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Item 7. Management’s Discussion and Analysis

2024-03-05 compared with 2023-03-08 · 503 added, 539 removed, 214 unchanged (83% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to “we,” “us,” “our,” “our company,” or “the Company” refer to Greenlight Capital Re, Ltd.

(“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”), 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.

The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear elsewhere in this filing.

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

We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report because we included that disclosure in our Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 8, 2022.

You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for the fiscal year ended December 31, 2021, compared to the fiscal year ended December 31, 2020.

We are a global specialty property and casualty reinsurer headquartered in the Cayman Islands, with a reinsurance and investment strategy that we believe differentiates us from most of our competitors.

Our goal is to build long-term shareholder value by providing risk management solutions to the insurance, reinsurance, and other risk marketplaces.

We focus on delivering risk solutions to clients and brokers who value our expertise, analytics, and customer service offerings.

We aim to complement our underwriting activities with a non-traditional investment approach designed to achieve higher rates of return over the long term than reinsurance companies that exclusively employ more traditional investment strategies.

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

Through Greenlight Re Innovations, we support technology innovators in the (re)insurance market by providing investment 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.

Also, our historical investment results are not necessarily indicative of future performance.

Due to the nature of our reinsurance and investment strategies, our operating results will likely fluctuate from period to period.

The Company’s subsidiaries hold an A.M.

Best Financial Strength Rating of A- (Excellent) with a stable outlook.

The following is management’s discussion and analysis (“MD&A”) of our results of operations for the years ended December 31, 2023, and 2022, and our financial condition at December 31, 2023 and 2022.

This discussion should be read in conjunction with “Part II, Item 8.

Financial Statements and Supplementary Data ” of this Annual Report.

Business Overview

Outlook and Trends

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.

Revenues and Expenses

Key Financial Measures and Non-GAAP Measures

Consolidated Results of Operations

Financial Condition

Liquidity and Capital Resources

Capital Resources

Contractual Obligations and Commitments

Critical Accounting Estimates

Premium Revenues

Loss and Loss Adjustment Expense Reserves

For the discussion and analysis of our results of operations and changes in financial condition for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to our 2022 Annual Report.

All amounts are reported in U.S.

dollars, unless otherwise noted.

Tabular dollars are presented in thousands, with the exception of per share amounts or as otherwise noted.

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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.

Business Overview

We are a global specialty property and casualty reinsurer headquartered in the Cayman Islands, with an underwriting and investment strategy that we believe differentiates us from most of our competitors.

Our goal is to build long-term shareholder value by providing risk management solutions to the insurance, reinsurance, and other risk marketplaces.

Refer to “ Part 1 , Item 1.

Business ” for additional information.

We earned a net income of $86.8 million for the year ended December 31, 2023, an increase of $61.5 million, or 243% over the prior year, as a result of favorable reinsurance pricing conditions with lower losses from catastrophe and weather-related events (collectively referred as “CAT losses”), coupled with favorable rising interest rate environment for our cash and fixed maturity investments (relating to the Lloyd’s syndicates) as well as favorable foreign exchange movement in 2023.

The following is a summary of our financial performance for the year ended December 31, 2023, compared to the prior year:

• Gross premiums written was $636.8 million, an increase of 13.1%;

• Net premiums earned was $583.1 million, an increase of 24.2%;

• Net underwriting income (1) was $32.0 million, compared to an underwriting loss of $10.7 million;

• Total investment income was $66.1 million, a decrease of 4.2% (include 9.4% net return from our investment in SILP, compared to 25.3%);

• Diluted EPS was $2.50, an increase of 242%;

• Fully diluted book per share (1) was $16.74, an increase of 16.8%.

(1) See “ Key Financial Measures and Non-GAAP Measures ” section of this MD&A.

Outlook and Trends

Following strong pricing improvements at the January 1, 2023 renewal season and throughout 2023 (primarily in property catastrophe, aviation, war and terror and marine), we witnessed a more disciplined but still attractive January 1, 2024 renewal season.

In the property market we noted additional capacity entering the market, but we still saw favorable market conditions to grow our book.

On our Specialty and FAL books, we noted a healthy amount of competitive interest but we were successful in securing the accounts we targeted for both renewal and new business with some modest rate increases.

The global inflationary pressures have abated from their recent highs.

However, we believe loss cost inflation will continue to be a significant concern within the (re)insurance 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 continue to manage these concerns and risks in multiple ways:

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

We estimate the payout duration of our existing reserves at less than three 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 personal lines, commercial lines exposures and automobile physical damage.

Property business includes both catastrophe and non-catastrophe coverage.

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 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.

The rising interest rate environment over the last two years has had a mixed impact on our financial results.

The Term Loans we secured in 2023 are partially exposed to fluctuations in the SOFR interest rate, and we stand to benefit if the interest rates start decreasing.

The higher interest rates have improved the yield on our restricted cash and cash equivalents and our funds held at Lloyd’s.

To the extent interest rates begin to decrease, we may see some of these trends reverse.

The SILP investment portfolio is positioned to benefit from an inflationary environment.

Revenues and Expenses

We derive our revenues from two principal sources:

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

● income from investments.

• premiums from reinsurance on property and casualty business assumed (net of any premiums ceded) - see “ Critical Accounting Estimates ” section of this MD&A;

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We recognize premiums written as revenues, net of any applicable underlying reinsurance coverage, over the term of the related policy or contract.

Depending on the contract structure, the earnings period could be the same as the reinsurance contract or based on the terms of the underlying insurance policies.

Income from our investments is primarily composed of:

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

● 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 fees due upon the early termination of contracts.

• income from investments, including:

• income (or loss) generated from our investment in SILP, net of management fee and performance compensation;

• gains (or losses) from our other investments, including Innovations-related investments;

• interest income on our cash and cash equivalents and FAL.

In addition, we may from time to time derive other income from foreign exchange gains (or losses) relating to underwriting balances, net investment income from Lloyd’s syndicates, 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:

● underwriting losses and loss adjustment expenses;

● underwriting losses and LAE;

● acquisition costs;

● general and administrative expenses;

● interest expense;

● investment-related expenses.

The extent of our loss and LAE is a function of the amount and type of reinsurance contracts we write and the loss experience of the underlying coverage.

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 multiple years.

● general and administrative (“G&A”) expenses;

● interest expense on deposit-accounted contracts and debt.

The extent of our net losses and LAE incurred is a function of the amount and type of reinsurance contracts we write and the loss experience of the underlying coverage.

Refer to “ Critical Accounting E stimates ” section of this MD&A.

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 consist primarily of salaries and benefits and related costs, including costs associated with our incentive compensation plan, bonuses, and stock compensation expenses.

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

General and administrative expenses also include professional fees (non-claim related), travel and entertainment, information technology, rent, and other general operating costs.

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 statements of operations.

Critical Accounting Policies and Estimates

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

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

— Risk Factors,” 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 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 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.

The minimum and deposit premium is generally based on an estimate of subject premiums expected to be written by the client during the contract term.

The minimum and deposit premium is reported initially as premiums written and adjusted, if necessary, in subsequent periods once the actual subject premium is known.

Certain contracts provide for reinstatement premiums in the event of a loss.

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

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.

At the inception of each of our reinsurance contracts, we receive premium estimates from the client, which we use in conjunction with historical and industry data to estimate what we believe will be the ultimate premium payable under each contract.

We receive actual premiums written by each client as the client reports the actual results of the underlying insurance writings to us monthly or quarterly (depending on the contract).

We book the actual premiums written when we receive them from our client.

Each reporting period, we estimate the premiums written for stub periods that have not yet been reported to us by the client.

For example, at year-end, we may have to estimate December premiums ceded under certain contracts since the client may not be required to report the actual results to us until after we have issued our audited consolidated financial statements.

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, 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.

To date, we have not had any material difference in premiums reported by a client that required a formal dispute resolution process.

Assessing whether a reinsurance contract meets the conditions for risk transfer requires judgment.

The determination of risk transfer is critical to reporting premiums written and is based in part on the use of actuarial and pricing models and assumptions.

If we determine that a reinsurance contract does not transfer sufficient risk to merit reinsurance accounting treatment, we report the premium we receive as a deposit liability.

Similarly, we report the premium we pay as a deposit asset for ceded contracts that do not transfer sufficient risk to merit reinsurance accounting.

Any income and expense on deposit-accounted contracts is calculated using the interest method and recorded in the consolidated statements of operations under the captions “Other income (expense)” and “Deposit interest expense,” respectively.

We carry our investment in SILP at fair value, based on the most recent net asset value obtained from SILP’s third-party administrator.

The caption “Other investments” in our consolidated balance sheets includes private and unlisted equity securities that do not have readily determinable fair values.

We determine these private equity securities’ carrying value based on the original cost, less impairment, plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer.

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 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.

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.

These estimates and judgments are based on numerous considerations and are often revised as (i) we receive changes in loss amounts reported by ceding companies and brokers;

(ii) we obtain additional information, experience, or other data;

(iii) we develop new or improved methodologies;

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 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.

Our loss and LAE reserves are composed of case reserves (based on claims reported to us) and IBNR reserves, including the associated claims handling costs.

We determine case reserve estimates based on loss reports received.

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.

The nature and extent of our judgment in the reserving process depend in part upon the type of business.

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, 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.

We supplement our analysis with industry loss ratio and development pattern information in conjunction with our own experience.

The weight given to a particular method will depend on many factors, including the homogeneity within the class of business, the volume of losses, the maturity of the accident year, and the length of the expected development tail.

For example, the expected loss ratio method assumes that the ratio of premiums and losses remains constant.

In contrast, development methods rely on observable patterns within reported losses, both historical and newly reported, to establish a view of the ultimate loss incurred.

Therefore, as an accident year matures, we may migrate from an expected loss ratio method to an incurred development method.

As a predominantly broker-market reinsurer for both excess-of-loss and proportional contracts, we rely on loss information reported to brokers by primary insurers who, in turn, must estimate their losses at the policy level, often based on incomplete and changing information.

The information we receive varies by cedent and may include paid losses, estimated case reserves, and an estimated provision for IBNR reserves.

Reserving practices and data-reporting quality differ among ceding companies, which adds further uncertainty to our estimation of ultimate losses.

The nature and extent of information received from ceding companies and brokers also vary widely depending on the type of coverage, the contractual reporting terms (which are affected by market conditions and practices), and other factors.

Due to the lack of standardization of the terms and conditions of reinsurance contracts, the differences in coverage provided to individual clients, and the tendency of those coverages to change rapidly in response to market conditions, we cannot always reliably measure the ongoing economic impact of such uncertainties and inconsistencies.

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

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 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.

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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:

(i) comparisons of expected premiums to reported premiums, which helps us to identify delinquent client periodic reports;

(ii) ceding company audits to identify inaccurate or incomplete reporting of claims and ensure that claims are actively and appropriately managed in line with agreed protocols and settlement authority limits;

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

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 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 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 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.

We believe that our reserves for loss and LAE are sufficient to cover losses that fall within the terms of our policies and agreements with our insured and reinsured customers based on the methodologies used to estimate those reserves.

However, we can provide no assurance that actual losses will not (i) be less than or (ii) exceed our total established reserves.

Please refer to Notes 2 and 7 of our consolidated financial statements for a more detailed explanation of our loss reserving methodology and the loss development tables by accident year, respectively, as required under U.S.

Share-Based Payments.

We have established a stock incentive plan for directors, employees, and consultants.

We recognize share-based compensation transactions using the fair value at the award’s grant date.

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.

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.

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, adjusting the unamortized balance as necessary.

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

9.0% and 2020:

7.0%) for restricted stock awards and RSUs granted.

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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Deposit interest expense relates to the accretion costs for deposit-accounted contracts that did not meet the risk transfer condition for reinsurance accounting under U.S.

Interest expense consists of interest paid and accrued on our debt and the amortization of the related deferred financing costs.

Key Financial Measures and Non-GAAP Measures

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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;

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

• 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

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Fully Diluted Book Value Per Share

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

We use fully diluted book value as a financial measure in our incentive compensation plan.

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.

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.

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

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

Fully diluted book value per share should not be viewed as a substitute for the most comparable U.S.

GAAP measure, which in our view is the basic book value per share.

We calculate basic book value per share as (a) ending shareholders' equity, divided by (b) the total ordinary shares issued and outstanding, as reported in the consolidated financial statements.

In prior years, we calculated the basic book value per share by modifying the denominator to exclude unearned performance-based restricted shares granted after December 31, 2021.

We have revised this calculation in 2023 to eliminate the basic book value per share non-GAAP financial measure and have restated the 2022 comparative basic book value per share in the table below and elsewhere in this Annual Report to conform with the current presentation.

Fully diluted book value per share represents basic book value per share combined with any dilutive impact of in-the-money stock options and all outstanding restricted stock units “RSUs”.

We believe these adjustments better reflect the ultimate dilution to our shareholders.

The following table presents a reconciliation of the fully diluted book value per share to basic book value per share (the most directly comparable U.S.

GAAP financial measure):

December 31, 2023 December 31, 2022

Numerator for basic and fully diluted book value per share:

Total equity (U.S.

GAAP) (numerator for basic and fully diluted book value per share) $ 503,120 $ 475,663 $ 464,857

Total equity as reported under U.S.

GAAP $ 596,095 $ 503,120

Denominator for basic and fully diluted book value per share:

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

Ordinary shares issued and outstanding as reported and denominator for basic book value per share 35,336,732 34,824,061

In-the-money stock options and all outstanding RSUs

264,870 277,960

Denominator for fully diluted book value per share 35,601,602 35,102,021

Basic book value per share $ 16.87 $ 14.45

Increase (decrease) in basic book value per share ($) $ 0.61 $ 0.58 $ 0.57

Increase (decrease) in basic book value per share (%) 4.3 % 4.3 % 4.4 %

Increase in basic book value per share ($)

$ 2.42 $ 0.40

Increase in basic book value per share (%)

Fully diluted book value per share $ 16.74 $ 14.33

Increase (decrease) in fully diluted book value per share ($) $ 0.60 $ 0.57 $ 0.54

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

(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:

Increase in fully diluted book value per share ($)

$ 2.41 $ 0.34

Increase in fully diluted book value per share (%)

Net Underwriting Income (Loss)

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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.

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

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

We calculate net underwriting income (loss) as net premiums earned less net loss and loss adjustment expenses, acquisition costs, underwriting expenses (including related G&A expenses), and deposit interest expense.

The measure excludes, on a recurring basis:

(1) investment income (loss);

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

(3) corporate general and administrative expenses;

(2) other income (expense) not related to underwriting, including foreign exchange gains or losses, and Lloyd’s interest income and expense;

(3) corporate G&A expenses;

and (4) interest expense.

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 exclude total investment income or loss, foreign exchange gains or losses, and Lloyd’s interest income or expense as we believe these items are influenced by market conditions and other factors unrelated to underwriting decisions.

Additionally, we exclude corporate G&A 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 of trends in our underwriting operations.

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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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Year ended December 31

2022 2021 2020

($ in thousands)

Income (loss) before income tax $ 86,930 $ 24,526

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Results of Operations

The table below summarizes our operating results for the years ended December 31, 2022, 2021, and 2020:

2022 2021 2020

(in thousands, except percentages)

Consolidated Results of Operations

The table below summarizes our consolidated operating results for the years ended December 31:

Underwriting revenue

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Net loss and loss adjustment expenses incurred:

Current year 316,367 389,080 333,096

348,798 316,367

Prior year (1)

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Underwriting expenses 19,587 13,813

Deposit accounting and other reinsurance expense (income) 6,717 11,655 (2,463)

Deposit interest expense 2,687 6,717

Net underwriting income (loss) (2)

31,992 (10,686)

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

Net investment income (loss) 14,139 32,065 21,101

Total investment income (loss) $ 68,983 $ 50,152 $ 25,532

Net underwriting and investment income (loss) $ 58,297 $ 44,956 $ 23,920

Income from investment in SILP 28,696 54,844

Net investment income 37,367 14,139

Total investment income

66,063 68,983

Corporate expenses 23,653 17,793

Foreign exchange (gains) losses (11,566) 5,988

Other (income) expense, net (6,306) 5,789

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Income tax expense (benefit) 100 (816)

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

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

Net income $ 86,830 $ 25,342

Earnings per share:

Basic $ 2.55 $ 0.75

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Combined ratio 94.5 % 102.3 %

* 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 The net financial impacts associated with changes in the estimate of losses incurred in prior years, which incorporate earned reinstatement premiums assumed and ceded, adjustments to assumed and ceded acquisition costs, and deposit interest expense, were a loss of $15.7 million in 2023 (2022:

$12.2 million) .

2 Net underwriting income (loss) is a non-GAAP financial measure.

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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, 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, 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

We analyze our business based on three categories:

The following provides further details on the significant variances for the year ended December 31, 2023, compared to 2022 .

For the year ended December 31, 2023, fully diluted book value per share increased by $2.41, or 16.8%, to $16.74 per share and basic book value per share increased by $2.42, or 16.8%, to $16.87 per share since December 31, 2022 driven by strong underwriting performance.

For the year ended December 31, 2023, our net income increased by $61.5 million to $86.8 million, driven mainly by the following:

• Underwriting income :

Increased by $42.7 million to $32.0 million, primarily driven by combined ratio improving 7.8 percentage points mainly due to lower CAT losses and favorable pricing in 2023, partially offset by an increase in adverse loss development from prior years.

For further information on CAT losses and prior year loss development, refer to Note 7 - Loss and Loss Adjust ment Expense Rese rves of the consolidated financial statements.

• Investment income :

Declined by $2.9 million to $66.1 million.

While we benefited from the rising U.S.

interest rates on our cash and short-term investment holdings, this was offset by a decline in SILP’s net income.

SILP generated a net return of 9.4% in 2023, compared to 25.3% in 2022.

• Foreign exchange gains :

Increased by $17.6 million driven mainly by the strengthening of the U.S.

dollar over the pound sterling.

• Other income :

Increased by $12.1 million driven primarily by an increase in investment income on funds withheld by third party Lloyd’s syndicates.

The Lloyd’s syndicates invest a portion of these funds in fixed-maturity securities and investment funds.

We record our share of the investment income and fair value adjustments on these securities when the syndicates report them to us, generally on a quarter in arrears.

• Corporate expenses :

Increased by $5.9 million primarily driven by $4.3 million of severance relating to the separation agreement entered with our former CEO.

For further details, see “Separation Agreement with CEO” in Note 15 - “ Related Part y Tran sactions ” in the consolidated financial statements.

Underwriting Results by Segment

For our Property and Casualty Reinsurance segment, we analyze it based on three lines of business:

“property,” “casualty,” and “other.”

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Gross Premiums Written

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Year ended December 31

($ in thousands)

Property $ 113,291 17.8 % $ 85,323 15.2 %

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

For the 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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Our gross premiums written increased by $73.6 million, or 13.1%, compared to the same period in 2022.

The following table provides a further analysis of this overall increase:

Gross Premiums Written

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($ in millions) % change Explanation

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.

Property $28.0 32.8% The increase was driven from growth in our Commercial class, mainly due to new quota share treaties bound in mid-2022 and new Innovations contracts via Syndicate 3456 in 2023.

This resulted in a change in business mix for Property, predominantly with Commercial and Personal which accounted for 46% and 54%, respectively, of total Property, compared to 17% and 80%, respectively, for the same period in 2022.

Casualty $25.9 8.0% The increase was driven mainly from growth in General Liability, Professional Liability, and Motor Liability from new contracts and premiums written from quota share treaties bound in 2022.

This growth was partially offset by a reduction in the Workers’ Compensation class, where we have significantly reduced our appetite for quota share treaties beginning in 2022, coupled with a premium decrease in the Multi-line class.

As a result, the business mix within our Casualty line of business has shifted between General Liability and Multi-line classes, accounting for 27% and 62% of total Casualty, respectively, compared to 19% and 69%, respectively, in same period in 2022.

Other $19.7 12.9% The increase was driven mainly by new contracts within our Marine class and Other Specialty class, primarily in energy, aviation and cyber risk.

This was partially offset by a reduction in premiums from our Financial class, predominantly due to lower merger and acquisition activity in 2023 impacting premium from transactional liability programs, partially offset by new premiums from credit and surety contracts.

As a result, the change in business mix was follows:

Other Specialty, Financial, and Marine represented 45%, 33%, and 18%, respectively, compared to 36%, 44%, and 15%, respectively, for the same period in 2022.

Premiums Ceded

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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For the year ended December 31, 2023, ceded premiums were $42.8 million, or 6.7% of gross premiums written, compared to $33.4 million, or 5.9% of gross premiums written, for the year ended December 31, 2022.

The increase was mainly due to purchasing an aviation quota share retrocession coverage, as well as an additional $10.0 million excess of loss coverage to manage our exposure to marine and energy.

Net Premiums Written

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Year ended December 31

($ in thousands)

Property $ 94,651 15.9 % $ 67,680 12.8 %

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Total $ 594,048 100.0 % $ 529,742 100.0 %

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.

Our net premiums written increased by $64.3 million, or 12.1%, compared to the year ended December 31, 2022.

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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Year ended December 31

($ in thousands)

Property $ 86,539 14.8 % $ 52,397 11.2 %

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Total $ 583,147 100.0 % $ 469,477 100.0 %

Net premiums earned are primarily a function of the amount and timing of net premiums written during the current and prior periods.

Loss and Loss Adjustment Expenses Incurred, Net

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

Net premiums earned increased by $113.7 million or 24.2%, compared to the prior year.

The change in net premiums earned is primarily a function of the amount and timing of net premiums written during the current and prior periods, coupled with the mix of business written in the form of excess of loss versus proportional contracts.

Loss and LAE Incurred, Net

The components of the loss ratio were as follows:

Year ended December 31

($ in thousands)

2023 2022 Increase / (decrease) in loss ratio points

Current accident year loss ratio 59.8 % 67.4 % (7.6)

Prior year reserve development ratio 1.9 % — % 1.9

Loss ratio 61.7 % 67.4 % (5.7)

Current accident year loss ratio improved by 7.6 points for the year ended December 31, 2023, compared to the same period in 2022 primarily due to 3.6 points in lower CAT losses, coupled with favorable pricing and change in business mix in 2023.

For the year ended December 31, 2023, prior year adverse loss development was 1.9%, compared to a negligible amount in 2022.

Refer to Note 7 Loss and Loss Adjustment Expense Reserves to the consolidated financial statements for further details on prior year loss developments.

The following table provides a breakdown of net losses incurred by lines of business:

Year ended December 31

Property $ 62,266 17.3 % $ 40,885 12.9 %

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Total $ 360,004 100.0 % $ 316,485 100.0 %

The below table summarizes the loss ratios for the years ended December 31, 2022, and 2021:

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The loss ratios by lines of business were as follows:

Year ended December 31

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Total 61.7 % 67.4 % (5.7) %

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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:

The following provides further details on the change in 2023 vs.

Increase (decrease)

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

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.

Property $21.4 (6.0)% The increase in losses incurred is primarily due to 65.2% increase in net premiums earned, and to a lesser degree due to a higher dollar amount of current year CAT losses.

However, our loss ratio improved mainly due to a decrease of 4.7 loss ratio points from current CAT losses, in part due to higher premiums earned.

In 2023, the U.S.

severe storms losses and other CAT events contributed 19.3 loss ratio points to the Property loss ratio.

During the comparable period in 2022, CAT losses from Hurricane Ian, Typhoons Nanmadol and Hinnamnor, and Tennessee wildfires contributed 24.0 percentage points to the Property loss ratio.

Additionally, the Property loss ratio benefited by 2.1 percentage points due to an increase in favorable prior year CAT loss development for various underwriting years (2017 to 2022).

Casualty $19.7 (3.0)% The increase in losses incurred was primarily driven by the 14.3% increase in net premiums earned, coupled with an increase of $19.7 million or 5.5 loss ratio points in prior year loss development predominantly driven by attritional losses relating to motor, general liability, multiline, workers’ compensation and professional liability programs.

However, our Casualty business benefited by 5.1 loss ratio points from lower current year CAT losses, compared to 2022 when the Multi-line class was adversely impacted by Hurricane Ian.

Further, the overall decrease in loss ratio was also driven by the change in business mix.

We significantly grew General Liability and Multi-line classes at much lower loss ratios than the Workers’ Compensation class.

Other $2.5 (11.2)% Despite the 30.0% increase in net premiums earned, driven from growth in our Marine and Other Specialty classes, we had only a marginal increase in losses incurred for Other, primarily due to 8.2 loss ratio point improvement from prior year favorable loss development, and to a lesser extent, from lower CAT losses.

The prior year favorable loss development was predominantly from the following classes of business:

Mortgage, Transactional Liability, and Whole Account Marine and Energy.

See “ Critical Accounting Estimates , Loss and Loss Adjustment Expense Reserves ” in this MD&A and “Note 7.

L oss and Loss Adjustme n t Expense Reserves ” to the consolidated financial statements for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.

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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.

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.

Acquisition Costs, Net

Details of acquisition costs are provided in the following table.

Year ended December 31

($ in thousands)

Property $ 11,638 8.1 % $ 11,936 8.2 %

Casualty 83,936 58.7 93,499 64.5

Other 47,574 33.2 39,525 27.3

Total $ 143,148 100.0 % $ 144,960 100.0 %

The acquisition cost ratios for the years ended December 31, 2022, and 2021, were as follows:

Our total acquisition costs increased by 18.0% to $168.9 million, compared to 2022, mainly due to growth in net premiums earned, offset partially by lower broker commissions from excess of loss contracts compared to proportional treaties.

For the year ended December 31, 2023, net profit commission expense of $14.8 million, (2022:

$16.0 million) was included in our total acquisition costs.

The acquisition cost ratios by line of business were as follows:

2023 2022 Increase / (decrease)

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Total 29.0 % 30.5 % (1.5) %

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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:

The following provides further details on the change in 2023 vs.

Increase / (decrease) in acquisition cost ratio points Explanation

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.

Property (3.5)% The decrease was due primarily to the higher proportion of excess of loss contracts that have a lower ceding commission rate than proportional treaties.

Based on net premiums earned for Property, excess of loss contracts accounted for 10% compared to 6% in 2022.

Casualty 1.5% The marginal increase was due primarily to changes in our business mix, particularly with an increase in net premiums earned from General Liability, Professional Liability and Multi-line (including FAL) classes, which have higher ceding commission rates than the Workers’ Compensation business.

Other (6.1)% The decrease was driven primarily by change in business mix, coupled with a higher proportion of excess of loss contracts than proportional treaties.

Based on net premiums earned for Other, excess of loss contracts accounted for 23% compared to 18% in 2022.

Ratio Analysis

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Combined ratio 94.5 % 102.3 %

General and Administrative Expenses

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

Our underwriting expense ratio decreased by 0.6 points, compared to the same period in 2022, mainly due to 0.8 point reduction from lower interest expense on deposit-accounted contracts based on revised expectations of ultimate cash flows in 2023.

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The breakdown of our G&A expenses between under underwriting and corporate functions was as follows:

Year ended December 31

($ in thousands)

Underwriting expenses $ 19,587 $ 13,813

Corporate expenses 23,653 17,793

General and administrative expenses $ 31,606 $ 29,369

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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, and investments accounted for under the equity method.

Total G&A expenses

$ 43,240 $ 31,606

G&A expenses increased by $11.6 million, or 36.8%, compared to the prior year.

The increase was driven by:

• Underwriting expenses:

Increased by $5.8 million, or 41.8%, mainly due to scaling up as we added to our talent pool, which contributed to the growth in gross premiums written in 2023.

Increase in allowance for credit losses relating to certain reinsurance balances receivable and loss recoverable also accounted for the increase in underwriting expenses.

The increase was partially offset by lower legal and other professional fees.

See above “Ratio Analysis” for a discussion on our underwriting expense ratio.

• Corporate expenses:

Increased by $5.9 million or 32.9%, driven mainly by $6.4 million of severance related costs compared to $1.1 million in the prior year.

The 2023 severance costs included a $1.5 million non-cash charge relating to the accelerated vesting of the former CEO’s restricted shares as well as the modified grant relating to his unvested performance-based restricted shares.

The remaining increase was mainly due to an increase in personnel costs, including an increase in accrued incentive compensation costs in light of the Company’s performance in 2023.

The incentive compensation cost for 2022 was nil due to the net underwriting loss.

This increase in corporate expenses was partially offset by lower D&O insurance expense.

Total Investment Income

Total investment income incorporates (i) changes in the net asset value of our investment in SILP, (ii) interest income earned on cash and cash equivalents, including the restricted funds pledged as collateral to our clients, and (iii) gains (or losses) and interest on our portfolio of Innovations investments.

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.

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

A summary of our total investment income is as follows:

Year ended December 31

($ in thousands)

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

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

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

Total investment income (loss) $ 68,983 $ 50,152

The caption “Income (loss) from investment in related party investment fund” in the above table is net of management fees paid by SILP to DME Advisors and performance compensation, if any, allocated from the Company’s investment in SILP to DME II.

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

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.

Interest and dividend income, net of withholding taxes and other expenses $ 35,629 $ 4,466

Net realized and unrealized gains on other investments (see Note 4) 1,738 9,673

Net investment-related income

$ 37,367 $ 14,139

Share of SILP's net income (see Note 3) 28,696 54,844

Total investment income $ 66,063 $ 68,983

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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:

Net investment-related income

Our net investment-related income increased by $23.2 million or 164.3% compared to 2022 mainly due to rising U.S.

interest rates, which resulted in an increase in interest income from our cash and cash equivalent (including restricted cash), partially offset by lower average outstanding balance in 2023.

Federal Reserve hiked its benchmark rate 11 times for a total of 5.25 percentage points since March 2022.

Our Innovations-related investments had less gains in 2023 in part due to less favorable pricing conditions from completed financing rounds by some of our Innovation investees compared to 2022.

Share of SILP’s Net Income

Our share of SILP’s net income decreased by $26.1 million in 2023 compared to 2022.

For the year ended December 31, 2023, SILP reported a net investment return of 9.4%, compared to 25.3% for 2022.

The following table provides a breakdown of the gross and net investment returns:

Year ended December 31

Long portfolio gains (losses) 32.1 % — %

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“Net investment return” incorporates both of these amounts.

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.

For further information about management fees and performance compensation, refer to Note 15 “ Related Party Transactions ” of the consolidated financial statements.

The most significant contributors to SILP’s net investment return for the year ended December 31, 2023 were long positions in Green Brick Partners Inc., CONSOL Energy Inc., and a S&P 500 / U.S.

interest rate derivative position.

For the same period, the most significant detractors were three single-name short positions.

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

We are not obligated to pay taxes in the Cayman Islands on either income or capital gains.

The Governor-In-Cabinet has granted us an exemption from any income taxes that may be imposed in the Cayman Islands for the 20 years expiring February 1, 2025.

GRIL is incorporated in Ireland and is subject to the Irish corporation tax.

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.

federal rates and regulations prescribed by the Internal Revenue Service.

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

For the year ended December 31, 2021, the income tax expense of $0.8 million was due primarily to the gain on the sale of our investment in AccuRisk.

At December 31, 2022, we have included a gross deferred tax asset of $2.8 million (December 31, 2021:

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

At December 31, 2022, a valuation allowance of $2.3 million (2021:

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

We have concluded that it is more likely than not that the Company will fully realize the recorded deferred tax asset (net of the valuation allowance) in the future.

We have based this conclusion on the expected timing of the reversal of the temporary differences and the likelihood of generating sufficient taxable income to realize the future tax benefit.

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.

Interest Expense

Our interest expense for the year ended December 31, 2023 increased by $1.1 million to $5.3 million compared to 2022.

The increase was driven primarily by the increase in borrowing cost for new Term Loans, which were partially used to repay the outstanding Convertible Notes (see Note 9 “ Debt and Credit Facilities ” to the consolidated financial statements).

The interest expense for the year ended December 31, 2023 included $0.6 million of unrealized loss on the interest rate swaps used to partially hedge the Term Loans.

For the year ended December 31, 2023, we incurred net income tax expense of $0.1 million, net of a $2.3 million reversal of deferred tax asset provision based on management’s conclusion that it was more likely than not that the Company will fully realize the deferred tax asset.

For the year ended December 31, 2022, we had a net income tax recovery of $0.8 million primarily due to a tax refund relating to Verdant.

For further information, see Note 14 “ Income Tax es ” to the consolidated financial statements.

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Financial Condition

The following table provides a breakdown of our total investments:

Investment in related party investment fund (SILP)

$ 258,890 78.0 % $ 178,197 71.7 %

Other investments:

Private investments and unlisted equities

71,157 21.4 62,433 25.1

Debt and convertible debt securities

2,136 0.6 1,846 0.8

Certificates of deposit

— — 6,000 2.4

Total other investments

$ 73,293 22.0 % $ 70,279 28.3 %

Total investments $ 332,183 100.0 % $ 248,476 100.0 %

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 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, 2023, our total investments increased by $83.7 million, or 33.7%, to $332.2 million from December 31, 2022.

The increase was primarily driven from net additional contributions into SILP, coupled with the net investment return in 2023.

Investments in SILP

DME Advisors reports the composition of SILP’s portfolio on a delta-adjusted basis, which it believes is the appropriate manner to assess the exposure and profile of investments and reflects how it manages the portfolio.

An option’s delta is the option price’s sensitivity to the underlying stock (or commodity) price.

The delta-adjusted basis is the number of shares or contracts underlying the option multiplied by the delta and the underlying stock (or commodity) price.

The following table represents the composition of SILP’s investments:

Long % Short % Long % Short %

Equities and related derivatives 90.2 53.8 84.4 49.7

Private and unlisted equity securities 2.0 — 3.2 —

Debt instruments 0.3 — 0.6 —

Total 92.5 % 53.8 % 88.2 % 49.7 %

The above exposure analysis does not include cash (U.S.

dollar and foreign currencies), gold and other commodities, credit default swaps, sovereign debt, foreign currency derivatives, interest rate derivatives, inflation swaps and other macro positions.

Under this methodology, a total return swap’s exposure is reported at its full notional amount and options are reported at their delta-adjusted basis.

At December 31, 2023, SILP’s exposure to gold on a delta-adjusted basis was 11.2% (2022:

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The following table represents the composition of SILP by industry sector at December 31, 2023:

Sector Long % Short % Net %

Communication Services — % (3.7) % (3.7) %

Consumer Discretionary 38.7 (11.9) 26.8

Consumer Staples — (1.0) (1.0)

Energy 14.2 — 14.2

Financial 15.5 (11.7) 3.8

Healthcare 7.2 (1.8) 5.4

Industrials 3.7 (7.6) (3.9)

Materials 6.6 (0.6) 6.0

Real Estate — (4.0) (4.0)

Technology 4.5 (8.2) (3.7)

Utilities 1.3 (3.3) (2.0)

Other 0.8 — 0.8

Total 92.5 % (53.8) % 38.7 %

The following table represents the composition of SILP, by the market capitalization of the underlying issuer, at December 31, 2023:

Capitalization Long % Short % Net %

Mega Cap Equity (≥$25 billion) 0.6 % (16.4) % (15.8) %

Large Cap Equity (≥$10 billion and <$25 billion) 5.7 (6.3) (0.6)

Mid Cap Equity (≥$2 billion and <$10 billion) 80.5 (25.3) 55.2

Small Cap Equity (<$2 billion) 3.4 (5.8) (2.4)

Debt Instruments 0.3 — 0.3

Total 92.5 % (53.8) % 38.7 %

At December 31, 2023, 95.0% of SILP’s portfolio was valued based on quoted prices in actively traded markets (Level 1), 3.6% 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, 2023, 1.4% of SILP’s portfolio consisted of private equity funds valued using the funds’ net asset values as a practical expedient.

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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;

Other Investments

The other investment holdings relate to private investments made by Innovations.

During 2023, we made $7.1 million of new private investments compared to $13.2 million in the prior year.

While we manage a diversified Innovations-related investment portfolio with approximately 40 holdings, our top five holdings accounted for 67% of the total carrying value as a result of favorable fair value remeasurement since our initial investments, net of impairment charges.

For further information, see Note 4 “ Other I nvestments ” of the consolidated financial statements.

The certificate of deposit was redeemed in 2023 to provide cash collateral for the new Loan Facility (see “Debt” below).

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 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.

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

Our restricted cash decreased by $63.7 million, or 9.5%, from $668.3 million at December 31, 2022, to $604.6 million at December 31, 2023, primarily due to release of collateral from our ceding insurers relating to legacy contracts in run-off.

During the year ended December 31, 2023, we also pledged $10.0 million collateral as security for the new Loan Facility (see “Debt” below).

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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 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

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

Our reinsurance balances receivable increased by $113.8 million, or 22.5%, to $619.4 million from $505.6 million at December 31, 2022.

This increase was driven primarily by premiums held by Lloyd’s syndicates through GCM.

See “Concentration of Credit Risk - Reinsurance Balances Receivable, net” in Note 16 “ Commitments and Cont ingencies ” to the consolidated financial statements.

Loss and LAE Reserves;

Loss and LAE Recoverable

Our reserves for loss and LAE by lines of business were as follows:

December 31, 2023 December 31, 2022

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Reserves IBNR Total

($ in thousands)

Property $ 24,181 $ 41,056 $ 65,237 $ 20,354 $ 41,361 $ 61,715

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Total $ 189,050 $ 472,504 $ 661,554 $ 184,756 $ 370,712 $ 555,468

During the year ended December 31, 2022, the total gross loss and loss adjustment expense reserves increased by $31.5 million, or 6.0%, to $555.5 million from $524.0 million at December 31, 2021.

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, 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.

Our total gross loss and LAE reserves increased by $106.1 million, or 19.1%, to $661.6 million from $555.5 million at December 31, 2022.

See Note 7 “ Loss and Loss Adjust ment Expense Reserv es ” of the consolidated financial statements for a summary of changes in outstanding loss and LAE reserves and a description of prior period loss developments.

Our total loss and LAE recoverable increased by $12.4 million, or 94.0%, to $25.7 million from $13.2 million at December 31, 2022.

See Note 8 “ Re trocession ” of the consolidated financial statements for a description of the credit risk associated with our retrocessionaires.

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

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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.

We currently monitor our catastrophe loss exposure in terms of our PML (net of retrocession and reinstatement premiums).

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

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

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

At January 1, 2024, our estimated largest PML at a 1-in-250-year return period for a single event and in aggregate was $89.7 million and $97.0 million, respectively, both relating to the peril of North Atlantic Hurricane, compared to $77.5 million and $83.5 million, respectively, at January 1, 2023.

We have increased our PMLs in response to favorable market conditions and attractive opportunities, coupled with increased surplus.

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

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Europe Windstorm 52,360 55,980

Our total debt decreased by $7.3 million, or 9.0%, to $73.3 million from $80.5 million at December 31, 2022.

During 2023, we repurchased $17.5 million of Convertible Notes for a marginal realized gain.

Further, we repaid the remaining $63.4 million of Convertible Notes, including accrued interest, which matured on August 1, 2023.

To repay this debt, we entered into a $75.0 million Loan Facility with a group of banks.

In connection with this Loan Facility, we contractually agreed to hedge 50% of the floating rate Term Loans for the duration of the Loan Facility.

Refer to Note 9 “ Debt and Credit Facilities ” of the consolidated financial statements for further information.

Total shareholders’ equity

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, 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.

Total shareholders’ equity increased by $93.0 million to $596.1 million, compared to $503.1 million at December 31, 2022.

The increase was primarily due to the net income of $86.8 million reported for the year.

For details of other movements in shareholders’ equity, see the consolidated statements of shareholders’ equity.

Liquidity and Capital Resources

Greenlight Capital Re is a holding company with no operations of its own.

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the short-term and long-term cash requirements of its business operations.

We manage liquidity at the holding company and operating subsidiary level.

Holding Company

Greenlight Capital Re is a holding company with no operations of its own and its assets consist primarily of investments in its subsidiaries.

Accordingly, Greenlight Capital Re’s future cash flows depend on the availability of dividends or other statutorily permissible distributions, such as returns of capital, from its subsidiaries.

The ability to pay dividends and/or distributions is limited by:

• the applicable laws and regulations of the countries in which Greenlight Capital Re’s subsidiaries operate (see Note 18 “ Statutory R equirements ” to the consolidated financial statements);

• the need to maintain adequate capital levels to support our reinsurance operations;

• the need to preserve our current “A- (Excellent)” rating with a stable outlook by A.M.

As a holding company, Greenlight Capital Re has minimal continuing cash needs, most of which are related to the payment of corporate and general administrative expenses and interest expenses.

We conduct all our underwriting operations through our wholly-owned reinsurance subsidiaries, Greenlight Re and GRIL, which underwrite property and casualty reinsurance.

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

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

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

The ratings reflect A.M.

Best’s opinion of our reinsurance subsidiaries’ financial strength, operating performance, and ability to meet obligations.

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

Best downgrades our ratings below “A- (Excellent)” or withdraws our rating, we could be severely limited or prevented from writing any new reinsurance contracts, which would significantly and negatively affect our business.

Best ratings may be revised or revoked at the sole discretion of the rating agency.

Some of our assumed reinsurance contracts contain provisions that permit our clients to cancel the contract or require additional collateral in the event of a downgrade in our A.M.

Best ratings below A- (Excellent) or a reduction of our capital or surplus below specified levels over the course of the agreement.

In the periods presented, there were no such cancellations or other adjustments relating to novations, commutations, or similar actions that had a material impact on our premiums written, net income, or liquidity position, either individually or in the aggregate.

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

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

Our sources of funds consist primarily of premium receipts (net of brokerage and ceding commissions), investment income, and other income.

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

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

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

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

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

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.

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.

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.

We anticipate positive cash flows from operations (underwriting activities and investment income) to be sufficient to cover cash outflows under most loss scenarios in the near term.

Based on expected cash flows from operations, financing arrangements and redemptions from related party investment fund as needed (subject to three day’s notice to the general partner), we believe we have sufficient liquidity to cover our working capital requirements and other contractual obligations and commitments through the foreseeable future.

Operating Subsidiaries

Our sources of funds from operating subsidiaries consist primarily of premium receipts (net of brokerage and ceding commissions), investment income, and other income.

We use cash from our operations to pay losses and loss adjustment expenses, profit commissions, interest, and G&A expenses.

Our reinsurance business inherently provides liquidity as premiums are received well in advance of the time claims are paid.

However, the amount of cash required to fund loss payments can fluctuate significantly from period to period due to the low frequency / high severity nature of certain types of business we write.

The following table summarizes our sources and uses of funds:

Year ended December 31

Total cash provided by (used in):

Operating activities $ 7,507 $ (31,799)

Investing activities (53,133) 47,015

Financing activities (5,292) (19,828)

Effect of currency exchange on cash (1)

Net cash inflows (outflows) (50,818) (4,553)

Cash, beginning of period 706,548 711,101

Cash, end of period $ 655,730 $ 706,548

(1) Cash includes unrestricted and restricted cash and cash equivalents - see Note 5 of the consolidated financial statements .

Cash provided by operating activities

The increase in cash provided by operating activities was driven mainly by $42.7 million improved underwriting income, coupled with the ebb and flow from our underwriting activities, which may vary significantly from period to period depending on the mix of business, the nature of underwriting opportunities available and volume of claims submitted to us by our cedents.

Cash used in investing activities

The increase in cash used for investing activities was driven mainly by the net change in our investment in SILP where we made a net contribution of $52.0 million during 2023 compared to a net redemption of $60.2 million during 2022.

During 2023, we deployed $6.1 million less on Innovations-related investments compared to 2022, and collected $6.0 million of proceeds from a matured term deposit.

Cash used in financing activities

The decrease in cash used in our financing activities was due to drawing $74.1 million from the new Loan Facility, offset by the repayment of the remaining Convertible Notes on August 1, 2023, in addition to the partial repurchase of these Convertible Notes at a discount in 2023.

In 2022, we had repurchased $19.8 million of our Convertible Notes.

Capital Resources

The following table summarizes our capital structure:

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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.

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

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

Letters of Credit and Trust Arrangements

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

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

As a result, we anticipate that all of our U.S.

clients and some non-U.S.

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

At December 31, 2022, we had one (2021:

one) letter of credit facility available with an aggregate capacity of $275.0 million (2021:

$275.0 million).

See Note 15 of the accompanying consolidated financial statements for details on the letter of credit facility.

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

At December 31, 2022, the aggregate amount of collateral provided to cedents under such arrangements was $667.6 million (2021:

$633.9 million).

At December 31, 2022, the letters of credit and trust accounts were secured by restricted cash and cash equivalents with a total fair value of $668.3 million (2021:

$634.8 million).

The letter of credit facility contains customary events of default and restrictive covenants, including but not limited to limitations on liens on collateral, transactions with affiliates, mergers, and sales of assets, as well as solvency and maintenance of certain minimum pledged equity requirements and restricts issuance of any debt without the consent of the letter of credit provider.

Additionally, if an event of default exists, as defined in the letter of credit facility, Greenlight Re would be prohibited from paying dividends to its parent company.

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

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

December 31, 2023 December 31, 2022

$ 74,062 $ 80,534

Shareholders’ equity

596,095 503,120

Ratio of debt to shareholders’ equity

The debt to shareholders’ equity provides an indication of our leverage and capital structure, along with some insights into our financial strength.

In addition to the above capital, we also have LOC facilities to support our reinsurance business operations where we are not licensed or admitted as a reinsurer.

The following is a summary of the changes in our capital:

At December 31, 2023, our debt consisted of the new $75.0 million Loan Facility used principally to repay the Convertible Notes that were outstanding at December 31, 2022, net of repurchases during 2023.

We also made the initial loan installment repayment on the Loan Facility.

The facility will mature on August 1, 2026.

Ordinary Shares

At December 31, 2023, there were 35,336,732 outstanding ordinary shares, an increase of 512,671 since December 31, 2022, due to restricted shares granted to our employees and non-executive directors.

While our Board of Directors renewed the $25.0 million share repurchase plan in 2023, we did not repurchase any ordinary shares for year ended December 31, 2023 (see “Item 5 - Market for Regist rants ’ s Common Equity, Related Stockholder Matter s and Issuer P urchases of Equity Securities ”).

We expect that the existing capital base and internally generated funds will be sufficient to implement our business strategy for the foreseeable future.

Consequently, we do not presently anticipate that we will incur any additional material indebtedness in the ordinary course of our business.

However, to provide us with flexibility and timely access to public capital markets should we require additional capital for working capital, capital expenditures, acquisitions, or other general corporate purposes, we have filed a Form S-3 registration statement, which expires in July 2024.

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

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

The Board of Directors had previously approved a share repurchase plan authorizing the Company to repurchase up to $25.0 million of Class A ordinary shares or securities convertible into Class A ordinary shares in the open market through privately negotiated transactions or Rule 10b5-1 stock trading plans.

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

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

During the 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.

At December 31, 2022, 2,011,426 Class A ordinary shares were available for future issuance under the Company’s stock incentive plan.

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

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Secured LOC Facilities

At December 31, 2023, our total LOC capacity was $489.0 million, compared to $289.0 million at December 31, 2022.

The increase was due to a new LOC credit facility established to accommodate future growth and to diversify the concentration risk of having a single facility.

At December 31, 2023, we had $290.7 million LOCs outstanding compared to $203.9 million at December 31, 2022.

The increase is driven by, among other factors, the amount of unearned premiums, development of loss reserves, the expansion of our business and loss experience of that business.

The amount drawn from the LOC facilities are secured by cash collateral, reported as restricted cash and cash equivalents in the consolidated balance sheets.

Contractual Obligations and Commitments

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

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

At December 31, 2023, our contractual obligations and commitments by period due were as follows:

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

5 years Total

($ in thousands)

Operating activities

Loss and loss adjustment expense reserves (1)

$ 314,238 $ 209,713 $ 78,063 $ 59,540 $ 661,554

Operating lease obligations (2)

637 1,005 — — 1,642

Financing activities

3,703 70,359 — — 74,062

$ 318,578 $ 281,077 $ 78,063 $ 59,540 $ 737,258

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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 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.

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.

Pursuant to the IAA between SILP and DME Advisors, DME Advisors is entitled to a monthly management fee equal to 0.125% (1.5% on an annual basis) of each limited partner’s Investment Portfolio, as provided in the SILP LPA.

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

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

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

The loss carry-forward provision contained in the SILP LPA allows DME II to earn 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%.

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

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

The service agreement had an initial term of one year and continues for sequential one-year periods until terminated by us or DME Advisors.

Either party may terminate the service agreement for any reason with 30 days prior written notice to the other party.

Our related party transactions are presented in Note 14 to the accompanying consolidated financial statements.

Effects of Inflation

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 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.

(2) See Note 16 “ Commitments and Cont ingencies ” of the consolidated financial statements.

(3) See Note 9 “ Debt and Credit Facilities ” of the consolidated financial statements.

Critical Accounting Estimates

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

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

— 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 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 “ Significan t Accounting Polic i es ” to the consolidated financial statements.

Premium Revenues

Gross Premiums Written

We record our property and casualty reinsurance premiums as premiums written based on our best estimate of the ultimate premiums for the contract period.

Our estimates are based on actuarial pricing models and information received from ceding companies.

Further, we record reinsurance premiums so long as they meet the risk transfer criteria under U.S.

GAAP (see “Deposit Contracts” below).

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.

The minimum and deposit premium is generally based on an estimate of subject premiums expected to be written by the client during the contract term.

The minimum and deposit premium is reported initially as premiums written and adjusted, if necessary, in subsequent periods once the actual subject premium is known.

For quota share (also known as proportional) contracts, we record premiums in the same periods in which the underlying insurance contracts are written, based on cession statements from cedents.

We typically receive these statements monthly or quarterly, depending on the terms specified in each contract.

For any reporting lag, we estimate premiums written based on the portion of the estimated ultimate premiums relating to the risks bound during the lag period.

For multi-year contracts, reinsurance premiums are recorded at the inception of the contract based on our best estimate of total premiums to be received.

Premiums are recognized on an annual basis for multi-year contracts where the cedants have the ability to unilaterally commute or cancel coverage within the term of the contract.

We regularly review premium estimates.

Such review includes our experience with the ceding companies, managing general underwriters, familiarity with each market, the timing of the reported information, a comparison of reported premiums to expected ultimate premiums, along with a review of the aging and collection of premiums.

We evaluate the appropriateness of the premium estimates on the basis of these reviews and record any adjustments to these estimates in the period in which they are determined.

Changes in premium estimates, including premium receivable on both excess of loss and quota share contracts, are not unusual and may result in significant adjustments in any period.

A portion of amounts included in “ Reinsurance balances receivable ” in the consolidated balance sheets represent estimated premiums written, net of commissions and brokerage, that are not currently due based on the terms of the underlying contracts.

Additional premiums due on a contract with no remaining coverage period are earned in full when written.

Certain contracts provide for reinstatement premiums in the event of a loss.

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

Net Premiums Earned

We earn premiums over the risk coverage period.

Unearned premiums represent the unexpired portion of reinsurance provided.

Changes in circumstances subsequent to the inception of contracts can impact the earnings period.

For instance, when exposure limits for a reinsurance contract are reached, any associated unearned premiums are fully earned.

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Excess of loss reinsurance contracts are generally written on a “losses occurring” or “claims made” basis over the term of the policy.

Accordingly, premiums are earned evenly over the contract term, which is generally 12 months.

Line slip or proportional insurance/reinsurance contracts are generally written on a “risks attaching” basis, covering claims that relate to the underlying policies written during the terms of these contracts.

As the underlying business incepts throughout the contract term, which is generally one year, and the underlying business generally has a one year coverage period, these premiums are generally earned evenly over a 24-month period from inception.

Deposit Contracts

If we determine that a reinsurance contract does not transfer sufficient risk to merit reinsurance accounting treatment, we report the premium we receive as a deposit liability.

Similarly, we report the premium we pay as a deposit asset for ceded contracts that do not transfer sufficient risk to merit reinsurance accounting.

Any income and expense on deposit-accounted contracts is calculated using the interest method and recorded in the consolidated statements of operations under “Other income (expense)” and “Deposit interest expense,” respectively.