GREENLIGHT CAPITAL RE, LTD. 10-Q

Item 1. FINANCIAL STATEMENTS GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, 2023 and December 31, 2022 (expressed in thousands of U.S. dollars, except per share and share amounts) March 31, 2023 December 31, 2022 Assets Investments Investment in related party investment fund $ 196,060 $ 178,197 Other investments 71,162 70,279 Total investments 267,222 248,476 Cash and cash equivalents 40,024 38,238 Restricted cash and cash equivalents 626,236 668,310 Reinsurance balances receivable (net of allowance for expected credit losses of 2023: $ 356 and 2022: $ 356 ) 581,641 505,555 Loss and loss adjustment expenses recoverable (net of allowance for expected credit losses of 2023: $ 62 and 2022: $ 62 ) 16,927 13,239 Deferred acquisition costs 84,555 82,391 Unearned premiums ceded 20,783 18,153 Other assets 7,128 6,019 Total assets $ 1,644,516 $ 1,580,381 Liabilities and equity Liabilities Loss and loss adjustment expense reserves $ 595,799 $ 555,468 Unearned premium reserves 337,889 307,820 Reinsurance balances payable 109,249 105,135 Funds withheld 21,846 21,907 Other liabilities 7,311 6,397 Convertible senior notes payable 62,381 80,534 Total liabilities 1,134,475 1,077,261 Commitments and Contingencies (Note 11) Shareholders' equity Preferred share capital (par value $ 0.10 ; authorized, 50,000,000 ; none issued) — — Ordinary share capital (Class A: par value $ 0.10 ; authorized, 100,000,000 ; issued and outstanding, 29,007,963 (2022: 28,569,346 ): Class B: par value $ 0.10 ; authorized, 25,000,000 ; issued and outstanding, 6,254,715 (2022: 6,254,715 )) 3,526 3,482 Additional paid-in capital 479,429 478,439 Retained earnings 27,086 21,199 Total shareholders' equity 510,041 503,120 Total liabilities and equity $ 1,644,516 $ 1,580,381 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 3 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the three months ended March 31, 2023 and 2022 (expressed in thousands of U.S. dollars, except per share and share amounts) Three months ended March 31 2023 2022 Revenues Gross premiums written $ 186,455 $ 145,886 Gross premiums ceded ( 11,212 ) ( 6,009 ) Net premiums written 175,243 139,877 Change in net unearned premium reserves ( 32,594 ) ( 13,952 ) Net premiums earned 142,649 125,925 Income (loss) from investment in related party investment fund (net of related party expenses - Note 3) ( 3,138 ) 4,077 Net investment income (loss) 8,378 3,660 Other income (expense), net 7,097 ( 633 ) Total revenues 154,986 133,029 Expenses Net loss and loss adjustment expenses incurred 96,725 97,407 Acquisition costs 41,476 32,945 General and administrative expenses 9,936 7,232 Deposit interest expense 132 34 Interest expense 776 1,154 Total expenses 149,045 138,772 Income (loss) before income tax 5,941 ( 5,743 ) Income tax (expense) benefit ( 54 ) 16 Net income (loss) $ 5,887 $ ( 5,727 ) Earnings (loss) per share (Class A and Class B) (Note 2) Basic $ 0.17 $ ( 0.17 ) Diluted $ 0.17 $ ( 0.17 ) Weighted average number of ordinary shares used in the determination of earnings and loss per share (Note 2) Basic 34,059,185 32,926,227 Diluted 38,231,607 32,926,227 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 4 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) For the three months ended March 31, 2023 and 2022 (expressed in thousands of U.S. dollars) Three months ended March 31 2023 2022 Ordinary share capital Balance - beginning of period $ 3,482 $ 3,384 Issue of Class A ordinary shares, net of forfeitures 44 88 Balance - end of period 3,526 3,472 Additional paid-in capital Balance - beginning of period 478,439 481,784 Cumulative effect of adoption of accounting guidance for convertible debt at January 1, 2022 — ( 7,896 ) Share-based compensation expense 990 917 Balance - end of period 479,429 474,805 Retained earnings (deficit) Balance - beginning of period 21,199 ( 9,505 ) Cumulative effect of adoption of accounting guidance for convertible debt at January 1, 2022 — 5,362 Net income (loss) 5,887 ( 5,727 ) Balance - end of period 27,086 ( 9,870 ) Total shareholders' equity $ 510,041 $ 468,407 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 5 Return to table of contents GREENLIGHT CAPITAL RE, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the three months ended March 31, 2023 and 2022 (expressed in thousands of U.S. dollars) Three months ended March 31 2023 2022 Cash flows from operating activities Net income (loss) $ 5,887 $ ( 5,727 ) Adjustments to reconcile net income or loss to net cash provided by (used in) operating activities: Loss (income) from investments in related party investment fund 3,138 ( 4,077 ) Net realized gain on repurchase of convertible senior notes payable ( 265 ) — Net change in unrealized gains and losses on investments ( 550 ) ( 3,899 ) Net realized (gains) losses on investments 800 — Foreign exchange (gains) losses ( 4,931 ) 38 Share-based compensation expense 1,034 1,005 Amortization and interest expense, net of change in accruals ( 803 ) ( 845 ) Net change in: Accrued interest receivable ( 58 ) — Reinsurance balances receivable ( 72,203 ) ( 36,280 ) Loss and loss adjustment expenses recoverable ( 3,688 ) ( 269 ) Deferred acquisition costs ( 3,782 ) ( 3,352 ) Unearned premiums ceded ( 2,630 ) ( 4,836 ) Other assets, excluding depreciation ( 1,109 ) 3 Loss and loss adjustment expense reserves 37,709 25,131 Unearned premium reserves 35,225 18,546 Reinsurance balances payable 4,114 4,468 Funds withheld ( 61 ) 137 Other liabilities 914 ( 1,661 ) Net cash provided by (used in) operating activities ( 1,259 ) ( 11,618 ) Cash flows from investing activities Proceeds from redemptions from related party investment fund 26,000 46,658 Contributions to related party investment fund ( 47,001 ) ( 10,000 ) Purchases of investments ( 1,075 ) ( 3,402 ) Net cash provided by (used in) investing activities ( 22,076 ) 33,256 Cash flows from financing activities Repurchases of convertible senior notes payable ( 17,085 ) — Net cash provided by (used in) financing activities ( 17,085 ) — Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash 132 — Net increase (decrease) in cash, cash equivalents and restricted cash ( 40,288 ) 21,638 Cash, cash equivalents and restricted cash at beginning of the period 706,548 711,101 Cash, cash equivalents and restricted cash at end of the period $ 666,260 $ 732,739 Supplementary information Interest paid in cash $ 1,578 $ 2,000 Income tax paid in cash $ 21 $ — The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements. 6 Return to table of contents GREENLIGHT CAPITAL RE, LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2023 1. ORGANIZATION AND BASIS OF PRESENTATION Greenlight Capital Re, Ltd. (“GLRE” and, together with its wholly-owned subsidiaries, the “Company”) was incorporated as an exempted company under the Companies Law of the Cayman Islands on July 13, 2004. The Company’s wholly-owned subsidiaries are described below: • Greenlight Reinsurance, Ltd. (“Greenlight Re”), domiciled in the Cayman Islands, is a Class D insurer license issued in accordance with the terms of The Insurance Act, 2010 (as amended) and underlying regulations thereto (the “Act”) and is subject to regulation by the Cayman Islands Monetary Authority. Greenlight Re commenced underwriting in April 2006. • Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”), domiciled in Ireland since 2010, is authorized as a non-life reinsurance undertaking in accordance with the provisions of the European Union (Insurance and Reinsurance) Regulations 2015. GRIL provides multi-line property and casualty reinsurance capacity to the European broker market and provides GLRE with an additional platform to serve clients located in Europe and North America. • Greenlight Re Marketing (UK) Limited, domiciled in the United Kingdom (“U.K.”) since 2020, is a U.K. company formed to expand GLRE’s presence in the Lloyd’s of London market (“Lloyd’s”). • Greenlight Re Corporate Member Ltd., domiciled in the U.K. since 2014, is a corporate member that became a wholly-owned subsidiary of GLRE in 2023 and provides underwriting capacity for various Lloyd’s syndicates, including Syndicate 3456. • Verdant Holding Company, Ltd., domiciled in the United States since 2008, is an investment holding company. Additionally, through Greenlight Innovation Syndicate 3456 (“Syndicate 3456”), Greenlight Re provides a (re)insurance platform to its growing portfolio of insurtech partnerships. Domiciled in the U.K. since 2022, Syndicate 3456 is authorized to underwrite under the Lloyd’s syndicate-in-a-box model. The Class A ordinary shares of GLRE are listed on Nasdaq Global Select Market under the symbol “GLRE.” These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the U.S. Securities and Exchange Commission’s (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 8, 2023. These unaudited condensed consolidated financial statements include GLRE and its wholly-owned subsidiaries and all significant intercompany transactions and balances have been eliminated on consolidation. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. 2. SIGNIFICANT ACCOUNTING POLICIES There have been no material changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2022. 7 Return to table of contents Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from these estimates. The significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, loss and loss adjustment expense reserves, premiums written, earned, and receivable, variability underlying risk transfer assessments, allowances for credit losses, share-based compensation, valuation allowances associated with deferred tax assets and investment impairments. Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents The Company maintains cash and cash equivalent balances to collateralize regulatory trusts and letters of credit issued to cedents (see Note 11). The following table reconciles the cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total presented in the condensed consolidated statements of cash flows: March 31, 2023 December 31, 2022 ($ in thousands) Cash and cash equivalents $ 40,024 $ 38,238 Restricted cash and cash equivalents 626,236 668,310 Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows $ 666,260 $ 706,548 Funds Held by Cedents The caption “Reinsurance balances receivable” in the Company’s condensed consolidated balance sheets includes financial assets held by cedents. At March 31, 2023, funds held by cedents were $ 367.8 million (December 31, 2022: $ 337.4 million). Such amounts include premiums withheld by Lloyd’s syndicates and funds contributed by the Company to Lloyd's as security for members’ underwriting activities. The Lloyd’s syndicates invest a portion of the premiums withheld in investment funds and fixed-maturity securities. The Company records its share of income (or expense) from these assets, in its condensed consolidated statements of operations under the caption “Other income (expense)” as reported by the syndicates on a quarterly lag basis due to the timing of the availability of these quarterly financial reports. Deposit Assets and Liabilities At March 31, 2023, deposit assets and liabilities were $ 3.1 million and $ 8.8 million, respectively (December 31, 2022: $ 3.1 million and $ 10.7 million, respectively). For the three months ended March 31, 2023 and 2022, the interest income (expense) on deposit-accounted contracts were as follows: Three months ended March 31 2023 2022 ($ in thousands) Deposit interest income $ — $ — Deposit interest expense $ ( 132 ) $ ( 34 ) Deposit interest income (expense), net $ ( 132 ) $ ( 34 ) Foreign Exchange For the three months ended March 31, 2023, $ 4.9 million (three months ended March 31, 2022: $( 1.1 ) million), of foreign exchange gains (losses) were included in the Company’s net income in the condensed consolidated statements of operations. 8 Return to table of contents Earnings (Loss) Per Share The following table reconciles net income (loss) and weighted average shares used in computing basic and diluted net income (loss) per share for the three months ended March 31, 2023 and 2022 (expressed in thousands of U.S. dollars, except per share and share amounts): Three months ended March 31 2023 2022 Numerator for earnings per share Net income (loss) - basic $ 5,887 $ ( 5,727 ) Add: interest on convertible notes 776 — Less: gain on debt repurchases ( 265 ) — Net income (loss) - diluted $ 6,398 $ ( 5,727 ) Denominator for earnings per share Weighted average shares outstanding - basic 34,059,185 32,926,227 Effect of dilutive employee and director share-based awards 341,263 — Shares potentially issuable in connection with convertible notes 3,831,159 — Weighted average shares outstanding - diluted 38,231,607 32,926,227 Anti-dilutive stock options outstanding 690,337 735,627 Participating securities excluded from calculation of loss per share — 815,847 Shares potentially issuable in connection with convertible notes excluded from calculation of diluted loss per share — 5,818,182 Earnings (loss) per Class A and Class B ordinary share: Basic $ 0.17 $ ( 0.17 ) Diluted $ 0.17 $ ( 0.17 ) Due to the net loss attributable to common shareholders recognized for the three months ended March 31, 2022, the share-based awards and convertible notes were anti-dilutive. 3. INVESTMENT IN RELATED PARTY INVESTMENT FUND The Company has entered into the Second Amended and Restated Exempted Limited Partnership Agreement (the “SILP LPA”) of Solasglas Investments, LP (“SILP”), with DME Advisors II, LLC (“DME II”), as General Partner, Greenlight Re, and GRIL, (together, the “GLRE Limited Partners”). SILP has entered into a SILP investment advisory agreement (“IAA”) with DME Advisors. LP (“DME Advisors”), pursuant to which DME Advisors is the investment manager for SILP. DME II and DME Advisors are related to the Company, and each is an affiliate of David Einhorn, Chairman of the Company’s Board of Directors (the “Chairman”). At March 31, 2023, the SILP LPA included the following proviso: “The Investment Portfolio of each Partner will not exceed the product of (a) such Partner’s surplus (Greenlight Re Surplus or GRIL Surplus, as the case may be) multiplied by (b) the Investment Cap ( 60 %), and the General Partner will designate any portion of a Partner’s Investment Portfolio as Designated Securities to effectuate such limit.” The Company has concluded that SILP qualifies as a variable interest entity (“VIE”) under U.S. GAAP. In assessing its interest in SILP, the Company noted the following: • DME II serves as SILP’s general partner and has the power to appoint the investment manager. The Company does not have the power to appoint, change or replace the investment manager or the general partner except “for cause.” Neither of the GLRE Limited Partners can participate in the investment decisions of SILP as long as SILP adheres to the investment guidelines provided within the SILP LPA. For these reasons, the GLRE Limited Partners are not considered to have substantive participating rights or kick-out rights. 9 Return to table of contents • DME II holds an interest in excess of 10% of SILP’s net assets, which the Company considers to represent an obligation to absorb losses and a right to receive benefits of SILP that are significant to SILP. Consequently, the Company has concluded that DME II’s interests, not the Company’s, meet both the “power” and “benefits” criteria associated with VIE accounting guidance. Therefore DME II is SILP’s primary beneficiary. The Company presents its investment in SILP in its condensed consolidated balance sheets in the caption “Investment in related party investment fund.” The Company’s maximum exposure to loss relating to SILP is limited to the net asset value of the GLRE Limited Partners’ investment in SILP. At March 31, 2023, the net asset value of the GLRE Limited Partners’ investment in SILP was $ 196.1 million (December 31, 2022: $ 178.2 million), representing 71.6 % (December 31, 2022: 69.3 %) of SILP’s total net assets. DME II held the remaining 28.4 % (December 31, 2022: 30.7 %) of SILP’s total net assets. The investment in SILP is recorded at the GLRE Limited Partners’ share of the net asset value of SILP as reported by SILP’s third-party administrator. The GLRE Limited Partners can redeem their assets from SILP for operational purposes by providing 3 business days’ notice to DME II. At March 31, 2023, the majority of SILP’s long investments were composed of cash and publicly traded equity securities, which could be readily liquidated to meet the GLRE Limited Partners’ redemption requests. The Company’s share of the change in the net asset value of SILP for the three months ended March 31, 2023 was $( 3.1 ) million (three months ended March 31, 2022: $ 4.1 million), and shown in the caption “Income (loss) from investment in related party investment fund” in the Company’s condensed consolidated statements of operations. The summarized financial statements of SILP are presented below. Summarized Statement of Assets and Liabilities of Solasglas Investments, LP March 31, 2023 December 31, 2022 ($ in thousands) Assets Investments, at fair value $ 370,568 $ 304,806 Derivative contracts, at fair value 15,095 17,547 Due from brokers 42,257 109,169 Interest and dividends receivable 8 527 Total assets 427,928 432,049 Liabilities and partners’ capital Liabilities Investments sold short, at fair value ( 132,658 ) ( 159,382 ) Derivative contracts, at fair value ( 14,737 ) ( 12,443 ) Capital withdrawals payable ( 670 ) ( 75 ) Due to brokers ( 5,299 ) ( 2,050 ) Interest and dividends payable ( 418 ) ( 760 ) Other liabilities ( 184 ) ( 159 ) Total liabilities ( 153,966 ) ( 174,869 ) Net Assets $ 273,962 $ 257,180 GLRE Limited Partners’ share of Net Assets $ 196,060 $ 178,197 10 Return to table of contents Summarized Statement of Operations of Solasglas Investments, LP Three months ended March 31 2023 2022 ($ in thousands) Investment income Dividend income (net of withholding taxes) $ 627 $ 320 Interest income 1,816 49 Total Investment income 2,443 369 Expenses Management fee ( 1,068 ) ( 891 ) Interest ( 1,428 ) ( 256 ) Dividends ( 419 ) ( 382 ) Professional fees and other ( 282 ) ( 264 ) Total expenses ( 3,197 ) ( 1,793 ) Net investment income (loss) ( 754 ) ( 1,424 ) Realized and change in unrealized gains (losses) Net realized gain (loss) ( 1,760 ) 24,148 Net change in unrealized appreciation (depreciation) ( 1,033 ) ( 16,792 ) Net gain (loss) on investment transactions ( 2,793 ) 7,356 Net income (loss) $ ( 3,547 ) $ 5,932 GLRE Limited Partners’ share of net income (loss) (1) $ ( 3,138 ) $ 4,077 (1) Net income (loss) is net of management fees and performance allocation presented below: Three months ended March 31 2023 2022 ($ in thousands) Management fees $ 1,068 $ 891 Performance allocation — 453 Total $ 1,068 $ 1,344 See Note 10 for further details on related party management fees and performance allocation. 11 Return to table of contents 4. FINANCIAL INSTRUMENTS Private investments and unlisted equity securities without readily determinable fair values At March 31, 2023, the Company included the following private investments and unlisted securities without readily determinable fair values in the caption “Other investments”: Cost Unrealized gains Unrealized losses Accrued interest Fair value / carrying value ($ in thousands) Private investments and unlisted equities $ 22,488 $ 42,461 $ ( 2,265 ) $ — $ 62,684 Debt and convertible debt securities 2,420 — — 58 2,478 Certificates of deposit 6,000 — — — 6,000 Total other investments $ 30,908 $ 42,461 $ ( 2,265 ) $ 58 $ 71,162 The accrued interest on certificates of deposit was included in other assets at March 31, 2023 and December 31, 2022. At December 31, 2022, the Company included the following private investments and unlisted securities without readily determinable fair values in the caption “Other investments”: Cost Unrealized gains Unrealized losses Fair value / carrying value ($ in thousands) Private investments and unlisted equities $ 22,787 $ 42,461 $ ( 2,815 ) $ 62,433 Debt and convertible debt securities 1,846 — — 1,846 Certificates of deposit 6,000 — — 6,000 Total other investments $ 30,633 $ 42,461 $ ( 2,815 ) $ 70,279 The following table presents the carrying values of the private investments and unlisted equity securities carried under the measurement alternative at March 31, 2023 and 2022, and the related adjustments recorded during the periods then ended. Three months ended March 31 2023 2022 ($ in thousands) Carrying value (1) $ 62,684 $ 54,312 Upward carrying value changes (2) $ — $ 3,827 Downward carrying value changes and impairment (3) $ ( 250 ) $ — (1) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes. (2) The cumulative upward carrying value changes from inception to March 31, 2023, totaled $ 42.9 million. (3) The cumulative downward carrying value changes and impairments from inception to March 31, 2023, totaled $ 3.3 million. During three months ended March 31, 2023, the Company realized a loss of $ 0.8 million (three months ended March 31,2022: $ nil ), and a corresponding reversal of unrealized loss relating to an investment which was previously fully impaired at December 31, 2022, resulting in no impact to the Company’s net income (loss) for the quarter. Fair Value Hierarchy The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on the extent to which the inputs are observable in the market. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows: 12 Return to table of contents • Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. • Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data. • Level 3: Unobservable inputs supported by little or no market activity and significant to the fair value of the assets and liabilities. The term “unobservable inputs” includes certain pricing models, discounted cash flow methodologies, and similar techniques. Assets measured at fair value on a nonrecurring basis At March 31, 2023 and December 31, 2022, the Company held $ 53.6 million and $ 53.6 million, respectively, of private investments and unlisted equities measured at fair value on a nonrecurring basis. The Company classifies these assets as Level 3 within the fair value hierarchy. The following table summarizes the periods between the most recent fair value measurement dates and March 31, 2023, for the private and unlisted equities measured at fair value on a nonrecurring basis: Less than 6 months 6 to 12 months Over 1 year Total ($ in thousands) Fair values measured on a nonrecurring basis $ 599 $ 24,451 $ 28,503 $ 53,553 At March 31, 2023 and December 31, 2022, the Company held $ 9.1 million and $ 8.9 million, respectively, of private investments and unlisted equities measured at cost. Assets measured at fair value on a recurring basis At March 31, 2023 and December 31, 2022, the Company did not carry any other investments at fair value with an assigned Level within the fair value hierarchy. The Company’s investment in the related party investment fund is measured at fair value using the net asset value practical expedient.Therefore, this investment is not classified within the fair value hierarchy. (See Note 3 for further details on the related party investment fund.) During the three months ended March 31, 2023 and 2022, there were no transfers between Level 2 and Level 3 of the fair value hierarchy. Financial Instruments Disclosed, But Not Carried, at Fair Value The caption “Convertible senior notes payable” represents financial instruments that the Company carries at amortized cost. The fair value of the convertible senior notes payable is estimated based on the bid price observed in an inactive market for the identical instrument (Level 2 input) (see Note 7). The carrying value of debt and convertible debt securities (see “Private investments and unlisted equity securities without readily determinable fair values” above) and certificates of deposit with original maturities of one year or less approximates their fair values. The Company classifies these assets as Level 2 within the fair value hierarchy. 5. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES At March 31, 2023 and December 31, 2022, loss and loss adjustment expense reserves were composed of the following: March 31, 2023 December 31, 2022 ($ in thousands) Case reserves $ 195,957 $ 184,756 IBNR 399,842 370,712 Total $ 595,799 $ 555,468 13 Return to table of contents A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated for the three months ended March 31, 2023 and 2022 is as follows: Consolidated 2023 2022 ($ in thousands) Gross balance at January 1 $ 555,468 $ 524,010 Less: Losses recoverable ( 13,239 ) ( 11,100 ) Net balance at January 1 542,229 512,910 Incurred losses related to: Current year 84,687 95,082 Prior years 12,038 2,325 Total incurred 96,725 97,407 Paid losses related to: Current year ( 5,546 ) ( 9,903 ) Prior years ( 57,158 ) ( 59,901 ) Total paid ( 62,704 ) ( 69,804 ) Foreign currency revaluation 2,622 ( 2,741 ) Net balance at March 31 578,872 537,772 Add: Losses recoverable 16,927 11,369 Gross balance at March 31 $ 595,799 $ 549,141 Estimates for Significant Catastrophe Events At March 31, 2023, the Company’s net reserves for losses and loss expenses included estimated amounts for several catastrophe and weather-related events. The magnitude and complexity of losses arising from certain of these events inherently increase the level of uncertainty and, accordingly, the level of management judgement involved in arriving at estimated net reserves for losses and loss expenses. Consequently, actual losses for these events may ultimately differ materially from current management estimates. During the three months ended March 31, 2023, the Company recognized catastrophe and weather-related losses, net of reinsurance, of $ 6.2 million related to the Turkey earthquake, the New Zealand Cyclone Gabrielle and the U.S. convective storms that occurred during the current quarter, coupled with $ 4.1 million of CAT losses relating to the 2022 Winter Storm Elliott for total CAT losses of $ 10.3 million (three months ended March 31, 2022: $ 17.9 million). Prior Year Reserve Development For the three months ended March 31, 2023, the estimate of net losses incurred relating to prior accident years increased by $ 12.0 million, primarily due to the following: • $ 4.1 million relating to the 2022 Winter Storm Elliott as noted above; and • $ 9.8 million of additional attritional losses driven mainly by $ 7.8 million on casualty contracts (mostly 2019 and 2021 underwriting years) and $ 1.9 million on property contracts (mostly 2020 and 2021 underwriting years). These increases were partially offset by $ 1.9 million of loss reserve reduction on other lines of business (mostly 2021 and 2022 underwriting years). For the three months ended March 31, 2022, the estimate of net losses incurred relating to prior accident years increased by $ 2.3 million, primarily due to adverse development on a health contract and additional losses from the COVID-19 pandemic. 6. RETROCESSION For the three months ended March 31, 2023, the Company’s earned ceded premiums were $ 8.6 million, (three months ended March 31, 2022: $ 1.2 million). For the three months ended March 31, 2023, loss and loss adjustment expenses recovered and changes in losses recoverable were $ 6.2 million (three months ended March 31, 2022: $ 0.7 million). 14 Return to table of contents Retrocession contracts do not relieve the Company from its obligations to its cedents. Failure of retrocessionaires to honor their obligations could result in losses to the Company. At March 31, 2023, the Company’s loss reserves recoverable consisted of (i) $ 12.5 million (December 31, 2022: $ 9.5 million) recoverable from unrated retrocessionaires, of which $ 12.2 million (December 31, 2022: $ 9.2 million) were secured by cash, letters of credit and collateral held in trust accounts for the benefit of the Company and (ii) $ 4.5 million (December 31, 2022: $ 3.8 million) recoverable from retrocessionaires rated A- or above by A.M. Best. The Company regularly evaluates its net credit exposure to assess the ability of the retrocessionaires to honor their respective obligations. At March 31, 2023, the Company had recorded an allowance for expected credit losses of $ 62 thousand (December 31, 2022: $ 62 thousand). 7. SENIOR CONVERTIBLE NOTES On August 7, 2018, the Company issued $ 100.0 million of senior unsecured convertible notes (the “Notes”), which mature on August 1, 2023. The Notes bear interest at 4.0 %, payable semiannually on February 1 and August 1 of each year beginning February 1, 2019. Noteholders have the option, under certain conditions, to redeem the Notes prior to maturity. At March 31, 2023, the Company’s share price was lower than the conversion price of $ 17.19 per share. If a holder redeems the Notes, the Company shall have the option to settle the conversion obligation in cash, ordinary shares of the Company, or a combination thereof pursuant to the terms of the indenture governing the Notes. The Company’s effective borrowing rate for non-convertible debt at the time of issuance of the Notes was estimated to be 6.0 %. The Company incurred issuance costs in connection with the issuance of the Notes. At March 31, 2023, the unamortized portion of these costs was $ 0.2 million (December 31, 2022: $ 0.4 million), which the Company expects to amortize through the maturity date. During the three months ended March 31, 2023 the Company repurchased and canceled $ 17.5 million of the Notes, resulting in realized gains of $ 0.3 million, which is included in Other income (expense), net, in the condensed consolidated statements of operations. The carrying value of the Notes outstanding at March 31, 2023, including accrued interest of $ 0.4 million, was $ 62.4 million (December 31, 2022: $ 80.5 million). At March 31, 2023, the Company estimated the fair value of the Notes (excluding accrued interest) to be $ 60.3 million (December 31, 2022: $ 77.1 million) (see Note 4 Financial Instruments). For the three months ended March 31, 2023, the Company recognized interest expense of $ 0.8 million (three months ended March 31, 2022: $ 1.2 million), which included the interest coupon and the amortization of issuance costs. The Company was in compliance with all covenants relating to the Notes at March 31, 2023, and December 31, 2022. At March 31, 2023, the Company had a remaining obligation for interest and principal payments of $ 63.4 million. 8. SHARE CAPITAL The following table is a summary of the Company’s ordinary shares issued and outstanding: Three months ended March 31 Three months ended March 31 2023 2022 Class A Class B Class A Class B Balance – beginning of period 28,569,346 6,254,715 27,589,731 6,254,715 Issue of ordinary shares, net of forfeitures 438,617 — 876,785 — Repurchase of ordinary shares — — — — Balance – end of period 29,007,963 6,254,715 28,466,516 6,254,715 Under the $ 25.0 million share repurchase plan approved by the Board, expiring on June 30, 2023, the Company repurchased no Class A ordinary shares during the three months ended March 31, 2023 and 2022. All Class A ordinary shares repurchased are canceled immediately upon repurchase. On May 2, 2023, the Board of Directors re-approved the share 15 Return to table of contents repurchase plan effective from July 1, 2023 until June 30, 2024, 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. Under the Company’s stock incentive plan (see Note 9), the number of Class A ordinary shares authorized for issuance is 8.0 million shares. At March 31, 2023, 1,387,727 (December 31, 2022: 2,011,426 ) Class A ordinary shares remained available for future issuance under the Company’s stock incentive plan. The Compensation Committee of the Board of Directors administers the stock incentive plan. 9. SHARE-BASED COMPENSATION Employee and Director Restricted Shares The following table summarizes the activity for unvested outstanding restricted share awards during the three months ended March 31, 2023: Performance Restricted Shares Service Restricted Shares Number of non-vested restricted shares Weighted average grant date fair value Number of non-vested restricted shares Weighted average grant date fair value Balance at December 31, 2021 193,149 $ 10.10 753,407 $ 8.68 Granted 601,213 6.82 248,659 6.82 Vested — — ( 122,233 ) 10.84 Forfeited — — ( 8,476 ) 7.67 Balance at March 31, 2022 794,362 $ 7.62 871,357 $ 7.86 Balance at December 31, 2022 794,362 $ 7.62 832,896 $ 7.76 Granted 357,766 9.85 152,001 9.85 Vested — — ( 256,243 ) 6.75 Forfeited ( 99,428 ) 9.62 ( 49,417 ) 8.64 Balance at March 31, 2023 1,052,700 $ 8.19 679,237 $ 8.54 For the three months ended March 31, 2023, the Company issued 587,462 (three months ended March 31, 2022: 849,872 ) Class A ordinary shares to employees pursuant to the Company’s stock incentive plan. The restricted shares granted to employees in 2023 and 2022 include (i) restricted shares with both performance and service-based vesting conditions (“Performance RSs”) and (ii) restricted shares with only service-based vesting conditions (“Service RSs”). The Service RSs vest evenly each year on January 1, subject to the grantee’s continued service with the Company. If performance goals are achieved, the Performance RSs will cliff vest at the end of a three-year performance period within a range of 25 % and 100 % of the awarded Performance RSs, with a target of 50 %. During the vesting period, the holder of the Service RSs and Performance RSs retains voting rights but is entitled to any dividends declared by the Company only upon vesting. For the three months ended March 31, 2023, the total fair value of restricted shares vested was $ 1.7 million (three months ended March 31, 2022: $ 1.3 million). 16 Return to table of contents Employee Restricted Stock Units The following table summarizes the activity for unvested outstanding restricted stock units (“RSUs”) during the three months ended March 31, 2023: Performance Restricted Stock Units Service Restricted Stock Units Number of non-vested RSUs Weighted average grant date fair value Number of non-vested RSUs Weighted average grant date fair value Balance at December 31, 2022 105,008 $ 6.82 172,952 $ 7.58 Granted 71,121 9.85 42,811 9.85 Vested — — ( 77,695 ) 6.74 Forfeited — — ( 1,788 ) 7.82 Balance at March 31, 2023 176,129 $ 8.04 136,280 $ 8.76 For the three months ended March 31, 2023, the Company granted 113,932 (three months ended March 31,2022: 159,215 ) RSUs to employees pursuant to the Company’s stock incentive plan. The RSUs include (i) RSUs with both performance and service-based vesting conditions (“Performance RSUs”) and (ii) RSUs with only service-based vesting conditions (“Service RSUs”). The Service RSUs vest evenly each year on January 1, subject to the grantee’s continued service with the Company. If performance goals are achieved, the Performance RSUs will cliff vest at the end of a three-year performance period within a range of 25 % and 100 % of the awarded Performance RSUs, with a target of 50 %. Prior to 2022, the RSUs issued to employees cliff vested three years after the date of issuance, subject to the grantee’s continued service with the Company. Stock Compensation Expense For the three months ended March 31, 2023 and 2022, the combined stock compensation expense (net of forfeitures) which was included in the caption “General and administrative expenses” in the Company’s condensed consolidated statements of operations was $ 1.0 million and $ 1.0 million, respectively. 10. RELATED PARTY TRANSACTIONS Investment Advisory Agreement Each of DME, DME II, and DME Advisors is an affiliate of the Chairman and, therefore, is a related party to the Company. The Company has entered into the SILP LPA (as described in Note 3 of the condensed consolidated financial statements). DME II receives a performance allocation equal to (with capitalized terms having the meaning provided under the SILP LPA) (a) 10 % of the portion of the Positive Performance Change for each limited partner’s capital account that is less than or equal to the positive balance in such limited partner’s Carryforward Account, plus (b) 20 % of the portion of the Positive Performance Change for each limited partner’s capital account that exceeds the positive balance in such limited partner’s Carryforward Account. The Carryforward Account for Greenlight Re and GRIL includes the amount of investment losses to be recouped, including any loss generated on the assets invested in SILP, subject to adjustments for redemptions. The loss carry-forward provision in the SILP LPA allows DME II to earn a reduced performance allocation of 10 % of profits in years subsequent to any year in which SILP has incurred a loss until all losses are recouped, and an additional amount equal to 150 % of the loss is earned. In accordance with the SILP LPA, DME Advisors constructs a levered investment portfolio as agreed by the Company (the “Investment Portfolio”, as defined in the SILP LPA). On September 1, 2018, SILP entered into the IAA with DME Advisors, which entitles DME Advisors to a monthly management fee equal to 0.125 % ( 1.5 % on an annual basis) of each limited partner’s Investment Portfolio. The IAA has an initial term ending on August 31, 2023, subject to an automatic extension for successive three-year terms. For a detailed breakdown of management fees and performance compensation for the three months ended March 31, 2023 and 2022, refer to Note 3 of the condensed consolidated financial statements. 17 Return to table of contents Pursuant to the SILP LPA and the IAA, the Company has agreed to indemnify DME, DME II, and DME Advisors for any expense, loss, liability, or damage arising out of any claim asserted or threatened in connection with DME Advisors serving as the Company’s or SILP’s investment advisor. The Company will reimburse DME, DME II, and DME Advisors for reasonable costs and expenses of investigating and defending such claims, provided such claims were not caused due to gross negligence, breach of contract, or misrepresentation by DME, DME II, or DME Advisors. The Company incurred no indemnification amounts during the periods presented. Green Brick Partners, Inc. David Einhorn also serves as the Chairman of the Board of Directors of Green Brick Partners, Inc. (“GRBK”), a publicly-traded company. At March 31, 2023, SILP, along with certain affiliates of DME Advisors, collectively owned 37.9 % of the issued and outstanding common shares of GRBK. Under applicable securities laws, DME Advisors may sometimes be limited in its ability to trade GRBK shares held in SILP. At March 31, 2023, SILP held 2.7 million shares of GRBK. Service Agreement The Company has entered into a service agreement with DME Advisors, pursuant to which DME Advisors provides certain investor relations services to the Company for compensation of five thousand dollars per month (plus expenses). The agreement automatically renews annually until terminated by either the Company or DME Advisors for any reason with 30 days prior written notice to the other party. Collateral Assets Investment Management Agreement Effective January 1, 2019, the Company (and its subsidiaries) entered into a collateral assets investment management agreement (the “CMA”) with DME Advisors, pursuant to which DME Advisors manages certain assets of the Company that are not subject to the SILP LPA and are held by the Company to provide collateral required by the cedents in the form of trust accounts and letters of credit. In accordance with the CMA, DME Advisors receives no fees and is required to comply with the collateral investment guidelines. The CMA can be terminated by any of the parties upon 30 days’ prior written notice to the other parties. 11. COMMITMENTS AND CONTINGENCIES Letters of Credit and Trusts At March 31, 2023, the Company had the following committed letter of credit facility: Maximum Facility Limit Termination Date Notice period required for termination ($ in thousands) Citibank Europe plc $ 275,000 August 20, 2023 120 days before the termination date There was no amendment to the above credit facility since December 31, 2022. In addition, the Company has a $ 14.0 million uncommitted letter of credit facility with Citibank Europe plc. At March 31, 2023, an aggregate amount of $ 282.3 million (December 31, 2022: $ 203.9 million) in letters of credit was issued under the credit facilities. At March 31, 2023, the Company had pledged total cash and cash equivalents with a fair value in the aggregate of $ 283.1 million (December 31, 2022: $ 204.7 million) as collateral against the letters of credit issued and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets. The Company was in compliance with all the covenants of these facilities at March 31, 2023. The Company has also established regulatory trust arrangements for certain cedents. At March 31, 2023, collateral of $ 343.2 million (December 31, 2022: $ 463.7 million) was provided to cedents in the form of regulatory trust accounts and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets. 18 Return to table of contents Litigation From time to time, in the ordinary course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation. The outcomes of these procedures determine the rights and obligations under the Company’s reinsurance contracts and other contractual agreements. In some disputes, the Company may seek to enforce its rights under an agreement or collect funds owed. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. While the Company cannot predict the outcome of legal disputes with certainty, the Company does not believe that any existing dispute, when finally resolved, will have a material adverse effect on the Company’s business, financial condition, or operating results. 12. SEGMENT REPORTING The Company has one operating segment, Property & Casualty (Re)insurance. The following tables provide a breakdown of the Company’s gross premiums written by line and class of business, and by geographic area of risks insured for the periods indicated: Gross Premiums Written by Line of Business Three months ended March 31 2023 2022 ($ in thousands) Property Commercial $ 14,598 7.8 % $ 3,986 2.7 % Motor 232 0.1 1,446 1.0 Personal 15,542 8.3 13,103 9.0 Total Property 30,372 16.2 18,535 12.7 Casualty General Liability 19,516 10.5 10,005 6.9 Motor Liability 5,599 3.0 5,109 3.5 Professional Liability 3,647 2.0 141 0.1 Workers' Compensation 3,159 1.7 9,920 6.8 Multi-line 63,283 33.9 53,094 36.4 Total Casualty 95,204 51.1 78,269 53.7 Other Accident & Health 2,476 1.3 1,894 1.3 Financial 22,538 12.1 21,036 14.4 Marine 8,568 4.6 8,399 5.7 Other Specialty 27,297 14.7 17,753 12.2 Total Other 60,879 32.7 49,082 33.6 $ 186,455 100.0 % $ 145,886 100.0 % 19 Return to table of contents Gross Premiums Written by Geographic Area of Risks Insured Three months ended March 31 2023 2022 ($ in thousands) U.S. and Caribbean $ 69,852 37.5 % $ 76,037 52.1 % Worldwide (1) 106,262 57.0 66,271 45.4 Europe 3,427 1.8 2,874 2.0 Asia 6,914 3.7 704 0.5 $ 186,455 100.0 % $ 145,886 100.0 % (1) “Worldwide” is composed of contracts that reinsure risks in more than one geographic area and may include risks in the U.S.