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Item 7. Management’s Discussion and Analysis

2023-03-08 compared with 2022-03-08 · 293 added, 260 removed, 460 unchanged (55% 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”), and 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.

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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.

In 2018, we launched our Greenlight Re Innovations unit, which supports 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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Best Financial Strength Rating of A- (Excellent) with a stable outlook.

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Outlook and Trends

During 2021, 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 time in our history.

After another year of significant property catastrophe losses in 2021, it is not clear to us how the reinsurance market will respond.

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 will help support and extend the generally favorable market conditions in most other classes.

We expect that higher inflation, resulting in higher interest rates, may dampen some support for overall pricing conditions.

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

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

Underwriting business derived from Innovations business represented approximately 6% of our total written premium during 2021, and we see the potential for significant growth from Innovations-derived underwriting opportunities going forward.

In January 2022, we received in-principle approval from Lloyd’s to establish an insurtech-focused syndicate (“Syndicate 3456”).

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

We anticipate Syndicate 3456 to commence operations in the second quarter of 2022.

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, the Russian-Ukraine conflict, and several smaller events have combined to make 2022 another challenging year for companies that participate in the global reinsurance market.

We were not immune from these events;

our combined ratio for the year ended December 31, 2022, was 102.3%.

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.

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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.

We are addressing these concerns in multiple ways:

• Our underwriting strategy focuses on relatively short-tailed business, which is inherently less exposed to 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 interest rate environment has had a mixed impact on our financial results.

While we have experienced losses driven by fixed-income securities held by Lloyd’s syndicates in which we participate, the higher interest rates have improved the yield on our restricted cash and cash equivalents.

To the extent interest rates continue to increase, we expect to see these trends continue.

The combination of the recent loss events, continued inflation, and rising interest rates led to a significant reduction in the amount of reinsurance capital available for deployment, which in turn has led to market conditions that we consider more favorable than any we have experienced in more than a decade.

The January 1 renewal season saw widespread pricing improvements in the aviation, war and terror, and marine classes and even higher increases in the property catastrophe rates.

These short-tailed specialty and property catastrophe classes represents a significant portion of our 2023 business plan.

Elsewhere in our portfolio, average percentage rate improvements were in the single digits.

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, included premiums written by Syndicate 3456, accounted for approximately 18% of our net premiums written in 2022.

We see the potential for significant growth from Innovations-derived underwriting opportunities in the future.

SILP generated a net return of 25.3% in 2022, compared to an 18.1% loss for the S&P 500 index.

Effective January 1, 2023, the Company increased its allocation to SILP to a maximum of 60% of surplus.

We have one operating segment, Property & Casualty reinsurance, and we analyze our business based on the following categories:

Property business covers automobile physical damage, personal lines, and commercial lines exposures.

Property business covers personal lines, commercial lines exposures and automobile physical damage.

Property business includes both catastrophe and non-catastrophe coverage.

We expect catastrophe business to make up a small proportion of our property business.

We expect property business to account for a small portion of our overall catastrophe exposure.

Casualty business covers general liability, motor liability, professional liability, and workers’ compensation exposures.

The Company’s multi-line business relates predominantly to casualty reinsurance, and as such, the Company includes all multi-line business within the casualty category.

Casualty business generally has losses reported and paid over a longer period than property business.

We categorize Lloyd’s syndicate contracts, which incorporate incidental catastrophe exposure, as multi-line (and therefore casualty) business.

Other business covers accident and health, financial lines (including transactional liability, mortgage insurance, surety, and trade credit), marine, energy, and to a lesser extent, other specialty business such as aviation, crop, cyber, political, and terrorism exposures.

The Company’s multi-line business includes the Funds at Lloyd’s business.

As our Lloyd’s syndicate contracts incorporate property (including incidental catastrophe), casualty, and other exposures, we categorize them as multi-line (and therefore casualty) business.

However, these contracts are composed of primarily short-tailed risks.

Other business covers accident and health, financial (including transactional liability, mortgage insurance, surety, and trade credit), marine, energy, as well as other specialty business such as aviation, crop, cyber, political, and terrorism exposures.

We derive our revenues from two principal sources:

● premiums from reinsurance on property and casualty business assumed;

● premiums from reinsurance on property and casualty business assumed (net of any premiums ceded);

● income from investments.

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● income (or loss) generated from our investment in SILP;

● gains (or losses) from our other investments, including Innovations and an investment accounted for as equity method investment;

● interest income from money market funds;

● gains (or losses) from our other investments, including Innovations and investments accounted for under the equity method;

● interest income on our restricted cash and cash equivalents and Funds at Lloyd’s;

● foreign exchange gains (or losses);

● interest income and gains (or losses) from promissory notes receivable.

In addition, we may from time to time derive other income from interest on deposit accounted contracts, fees generated from advisory services, and fees relating to overrides, profit commissions, and the contractual fees upon early termination of contracts.

In addition, we may from time to time derive other income from interest on deposit-accounted contracts, fees generated from advisory services, and fees relating to overrides, profit commissions, and fees due upon the early termination of contracts.

Our expenses consist primarily of the following:

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As described below, loss and loss adjustment expenses include an actuarially determined estimate of losses incurred, including losses incurred during the period and changes in estimates from prior periods.

The period over which we pay loss and LAE reserves depends on the nature of the coverage provided and generally extends over a period of multiple years.

The period over which we pay loss and LAE reserves depends on the nature of the coverage provided and generally extends over multiple years.

Acquisition costs consist primarily of brokerage fees, ceding commissions, premium taxes, profit commissions, letters of credit and trust fees, and federal excise taxes.

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General and administrative expenses also include professional fees, travel and entertainment, information technology, rent, and other general operating costs.

General and administrative expenses reported on our consolidated statements of operations include both underwriting and corporate expenses.

For stock option expenses, we calculate compensation cost using the Black-Scholes option pricing model and recognize the associated expense over the stock options’ vesting periods, which vary and have historically ranged from zero to six years.

For restricted stock awards and restricted stock units with only service conditions, we calculate compensation cost using each award’s grant date fair value and recognize the associated expense of the stock awards over their vesting periods, which typically range from one to three years.

For restricted stock awards that include both service and performance conditions, we recognize the associated expense when we determine that it is probable that the performance conditions will be achieved.

Interest expense consists of interest paid and accrued on senior convertible notes and the amortization of (i) issuance expenses, and (ii) the note discount.

In addition, we incur interest expense on deposit accounted contracts.

General and administrative expenses reported in our consolidated statements of operations include both underwriting and corporate expenses.

Interest expense consists of interest paid and accrued on senior convertible notes and the amortization of issuance expenses.

In addition, we incur interest expenses on some deposit-accounted contracts.

Investment-related expenses primarily consist of management fees and performance compensation paid to the investment advisor.

We net these expenses against investment income (loss) in our consolidated financial statements.

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We net these expenses against investment income (loss) in our consolidated statements of operations.

Critical Accounting Policies and Estimates

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— Risk Factors,” 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.

We believe that the following accounting policies affect the more significant estimates used to prepare our consolidated financial statements.

We believe the following accounting policies affect the more significant estimates used to prepare our consolidated financial statements.

We have summarized the descriptions below for clarity.

We have included a more detailed description of our significant accounting policies and recently issued accounting standards in Note 2 to the consolidated financial statements.

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Premium Revenues and Risk Transfer.

We record our property and casualty reinsurance premiums as premiums written based upon contract terms and information received from ceding companies and their brokers.

We record our property and casualty reinsurance premiums as premiums written based on contract terms and information received from ceding companies and their brokers.

Excess of loss reinsurance contracts typically state premiums as a percentage of the subject premiums written by the client, subject to a minimum and deposit premium.

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Reinstatement premiums are written and earned when a triggering loss event occurs.

Our clients estimate the gross premiums written at the contract’s inception for each proportional contract we underwrite.

Our underwriters utilize the client’s estimate to determine our best estimate, which we use to initially account for such premiums.

In subsequent periods, we adjust our estimates based on our client’s actual reports and our expectations of industry developments.

As the contract progresses, we monitor actual premiums received in conjunction with the client’s correspondence to refine our estimate.

Variances from initial gross premiums written estimates are generally greater for proportional contracts than for non-proportional contracts.

We earn premiums on proportional contracts over the risk coverage period.

Our clients estimate the gross premiums they expect to write at the contract’s inception for each proportional contract we underwrite.

Our underwriters initially utilize the client’s estimate to determine our best estimate.

In subsequent periods, we adjust our estimates based on our client’s actual reports and our expectations of market conditions for the applicable line of business.

As the contract progresses, we monitor premiums received in conjunction with the client’s correspondence to refine our estimate.

Variances from initial gross premiums estimates are generally greater for proportional contracts than for non-proportional ones.

We earn premiums over the risk coverage period.

Unearned premiums represent the unexpired portion of reinsurance provided.

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Typically, we only use premium estimates for unreported stub periods, which account for a small percentage of our total premiums written.

We confirm the accuracy and completeness of premiums reported by our clients by reviewing the client’s statutory filings or performing an audit of the client under the contract terms.

We confirm the accuracy and completeness of premiums reported by our clients by reviewing the client’s statutory filings, where available, or performing an audit of the client under the contract terms.

Discrepancies between premiums ceded and reported under a contract are, in our experience, rare.

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At each reporting date, we qualitatively consider whether the investment is impaired on the basis of certain impairment indicators.

If we determine that the equity security is impaired on the basis of the qualitative assessment, we recognize an impairment loss in the caption “Net investment income (loss)” in the consolidated statements of operations.

We determine realized gains and losses from other investments based on the specific identification

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method (by reference to cost or amortized cost, as appropriate).

If we determine that the equity security is impaired on the basis of the qualitative assessment and the estimated fair value is less than the carrying value, we recognize an impairment loss in the caption “Net investment income (loss)” in the consolidated statements of operations.

We determine realized gains and losses from other investments based on the specific identification method (by reference to cost or amortized cost, as appropriate).

These gains and losses are included in the captions “Net investment income (loss)” in the consolidated statements of operations.

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Loss and Loss Adjustment Expense Reserves.

The process of estimating our loss and LAE reserves involves a considerable degree of judgment, and our estimates as of any given date are inherently uncertain.

Estimating our loss and LAE reserves involves a considerable degree of judgment, and our estimates as of any given date are inherently uncertain.

Estimating loss and LAE reserves requires us to make assumptions regarding reporting and development patterns, frequency and severity trends, claims settlement practices, potential changes in legal environments, inflation, loss amplification, foreign exchange movements, and other factors.

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or (iv) we observe changes in the legal environment.

Our loss and LAE reserves relating to short-tail property risks are typically reported to us and settled more promptly than those relating to our long-tail risks.

Our loss and LAE reserves relating to short-tail property risks are typically reported to us and settled more promptly than those relating to long-tail risks.

However, the timeliness of loss reporting can be affected by such factors as the nature of the event causing the loss, the location of the loss, whether the loss is from policies in force with primary insurers or with reinsurers, and where our exposure falls within the cedent’s overall reinsurance program.

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We determine case reserve estimates based on loss reports received.

We determine our IBNR reserve estimates using standard actuarial methods as well as a combination of our own historical and current loss experience, insurance industry loss experience, assessments of pricing adequacy trends, and our professional judgment.

We determine our IBNR reserve estimates using standard actuarial methods and a combination of our own historical and current loss experience, insurance industry loss experience, assessments of pricing adequacy trends, and our professional judgment.

In estimating our IBNR reserve, we estimate the total ultimate loss and LAE we expect to incur and subtract paid claims and case reserves.

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Some of our property treaty reinsurance contracts represent business with a low frequency of claims occurrence and a high potential loss severity, such as claims arising from natural catastrophes.

Given the nature of these events and the losses generated by them, traditional actuarial reserving methods may not prove to be reliable indicators of the final outcome.

As such, for contracts or losses of this type, we estimate the ultimate cost associated with a single loss event rather than perform analysis on the historical development patterns of past losses as a means of estimating the ultimate losses for an entire accident year.

We estimate our reserves for these large events on a contract-by-contract basis by reviewing policies with known or potential exposure to a particular loss event.

Given the nature of these events, traditional actuarial reserving methods may not be reliable indicators of the final outcome.

As such, for contracts or losses of this type, we estimate the ultimate cost associated with a single loss event rather than perform analysis on the historical development patterns of past events to estimate the ultimate losses for an entire accident year.

We estimate our reserves for these large events on a by-contract basis by reviewing policies with known or potential exposure to a particular loss event.

For non-catastrophe losses, we apply standard actuarial methodologies in setting reserves, including paid and incurred loss development, Bornheutter-Ferguson, burning cost, and frequency and severity techniques.

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Time lags are inherent in loss reporting, especially in the case of excess-of-loss reinsurance contracts.

The combined characteristics of low claim frequency and high claim severity make the available data less useful for predicting ultimate losses.

The time lags, coupled with the combined characteristics of low claim frequency and high claim severity on such contracts, make the available data less useful for predicting ultimate losses.

In the case of proportional contracts, we rely on an analysis of a cedent’s historical experience, industry information, and the underwriters’ professional judgment in estimating reserves.

We also utilize ultimate loss ratio forecasts when reported by cedents and brokers, which are ordinarily subject to three to six-month lags for proportional business.

Due to the degree of reliance we place on ceding companies for claims reporting, our reserve estimates are highly dependent on ceding companies’

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Due to our reliance on ceding companies for claims reporting, our reserve estimates are highly dependent on ceding companies’ judgment.

Furthermore, during the loss settlement period, which may last several years, additional facts regarding individual claims and trends will often become known, and case law may change, affecting ultimate expected losses.

Since we rely on ceding company data in the process of establishing our loss and LAE reserves, we maintain procedures designed to mitigate the risk that such information is incomplete or inaccurate.

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Since we rely on ceding company data in establishing our loss and LAE reserves, we maintain procedures designed to mitigate the risk that such information is incomplete or inaccurate.

These procedures include:

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and (iii) underwriting reviews to ascertain that the losses ceded are covered as provided under the contract terms.

Each subsequent year of loss experience with a given cedent provides additional insight into the accuracy and timeliness of previously reported information.

These procedures are incorporated in our internal controls and are regularly evaluated and amended as market conditions, risk factors, and unanticipated areas of exposure develop.

We engage an independent third-party actuarial firm to perform a quarterly reserve review and annually opine on the reasonableness and adequacy of the aggregate loss reserves.

We provide the third-party actuarial firm with our pricing models, reserving analysis, and other data.

The actuarial firm may also inquire about the various assumptions and estimates used in the reserving analysis.

The actuarial firm independently creates its own reserving models based on industry loss information, augmented by client-specific loss information and independent assumptions and estimates.

Based on various reserving methodologies that the actuarial firm considers appropriate, it creates a loss reserve estimate for each segment in the portfolio.

It recommends an aggregate loss reserve, including IBNR.

In the event of material differences between our aggregated booked reserves and the actuarial firm's recommended reserves, the reserving committee would be notified, with the reserves adjusted as deemed appropriate.

To date, there have been no material differences resulting from the external actuary’s reviews requiring adjustments to our booked reserves.

We monitor the development of our prior-year losses during subsequent calendar years by comparing the actual reported losses against previous estimates and current expectations.

The analysis of this loss development is an essential factor in the ongoing refinement of our reserving assumptions.

The analysis of this loss development is important to the ongoing refinement of our reserving assumptions.

Each additional year of loss experience with a given cedent provides additional insight into the accuracy and timeliness of previously reported information.

Estimating loss reserves for our book of longer-tail casualty reinsurance business, which we write on both a proportional and non-proportional basis, involves further uncertainties.

In addition to the uncertainties described above, casualty business can be subject to longer reporting lags than property business, and claims often take several years to settle.

During this period, additional factors and trends will be revealed, and, as they become apparent, we may adjust our reserves accordingly.

There is also the potential for the emergence of new types of losses within our casualty book.

In addition to the uncertainties described above, casualty business is generally subject to longer reporting lags than property business, and claims often take several years to settle.

During this period, additional factors and trends will be revealed, and we may adjust our reserves accordingly.

Therefore, any factors that extend the time until our cedents settle claims add uncertainty to the reserving process.

The uncertainties inherent in the reserving process, together with the potential for unforeseen developments, including changes in laws and the prevailing interpretation of policy terms, may result in our loss and LAE reserves being materially greater or less than the loss and LAE reserves we initially established.

We reflect adjustments to our loss and LAE reserves in our financial results during the period in which they are determined.

The uncertainties inherent in the reserving process and the potential for unforeseen developments, including changes in laws and the prevailing interpretation of policy terms, may result in our loss and LAE reserves being materially greater or less than the loss and LAE reserves we initially established.

We reflect adjustments to our loss and LAE reserves in our financial results during the period they are determined.

Changes to our prior year loss reserves will impact our current underwriting results by improving our results if the prior year reserves prove redundant or impairing our results if the prior year reserves prove insufficient.

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We calculate the compensation for restricted stock awards and restricted stock units (“RSUs”) based on the price of the Company’s common shares at the grant date.

We recognize the associated expense, adjusted for estimated forfeitures, over the vesting period and incorporate the probability of meeting any performance conditions.

For restricted stock awards with only service conditions, we recognize the associated expense, adjusted for estimated forfeitures, over the vesting period.

We estimate the forfeiture rate for restricted stock awards and RSUs based on our historical experience and expectations of future forfeitures.

The forfeiture rate reduces the unamortized grant date fair value of unvested outstanding restricted stock awards and RSUs and the associated stock compensation expense.

As restricted shares and RSUs are forfeited, we reduce the number of outstanding restricted shares and RSUs and compare the remaining unamortized grant date fair value to the assumed forfeiture levels.

We record true-up adjustments as deemed necessary.

For the year ended December 31, 2022, we have assumed a forfeiture rate of 8.0% (2021:

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7.0%) for restricted stock awards and RSUs granted.

We recognize the expense of share purchase options over the vesting period on a graded vesting basis.

Determining the fair value of share option awards at the grant date requires significant estimation and judgment.

We use an option-pricing model (Black-Scholes pricing model) to assist in calculating fair value.

We base the estimate of expected volatility on our Class A ordinary shares’ daily historical trading data from the date these shares commenced trading (May 24, 2007) to the grant date.

If actual results differ significantly from these estimates and assumptions, particularly concerning our estimation of volatility and forfeiture rates, share-based compensation expense, primarily relating to future share-based awards, could be materially impacted.

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Key Financial Measures and Non-GAAP Measures

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

GAAP rules and standards (“non-GAAP financial measures”), to evaluate our financial performance, financial position, and the change in shareholder value.

Generally, a non-GAAP financial measure, as defined in SEC Regulation G, is a numerical measure of a company’s historical or future financial performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented under U.S.

We believe that these measures, which may be calculated or defined differently by other companies, provide consistent and comparable metrics of our business performance to help shareholders understand performance trends and facilitate a more thorough understanding of the Company’s business.

Non-GAAP financial measures should not be viewed as substitutes for those determined under U.S.

The key non-GAAP financial measures used in this report are:

• Basic book value per share and fully diluted book value per share;

• Net underwriting income (loss)

These non-GAAP financial measures are described below.

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.

Fully diluted book value per share may also help our investors, shareholders, and other interested parties form a basis of comparison with other companies within the property and casualty reinsurance industry.

We calculate basic book value per share based on ending shareholders' equity and aggregate of Class A and Class B Ordinary shares issued and outstanding, as well as all unvested restricted shares.

Fully diluted book value per share represents basic book value per share combined with any dilutive impact of in-the-money stock options, and RSUs issued and outstanding at any period end.

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

Basic book value per share and fully diluted book value per share should not be viewed as substitutes for the comparable U.S.

GAAP measures.

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 fully diluted book value per share over the long term.

The following table presents the calculation of basic and fully diluted book value per share for the recent periods.

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

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:

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December 31, 2022 December 31, 2021 December 31, 2020

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Denominator for basic and fully diluted book value per share:

Ordinary shares issued and outstanding (denominator for basic book value per share) 33,844,446 34,514,790 36,994,110

In-the-money stock options and RSUs issued and outstanding 154,134 116,722 63,582

Ordinary shares issued and outstanding as presented in the Company’s consolidated balance sheets 34,824,061 33,844,446 34,514,790

Unearned performance-based restricted shares granted after December 31, 2021 (516,489) — —

Denominator for basic book value per share 34,307,572 33,844,446 34,514,790

In-the-money stock options, service-based RSUs granted, and earned performance-based RSUs granted 187,750 154,134 116,722

Denominator for fully diluted book value per share 34,495,322 33,998,580 34,631,512

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Increase (decrease) in fully diluted book value per share (%) 4.3 % 4.2 % 4.2 %

(1) All unvested restricted shares, including those with performance conditions, are included in the “basic” and “fully diluted” denominators.

At December 31, 2021, the number of unvested restricted shares with performance conditions was 193,149 (December 31, 2020:

193,149, December 31, 2019:

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

GAAP rules and standards (“non-GAAP financial measures”), to evaluate our financial performance, financial position, and the change in shareholder value.

We believe that these measures, which may be calculated or defined differently by other companies, provide consistent and comparable metrics of our business performance to help shareholders understand performance trends and allow for a more thorough understanding of the Company’s business.

Non-GAAP financial measures should not be viewed as a substitute for those determined under U.S.

The key non-GAAP financial measures used in this report are:

• Adjusted combined ratio;

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• Net underwriting income (loss).

These non-GAAP measures are described below.

Adjusted combined ratio

“Combined ratio” is a commonly used measure in the property and casualty insurance industry and is calculated using U.S.

GAAP components.

We use the combined ratio, along with an analysis of significant drivers, to evaluate our underwriting performance.

During 2020, in an effort to further evaluate our underwriting performance, we introduced the “adjusted combined ratio,” a non-GAAP measure that excludes the effects of underwriting losses attributable to (i) prior accident-year reserve development, (ii) catastrophe losses, and (iii) certain significant, infrequent loss events.

we have since determined that the use of this measure does not significantly enhance our or investors’ understanding of the underlying trends or variability in our underwriting results.

Accordingly, we do not intend to use or disclose our adjusted combined ratio in future periods.

In calculating the adjusted combined ratio, we exclude underwriting income and losses attributable to (i) prior accident-year reserve development, (ii) catastrophe events, and (iii) other significant infrequent adjustments.

Prior accident-year reserve development, which can be favorable or unfavorable, represents changes in our estimates of losses and loss adjustment expenses associated with loss events that occurred in prior years.

By their nature, catastrophe events and other significant infrequent adjustments are not representative of the type of loss activity that we would expect to occur in every period.

The following table reconciles the combined ratio to the adjusted combined ratio:

Year ended December 31

2021 2020 2019

Combined ratio 100.9 % 100.4 % 106.9 %

Impact on combined ratio of selected items:

Prior-year development (1.5) % 0.8 % 6.2 %

Catastrophes (current year) 6.1 % 2.0 % 3.6 %

Other adjustments 2.2 % 1.6 % — %

Adjusted combined ratio 94.1 % 96.0 % 97.1 %

• The caption “Other adjustments” represents, for the year ended December 31, 2021, interest income and expense on deposit-accounted contracts due to changes in the associated estimated ultimate cash flows and, for the year ended December 31, 2020, losses relating to the COVID-19 pandemic.

(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 December 31, 2022, the aggregate number of unearned restricted shares with performance conditions not included in the “basic” and “fully diluted” denominators was 709,638 (2021:

Net Underwriting Income (Loss)

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We believe that the use of net underwriting income (loss) enables investors and other users of the Company’s financial information to analyze our performance in a manner similar to how management analyzes performance.

Management also believes that this measure follows industry practice and allows the users of financial information to compare the Company’s performance with that of our industry peer group.

Management also believes this measure follows industry practice and allows the users of financial information to compare the Company’s performance with that of our industry peer group.

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.

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(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 and 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 unrelated 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.

We believe all of these amounts are largely independent of our underwriting process, and including them could hinder the analysis

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of trends in our underwriting operations.

We believe all of these amounts are largely independent of our underwriting process, and including them could hinder the analysis of trends in our underwriting operations.

Net underwriting income (loss) should not be viewed as a substitute for U.S.

GAAP net income before income taxes.

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The reconciliations of net underwriting income (loss) to income (loss) before income taxes (the most directly comparable U.S.

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Net underwriting income (loss) 1

(10,686) (5,196) (1,612)

Income (loss) from investment in related party investment fund 54,844 18,087 4,431

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Net income (loss) $ 25,342 $ 17,578 $ 3,866

Earnings (loss) per share

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

Basic $ 0.75 $ 0.51 $ 0.11

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Combined ratio 102.3 % 100.9 % 100.4 %

* 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 gain of $8.3 million in 2021, and a loss of $3.7 million and $30.1 million in 2020 and 2019, respectively.

* 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 $12.2 million in 2022, a gain of $8.3 million in 2021, and a loss of $3.7 million in 2020.

1 Net Underwriting income (loss) is a non-GAAP financial measure.

See “— Key Financial Measures and Non-GAAP Measures” above for discussion and reconciliation of non-GAAP financial measures.

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Year ended 2021 compared to 2020

For the year ended December 31, 2021, the fully diluted book value per share increased by $0.57 per share, or 4.2%, to $13.99 per share from $13.42 per share on December 31, 2020.

For the year ended December 31, 2021, the basic book value per share increased by $0.58, or 4.3%, to $14.05 per share from $13.47 per share on December 31, 2020.

The increases in basic and fully diluted book value per share for the year ended December 31, 2021, were due primarily to share repurchases executed and net income earned.

For the year ended December 31, 2021, net income increased to $17.6 million, compared to $3.9 million reported for the year ended December 31, 2020.

Year ended December 31, 2022, compared to 2021

For the year ended December 31, 2022, fully diluted book value per share increased by $0.60, or 4.3%, to $14.59 per share from $13.99 per share at December 31, 2021.

For the year ended December 31, 2022, basic book value per share increased by $0.61, or 4.3%, to $14.66 per share from $14.05 per share at December 31, 2021.

The increase in fully diluted book value per share during the year ended December 31, 2022, is net of $0.07, or 0.5%, adverse impact relating to the adoption of ASU 2020-06 (see Note 2 of the accompanying consolidated financial statements for recently issued accounting standards adopted).

For the year ended December 31, 2022, our net income was $25.3 million, compared to net income of $17.6 million reported for the equivalent 2021 period.

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

• Underwriting:

The underwriting loss for the year ended December 31, 2021, was $5.2 million on net earned premiums of $539.3 million.

By comparison, the underwriting loss for the same period in 2020 was $1.6 million on net earned premiums of $455.4 million.

The underwriting loss for the year ended December 31, 2021, included $11.7 million of expense related to deposit accounted contracts that we wrote in 2017, 2018, and 2019.

The expense recorded during the year ended December 31, 2021, was due to changes in the associated estimated ultimate cash flow resulting from higher than expected losses reported by the cedents.

Catastrophe events during the year ended December 31, 2021, including Hurricane Ida, winter storm Uri, the European floods and hailstorms, U.S.tornados, and the South African riots contributed $32.7 million to the underwriting loss.

By comparison, the catastrophe events during the year ended December 31, 2020, including hurricanes Laura, Isaias, and Sally, the Midwest derecho storms, and North American wildfires, contributed $9.0 million to the underwriting loss.

Additionally, COVID-19 contributed $7.1 million to the underwriting loss for the year ended December 31, 2020.

Our overall combined ratio was 100.9% for the year ended December 31, 2021, compared to 100.4% during the same period in 2020.

The catastrophe events listed above during the year ended December 31, 2021, contributed 6.1 percentage points to our combined ratio, compared to 2.0 percentage points from catastrophe events during 2020.

The underwriting loss for the year ended December 31, 2022, was $10.7 million, driven primarily by $13.6 million of losses related to the Russian-Ukrainian conflict and $25.7 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 $5.2 million, driven by losses from Hurricane Ida, the winter storm Uri, the European floods and hailstorms, U.S.

tornados, and South African riots.

Our combined ratio was 102.3% for the year ended December 31, 2022, compared to 100.9% for the same period in 2021.

The Russian-Ukrainian conflict and natural catastrophe losses contributed 8.4 percentage points to the combined ratio for the year ended December 31, 2022.

During the comparable period in 2021, catastrophe losses contributed 6.1 percentage points to the combined ratio.

• Investments:

Our total investment income for the year ended December 31, 2021, was $50.2 million compared to total investment income of $25.5 million reported during 2020.

Investment income for the year ended December 31, 2021, included (a) $18.1 million on our investment in SILP, (b) $19.5 million of unrealized gain on our Innovations and other strategic investments and (c) $14.2 million realized gain on the sale of our investment in AccuRisk.

Our total investment income for the year ended December 31, 2022, was $69.0 million, compared to $50.2 million earned during the equivalent 2021 period.

For the year ended December 31, 2022, our investment in SILP reported a gain of $54.8 million, compared to a gain of $18.1 million during the equivalent period in 2021.

Other investment income from our Innovations investments and restricted cash and cash equivalents totaled $14.1 million and $32.1 million during the year ended December 31, 2022, and 2021, respectively.

• Other income (expense):

For the year ended December 31, 2022, other expense of $11.8 million was driven primarily by:

◦ foreign exchange losses, due mainly to the weakening of the pound sterling against the U.S.

◦ our share of Lloyd’s syndicates’ investment losses on Funds at Lloyd’s business, which is generally conducted on a funds withheld basis.

The Lloyd’s 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 them to us, generally one quarter in arrears.

Underwriting results

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“property,” “casualty,” and “other.”

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Gross Premiums Written

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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.

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For the year ended December 31, 2021, our gross premiums written increased by $85.6 million, or 17.8%, compared to the same period in 2020.

For the year ended December 31, 2022, our gross premiums written decreased by $2.2 million, or 0.4%, compared to the same period in 2021.

The changes in gross premiums written for the year ended December 31, 2022, were attributable to the following:

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($ in millions) % change Explanation

Property $(5.5) (9.4)% The decrease in property gross premiums written during the year ended December 31, 2021, over the comparable 2020 period was related to:

(a) motor contracts on which we elected to reduce or not renew our participation;

(b) property catastrophe quota share contracts on which we elected to reduce or not renew our participation.

The decrease in property gross premiums written was partially offset by an increase in property premiums written driven by our Innovations unit.

Casualty $76.9 25.4% The increase in casualty gross premiums written during the year ended December 31, 2021 over the comparable 2020 period was related primarily to our expanded relationships with Lloyd’s corporate members and syndicates.

We also experienced an increase in general liability business during 2021.

These increases were partially offset by decreases in motor liability and workers’ compensation business that we did not renew or on which we reduced our participation in 2021.

Other $14.2 12.0% The increase in “Other” gross premiums written during the year ended December 31, 2021, over the comparable 2020 period was primarily attributable to transactional liability premiums which increased during 2021, reflecting an increase in M&A activity compared to 2020.

New marine and energy contracts also contributed to the increase in “Other” gross premiums written.

These increases were partially offset by decreased crop and health premiums as we lowered our participation during 2021.

Property $32.4 61.1% The increase in property gross premiums written during the year ended December 31, 2022, over the comparable 2021 period was due primarily to personal lines business, driven by our Innovations partners.

During the 2022 year, we added new Innovations partners to our portfolio, and one of our existing partners grew its personal lines premium volume.

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

Casualty $(54.0) (14.2)% The decrease in casualty premiums written during the year ended December 31, 2022, over the comparable 2021 period was due primarily to motor and workers’ compensation lines which decreased by $109.7 million and $33.8 million, respectively.

These decreases related to contracts on which we elected to reduce or not renew our participation.

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

Other $19.4 14.6% The increase in “other” premiums written during the year ended December 31, 2022, over the comparable 2021 period was due primarily to the following:

• new marine and energy contracts bound during 2022;

• new contracts bound during 2022 relating to other specialty classes, including Innovations business.

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

The level of premiums ceded during the year ended December 31, 2021, was insignificant.

The $2.3 million of ceded premium for the year ended December 31, 2020, related to the retroceded portion of our exposure to a motor contract.

In general, we use retrocessional coverage to manage our net portfolio exposure, leverage areas of expertise, and improve our strategic position in meeting clients’ needs.

For the year ended December 31, 2022, our ceded premiums were $33.4 million compared to insignificant ceded premiums for the year ended December 31, 2021.

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

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Net Premiums Written

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Total $ 529,742 100.0 % $ 565,352 100.0 %

For the year ended December 31, 2022, net premiums written decreased by $35.6 million, or 6.3%, compared to the year ended December 31, 2021.

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

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Net Premiums Earned

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The changes in net losses incurred and loss ratios during the year ended December 31, 2021, compared to the year ended December 31, 2020, were attributable to the following:

The changes in net losses incurred for the year ended December 31, 2022, as compared to the year ended December 31, 2021, were attributable to the following:

Increase (decrease)

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

Property $4.8 12.3% The increase in property losses incurred during the year ended December 31, 2021, as compared to the equivalent 2020 period, related primarily to losses relating to winter storm Uri, Hurricane Ida, the 2021 European floods and hailstorms, and the U.S.

tornados during the year ended December 31, 2021.

The property loss ratio increased 12.3 percentage points during the year ended December 31, 2021, over the equivalent 2020 period, primarily due to the events mentioned above.

Casualty $49.3 1.4% The increase in casualty losses incurred during the year ended December 31, 2021, as compared to the equivalent 2020 period related primarily to:

• losses from the winter storm Uri and Hurricane Ida on certain multi-line contracts;

• increased workers' compensation, multi-line and Lloyd's syndicate losses due to increased exposure in these lines of business;

• increased losses on in-force motor contracts impacted by supply-chain shortages and other inflationary pressures.

These increases in casualty losses incurred were partially offset by favorable loss development on motor liability contracts written prior to 2017.

The casualty loss ratio increased 1.4 percentage points during the year ended December 31, 2021, over the equivalent 2020 period, primarily due to the reasons described above.

Other $(16.9) (28.7)% The decrease in “other” losses incurred during the year ended December 31, 2021, over the comparable 2020 period was related primarily to:

• favorable development on mortgage contracts as loss estimates recorded in 2020 relating to the impact of COVID-19 were reduced in 2021;

• decrease in losses on health contracts resulting partially from favorable development on legacy contracts, and partly from shifting some of our health exposure from a quota share basis to an excess of loss basis;

• the prior year included losses on crop contracts that we elected not to renew in 2021.

The decrease in losses incurred was partially offset by increases related primarily to:

• losses on marine and energy contracts relating to Hurricane Ida;

• losses relating to the South African riots on certain terrorism contracts;

• an increase in the volume of marine, energy, and other specialty business.

The reasons for the28.7 percentage point decrease in the “other” loss ratio are consistent with those driving the reduction in losses incurred.

See “Part II, Item 7.

Summary of Critical Accounting Estimates, Loss and Loss Adjustment Expense Reserves ” and “Note 7.

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES” in our Notes to the consolidated financial statements for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.

Property $(5.1) (4.0)% 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 year ended December 31, 2022, compared to the same period in 2021.

To a lesser extent, favorable loss development relating to prior years’ catastrophe events also contributed to the decrease in property losses incurred during the year ended December 31, 2022.

The $18.4 million decrease in motor losses was partially offset by the following:

• our growing personal lines portfolio;

• losses relating to Russian-Ukrainian conflict and natural catastrophes that occurred during 2022, including Hurricane Ian, Typhoons Nanmadol and Hinnamnor, and Tennessee wildfires.

The property loss ratio decreased 4.0 percentage points during the year ended December 31, 2022, over the equivalent 2021 period.

This decrease was due primarily to improved loss ratios within the personal and commercial lines business, which was partially offset by higher loss ratio on our shrinking motor business.

Casualty $(51.2) (2.1)% Our decision to reduce or terminate our participation in certain motor and workers’ compensation business was the primary driver of the decrease in casualty losses incurred during the year ended December 31, 2022, compared to the same period in 2021.

The decreases in motor and workers’ compensation losses of $65.3 million and $22.7 million, respectively, were partially offset by higher incurred losses relating to the following:

• Hurricane Ian;

• growth in our general liability and multi-line contracts.

The casualty loss ratio decreased 2.1 percentage points during the year ended December 31, 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 $(2.2) 0.3% The decrease in “other” losses incurred during the year ended December 31, 2022, compared to the same period in 2021, was due primarily to certain health contracts on which we elected to reduce or not renew our participation.

To a lesser extent, the decrease related to the following:

• loss reserves released on certain mortgage contracts;

• crop losses incurred in the equivalent 2021 period.

The decrease was partially offset by the following:

• losses relating to the Russian-Ukrainian conflict;

• growth in transactional liability and marine and energy business.

The “other” loss ratio increased 0.3 percentage points during the year ended December 31, 2022, over the equivalent 2021 period, due primarily due to the decrease in “other” net earned premiums.

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Russian-Ukrainian Conflict

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, which are included in our Other - Specialty book of business.

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

As of December 31, 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 “Critical Accounting Policies and Estimates, Loss and Loss Adjustment Expense Reserves ” and “Note 7.

Acquisition Costs, Net

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Total 30.5 % 26.9 % 3.6 %

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The changes in the acquisition cost ratios during the year ended December 31, 2022, compared to the year ended December 31, 2021, were attributable to the following:

Increase / (decrease) in acquisition cost ratio points Explanation

Property 0.9% There were no significant changes in the property acquisition cost ratios during the year ended December 31, 2021, compared to 2020.

Casualty (0.6)% The casualty acquisition cost ratio decreased slightly during the year ended December 31, 2021, over the comparable 2020 period as a result of the following partially offsetting factors:

a) lower acquisition cost on certain workers compensation contracts with sliding scale ceding commissions, which incurred higher losses in 2021 compared to 2020;

b) higher acquisition costs on multi-line and Lloyd's syndicate contracts, which incorporate relatively higher commission rates than other casualty businesses.

Other 12.6% The increase in the “other” acquisition cost ratio during the year ended December 31, 2021, over the comparable 2020 period was due primarily to profit commission adjustments on mortgage contracts that had favorable loss development during 2021.

The increase was partially offset by a shift in the business mix towards non-proportional specialty business during the year ended December 31, 2021.

This business incorporates lower commission rates than proportional health and financial lines business.

Property 0.9% The increase in property acquisition cost ratio for the year ended December 31, 2022, over the comparable 2021 period, was driven by the higher ceding commissions on our growing portfolio of personal property quota share contracts relative to the reduction in our motor business.

Casualty 2.4% The increase in the casualty acquisition cost ratio for the year ended December 31, 2022, over the comparable 2021 period, was due primarily to changes in our business mix.

The motor and workers’ compensation premiums, which decreased in 2022, generally incorporate a lower ceding commission rate than the general liability and multi-line business, which grew in 2022.

Other 7.4% The increase in the “other” acquisition cost ratio for the year ended December 31, 2022, over the comparable 2021 period, was due primarily to the following:

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

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

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

• decreases health business, which generally carries relatively low ceding commissions.

Ratio Analysis

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

Year ended December 31 Year ended December 31

Property Casualty Other Total Property Casualty Other Total

Loss ratio 78.0 % 71.0 % 55.0 % 67.4 % 82.0 % 73.1 % 54.7 % 69.5 %

Acquisition cost ratio 22.2 29.0 37.4 30.5 21.3 26.6 30.0 26.9

Composite ratio 100.2 % 100.0 % 92.4 % 97.9 % 103.3 % 99.7 % 84.7 % 96.4 %

Underwriting expense ratio 4.4 4.5

Combined ratio 102.3 % 100.9 %

General and Administrative Expenses

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For the year ended December 31, 2021, general and administrative expenses increased by $3.0 million, or 11.2%, compared to the same period in 2020.

The increase was due primarily to (i) our Innovations unit, (ii) directors’ and officers’ insurance premiums, (iii) personnel costs, and (iv) information system and technology.

The increase was partially offset by lower legal and other professional fees compared to the year ended December 31, 2020.

For the years ended December 31, 2021, and 2020, the general and administrative expenses included $3.2 million and $2.5 million, respectively, of expenses related to stock compensation granted to employees and directors.

For the year ended December 31, 2022, general and administrative expenses increased by $2.2 million, or 7.6%, compared to the equivalent 2021 period.

The increase was due primarily to (i) a $1.5 million increase in share-based compensation and (ii) $1.1 million of separation and severance costs incurred in 2022.

Lower personnel bonus expense partially offset the increase.

For the year ended December 31, 2022, and 2021, general and administrative expenses included $4.7 million and $3.2 million, respectively, of costs related to share-based compensation granted to employees and directors.

Total Investment Income (Loss)

Total investment income (loss) incorporates (i) changes in the net asset value of our investment in SILP managed by DME Advisors, (ii) interest income earned on the restricted cash and cash equivalents pledged as collateral to our clients, and (iii) gains (or losses) and interest on our portfolio of strategic and Innovations investments, notes receivable and investments accounted for under the equity method.

Total investment income (loss) incorporates (i) changes in the net asset value of our investment in SILP managed by DME Advisors, (ii) interest income earned on the restricted cash and cash equivalents pledged as collateral to our clients, and (iii) gains (or losses) and interest on our portfolio of strategic and Innovations investments, and investments accounted for under the equity method.

We expect our total investment income, including any change in the net asset value of our investment in SILP, to fluctuate from period to period.

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($ in thousands)

Realized gains (losses) $ 14,210 $ (9,234)

Interest and dividend income, net of withholding taxes $ 10,865 $ 200

Change in unrealized gains and losses 9,858 19,560

Realized gains (losses) — 14,210

Investment-related foreign exchange gains (losses) (185) (45)

Interest and dividend income, net of withholding taxes 200 5,419

Interest, dividend, and other expenses (6,399) (1,860)

Income (loss) from equity method investment — 843

Net investment-related income (loss) $ 14,139 $ 32,065

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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 years ended December 31, 2021, and 2020, please refer to Note 3 of the consolidated financial statements.

For the year ended December 31, 2021, investment income, net of fees and expenses, resulted in a gain of 7.5% on the Investment Portfolio managed by DME Advisors, compared to a gain of 1.4% for the year ended December 31, 2020.

The long portfolio gained 24.3% while the short portfolio and macro positions lost 7.9% and 6.0%, respectively, during the year ended December 31, 2021.

For the year ended December 31, 2021, the largest contributors to SILP’s investment income were long positions in Atlas Air Worldwide (AAWW), Brighthouse Financial (BHF), CONSOL Energy (CEIX), Green Brick Partners (GRBK), and Teck Resources (TECK).

The largest detractors were various short positions composed of single names and indexes.

For the year ended December 31, 2021, the decrease in interest and dividend income compared to the equivalent period in 2020 resulted from lower interest rates offered by financial institutions on the restricted cash and cash equivalents pledged as collateral to our clients.

During the year ended December 31, 2021, we recorded net unrealized gains of $19.5 million on our Innovations-related investment portfolio.

During the year ended December 31, 2021, we also realized a $14.2 million gain (pre-tax) from the sale of our investment in AccuRisk.

For further information about management fees and performance compensation for the years ended December 31, 2022, and 2021, please refer to Note 3 of the consolidated financial statements.

For the year ended December 31, 2022, the Investment Portfolio managed by DME Advisors reported a gain of 25.3%, compared to a gain of 7.5% for the year ended December 31, 2021.

On a gross basis, the long and the short portfolio earned 0.0%, and 26.1%, respectively, while macro and other positions gained 2.0%, during the year ended December 31, 2022.

For the year ended December 31, 2022, the most significant contributors to SILP’s investment return were long positions in Twitter and Consol Energy, and a short position in a basket of stocks perceived to be overvalued.

The most significant detractors for the year ended December 31, 2022, were long positions in Green Brick Partners, Danimer Scientific, and GoPro.

During the year ended December 31, 2022, some of our Innovations-related investees completed new financing rounds.

The associated carry-value increases contributed to a net unrealized gain of $9.9 million (2021:

$19.6 million).

The unrealized gains are net of a $1.7 million valuation allowance recorded on certain Innovations-related investments during the year ended December 31, 2022 (2021:

$0.5 million).

The increase in interest income for the year ended December 31, 2022, was primarily related to our restricted cash and cash equivalents, which benefited from rising U.S.

interest rates.

The interest, dividend, and other expenses primarily relate to interest payable on funds withheld.

For the year ended December 31, 2021, we realized gains of $14.2 million related to the sale of a strategic investment.

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For the years ended December 31, 2021, and 2020, the gross investment return (loss) on our investments managed by DME Advisors (excluding investment advisor performance allocation) was composed of the following:

For the years ended December 31, 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:

Long portfolio gains (losses) — % 24.3 %

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Other income and expenses 1

(2.1) % (0.7) %

Gross investment return 28.1 % 8.3 %

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“Net investment return” incorporates both of these amounts.

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 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.

For the years ended December 31, 2022, and 2021, the Investment Portfolio was 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 adjusted monthly for our share of the net profits and net losses reported by SILP during any intervening period (the “adjusted GLRE Surplus”).

Effective January 1, 2023, the Investment Portfolio is calculated based on 60% of adjusted GLRE Surplus.

Each month, we post on our website ( www.greenlightre.com ) the returns from our investment in SILP.

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We expect GRIL to be taxed at 12.5% on its taxable trading income and 25% on its non-trading income, if any.

Greenlight Re UK and GCM are incorporated in the United Kingdom and therefore are subject to the U.K.

corporate tax rate of 19% on their profits.

Verdant is incorporated in Delaware and is subject to taxes under the U.S.

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

At December 31, 2021, a valuation allowance of $2.7 million (December 31, 2020:

At December 31, 2022, a valuation allowance of $2.3 million (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.

Ratio Analysis

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

Year ended December 31 Year ended December 31

Property Casualty Other Total Property Casualty Other Total

Loss ratio 82.0 % 73.1 % 54.7 % 69.5 % 69.7 % 71.7 % 83.4 % 74.2 %

Acquisition cost ratio 21.3 26.6 30.0 26.9 20.4 27.2 17.4 24.0

Composite ratio 103.3 % 99.7 % 84.7 % 96.4 % 90.1 % 98.9 % 100.8 % 98.2 %

Underwriting expense ratio 4.5 2.2

Combined ratio 100.9 % 100.4 %

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Financial Condition

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The total investments reported in the consolidated balance sheets at December 31, 2022, was $248.5 million, compared to $231.0 million at December 31, 2021, an increase of $17.5 million, or 7.6%.

The increase was primarily related to income from our Innovations investments and our investment in SILP.

At December 31, 2021, 94.1% of SILP’s portfolio was valued based on quoted prices in actively traded markets (Level 1), 2.9% was composed of instruments valued based on observable inputs other than quoted prices (Level 2), and 0.6% was composed of instruments valued based on non-observable inputs (Level 3).

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

The increase was partially offset by net redemptions from SILP.

At December 31, 2022, 91.6% of SILP’s portfolio was valued based on quoted prices in actively traded markets (Level 1), 6.3% was composed of instruments valued based on observable inputs other than quoted prices (Level 2), and a nominal amount was composed of instruments valued based on non-observable inputs (Level 3).

At December 31, 2022, 2.1% of SILP’s portfolio consisted of private equity funds valued using the funds’ net asset values as a practical expedient.

At December 31, 2021, our Innovations investments did not have readily determinable fair values and were carried at their original cost minus impairment plus changes resulting from observable price changes.

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At December 31, 2022, 86% of our Innovations-related portfolio was carried at fair value on a nonrecurring basis, measured as of the investees’ most recently completed financing round, and 14% was carried at the original cost.

Other than our investment in SILP (see Notes 3 and 4 of the accompanying 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.

Cash and cash equivalents;

Restricted cash and cash equivalents

Unrestricted cash and cash equivalents decreased by $38.1 million, or 49.9%, from $76.3 million at December 31, 2021, to $38.2 million at December 31, 2022, primarily due to cash used for operations, 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 decreased by $110.6 million, or 14.8%, from $745.4 million at December 31, 2020, to $634.8 million, at December 31, 2021, primarily due to collateral released by some of our ceding insurers.

Our restricted cash increased by $33.5 million, or 5.3%, from $634.8 million at December 31, 2021, to $668.3 million, at December 31, 2022, primarily due to collateral required by our ceding insurers.

Reinsurance balances receivable

During the year ended December 31, 2022, reinsurance balances receivable increased by $100.2 million, or 24.7%, to $505.6 million from $405.4 million at December 31, 2021.

This increase was related primarily to increases in our funds at Lloyd’s and funds withheld on reinsurance contracts with Lloyd’s syndicates.

A decrease in premiums receivable partially offset the increase during the year ended December 31, 2021.

This increase was related primarily to funds withheld by cedents.

At December 31, 2022, funds held by cedents were $337.4 million, compared to $246.9 million at December 31, 2021.

Funds withheld predominantly relate to premiums withheld by Lloyd’s syndicates and funds contributed by the Company to Lloyd's as security for members’ underwriting activities.

The remaining increase related to premiums receivable on new contracts bound during the year ended December 31, 2022.

Loss and Loss Adjustment Expense Reserves;

Loss and Loss Adjustment Expenses Recoverable

The COVID-19 pandemic is unprecedented, and we do not have previous loss experience on which to base our estimates for the associated loss and loss adjustment expense reserves.

See Note 7 of the accompanying consolidated financial statements for assumptions used in our loss estimates relating to the COVID-19 pandemic.

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

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See Note 7 of the accompanying 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 year ended December 31, 2021, the total loss and loss adjustment expenses recoverable decreased by $5.8 million, or 34.1%, to $11.1 million from $16.9 million at December 31, 2020.

During the year ended December 31, 2022, total loss and loss adjustment expenses recoverable increased by $2.1 million, or 19.3%, to $13.2 million from $11.1 million at December 31, 2021.

See Note 8 of the accompanying consolidated financial statements for a description of the credit risk associated with our retrocessionaires.

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For most of the contracts we write, defined limits of liability limit our risk exposure.

Once each contract’s limit of liability has been reached, we have no further exposure to additional losses from that contract.

However, certain contracts, particularly quota share contracts covering first-dollar exposure, may not contain aggregate limits.

However, certain contracts, particularly quota share contracts covering first-dollar exposure, do not contain aggregate limits.

Our property and Lloyd’s business, and to a lesser extent our casualty and other business, incorporate contracts that contain natural peril loss exposure.

We currently monitor our catastrophe loss exposure in terms of our PML (probable maximum loss).

We currently monitor our catastrophe loss exposure in terms of our PML.

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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As a result, we cannot provide assurance that any actual event will align with the modeled event or that actual losses from events similar to the modeled events will not vary materially from the modeled event PML.

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

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

At January 1, 2023, 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 $77.5 million and $83.5 million, respectively, both relating to the peril of North Atlantic Hurricane.

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Total equity reported on the consolidated balance sheet increased by $27.5 million to $503.1 million at December 31, 2022, compared to $475.7 million at December 31, 2021.

The increase in shareholders’ equity during the year ended December 31, 2021, was due to the net income of $17.6 million reported for the year and was partially offset by share repurchases.

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

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The increase in shareholders’ equity during the year ended December 31, 2022, was primarily due to the net income of $25.3 million reported for the year, partially offset by the adoption of ASU 2020-06 (see Note 2 of the accompanying consolidated financial statements).

For details of other movements in shareholders’ equity, please see the “Consolidated Statements of Changes in Shareholders’ Equity” in the accompanying consolidated financial statements.

Liquidity and Capital Resources

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There are restrictions on Greenlight Re’s and GRIL’s ability to pay dividends described in more detail below.

It is our current policy to retain earnings to support the growth of our business.

Our current policy is to retain earnings to support the growth of our business.

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

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

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Contracts containing such cancellation rights represented approximately 8% of gross premiums written during 2022.

Further, we believe, in the event that all additional collateral requirements had been triggered at December 31, 2021, additional required collateral would equal approximately $75 million.

We believe if all additional collateral requirements had been triggered at December 31, 2022, additional required collateral would equal approximately $92 million.

Sources and Uses of Funds

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For the years ended December 31, 2022, and 2021, the net cash used in operating activities was $31.8 million and $56.3 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 years ended December 31, 2021 and 2020.

The net cash used in operating activities was used primarily for our underwriting activities and for payment of corporate and general administrative expenses.

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 years ended December 31, 2022, and 2021, as the losses we paid exceeded the premiums we collected.

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 year ended December 31, 2021, our investing activities provided $1.2 million of cash from redemptions from SILP (net of contributions into SILP) and $5.0 million for new Innovations investments.

Investing activities also provided $26.9 million of cash from the sale of our AccuRisk investment and the collection of a note receivable from AccuRisk.

By comparison, for the same period in 2020, our investing activities provided cash of $95.6 million as a result of net redemptions from SILP.

For the year ended December 31, 2021, our financing activities included the repurchase of $10.0 million of our Class A ordinary shares, compared to $17.8 million of repurchases during the equivalent 2020 period.

At December 31, 2021, we believe we have sufficient cash flow from operating and investing activities to meet our foreseeable liquidity requirements.

We do not expect that the recent catastrophic events, including Hurricane Ida, the European floods and hailstorm, U.S.

tornados, and the COVID-19 pandemic, will materially impact our operational liquidity needs, which

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

At December 31, 2021, 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.

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.

Our Lloyd’s syndicate business has been growing in recent years.

The increase in funds contributed to Lloyd's as security for members' underwriting activities has contributed 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 the volume of claims submitted to us by our cedents.

For the year ended December 31, 2022, our investing activities provided net cash of $47.0 million.

We redeemed $60.2 million of cash from SILP (net of contributions) and used $13.2 million for new Innovations and other investments.

By comparison, for the same period in 2021, our investing activities provided net cash of $23.1 million.

For the year ended December 31, 2022, we used $19.8 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 December 31, 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 December 31, 2022, we expect to fund our operations for the foreseeable future from operating and investing cash flows.

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 negatively affect our ability to implement our business strategy.

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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.

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We did not make any significant commitments for capital expenditures during the year ended December 31, 2022.

Our Board of Directors had previously extended the share repurchase plan to June 30, 2021, and authorized the repurchase of up to 5.0 million Class A ordinary shares or securities convertible into Class A ordinary shares in the open market through privately negotiated transactions or Rule 10b5-1 stock trading plans.

In addition, the Board of Directors had also authorized the Company to repurchase up to $25.0 million aggregate face amount of the Company’s 4.00% Convertible Senior Notes due 2023 (the “Notes”) in privately negotiated transactions, in open market repurchases, or pursuant to one or more tender offers.

No Notes were repurchased during the year ended December 31, 2021.

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.

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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 year ended December 31, 2021, the Company repurchased 1,079,544 Class A ordinary shares.

During the year ended December 31, 2022, the Company repurchased 4,933 Class A ordinary shares at an average share price of $7.04.

The Company may, from time to time, repurchase some of its 4.00% convertible senior notes due 2023 (the “Notes”) in privately negotiated transactions, in open market repurchases, or pursuant to one or more tender offers.

During the year ended December 31, 2022, the Company repurchased and retired Notes with a face value of $20.4 million.

Subsequent to December 31, 2022, the Company repurchased and retired an additional $13.8 million of Notes.

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

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

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Contractual Obligations and Commitments

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(1) 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.

Greenlight Re has entered into a lease agreement for office space in the Cayman Islands commencing from July 1, 2021.

The lease expires on June 30, 2026, unless Greenlight Re exercises its right to renew the lease for another five-year period.

GRIL has entered into a lease agreement for office space in Dublin, Ireland commencing from October 1, 2021.

This lease expires on September 30, 2031, unless GRIL exercises the break clause by providing a notice of termination at least nine months prior to September 30, 2026.

Greenlight Re entered into a lease agreement for office space in the Cayman Islands commencing July 1, 2021 and expiring June 30, 2026, unless Greenlight Re exercises its right to renew it for another five years.

GRIL entered into a lease agreement for office space in Dublin, Ireland commencing October 1, 2021, and expiring September 30, 2031, unless GRIL exercises the break clause by providing a notice of termination at least nine months prior to September 30, 2026.

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

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.

At December 31, 2022, the Company has $79.6 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.

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

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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.

The loss carry-forward provision contained in the SILP LPA allows DME II to earn a 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 December 31, 2022, we estimate the reduced performance allocation of 10% to continue to be applied until SILP achieves additional investment returns of 148.5%, at which point the performance allocation will revert to 20%.

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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.

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What changed 10-K

Item 7. Management’s Discussion and Analysis