest payments obligation.

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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 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%.

At September 30, 2022, we estimate the reduced performance allocation of 10% to continue to be applied until SILP achieves additional investment returns of 164%, at which point the performance allocation will revert to 20%.

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

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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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