Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments are subject to a variety of market risks. The term market risk refers to the risk of loss arising from adverse changes from:
• equity price;
• commodity price;
• foreign currency; and
• interest rate (including credit spreads).
We performed a sensitivity analysis below to estimate the effects that market risk exposure could have on the future earnings, fair values or cash flows of our financial instruments. These represent forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these projected results due to actual developments in the global financial markets.
Equity Price Risk
At December 31, 2025, our investments consisted primarily of an investment in Solasglas. Among Solasglas’ holdings are equity securities, the carrying values of which are based primarily on quoted market prices. Generally, market prices of common equity securities are subject to fluctuation, which could cause the amount to be realized upon closing a position to differ significantly from its current reported value. This risk is partly mitigated by the presence of both long and short equity securities as part of Solasglas’ investment strategy. At December 31, 2025, a 10% decline in the price of each of the underlying listed equity securities and equity-based derivative instruments would result in a $18.5 million (2024: $13.9 million) unrealized loss in our investment in Solasglas.
Commodity Price Risk
Generally, market prices of commodities are subject to fluctuation. Solasglas’ investments periodically include long or short investments in commodities or derivatives directly impacted by fluctuations in the prices of commodities. At December 31, 2025, Solasglas’ investments incorporate unhedged exposure to changes in gold, uranium, and crude oil prices.
The following table summarizes the net impact that a 10% adverse movement in commodity prices would have on the fair value of Solasglas’ investment portfolio at December 31, 2025. The below table excludes the indirect effect that changes in commodity prices might have on equity securities in the Solasglas’ investment portfolio.
At December 31,
2025
2024
Gold $ (9,074) $ (5,874)
Copper (1,770) (706)
Uranium (574) (427)
Total $ (11,418) $ (7,007)
Foreign Currency Risk
Underwriting Related
Certain of our reinsurance contracts are denominated in foreign currencies, whereby premiums are receivable and losses are payable in foreign currencies. Foreign currency exchange rate risk exists to the extent that our foreign currency reinsurance balances are more than (or less than) the corresponding foreign currency cash balances, and there is an increase (or decrease) in the exchange rate of that foreign currency.
While we do not seek to precisely match our liabilities under reinsurance policies that are payable in foreign currencies with investments denominated in such currencies, we continually monitor our exposure to potential foreign currency losses and may use foreign currency cash and cash equivalents or forward foreign currency exchange contracts to mitigate against adverse foreign currency movements.
77
Return to table of contents
Certain cedents, particularly the Lloyd’s syndicates, report to us in foreign currencies even though some or all of the underlying exposure is denominated in U.S. dollars . Our consolidated statements of operations may report a foreign exchange gain or loss associated with this exposure when reported by the cedents. Additionally, we may report foreign exchange gains or losses due to the mismatch between the currency exchange rates applied to foreign-denominated (i) monetary balances and (ii) non-monetary balances under U.S. GAAP. See Note 2 “ Significant Accounting Policies ” of the consolidated financial statements for further information regarding our accounting treatment of foreign currency transactions.
We monitor our foreign currency-denominated assets and liabilities on an “underlying exposure” basis without distinguishing between monetary and non-monetary balances.
The following table table presents a sensitivity analysis of our total net foreign currency exposures presented in USD equivalent:
GBP EUR Other Total
At December 31, 2025
Reinsurance assets (liabilities) $ 70,299 $ (27,226) $ 1,196 $ 44,269
Cash and cash equivalents 8,068 2,761 3,955 14,784
Net foreign currency exposure $ 78,367 $ (24,465) $ 5,151 $ 59,053
Pre-tax impact of hypothetical 10% increase in USD $ (7,837) $ 2,447 $ (515) $ (5,905)
At December 31, 2024
Reinsurance assets (liabilities) $ 36,677 $ (23,624) $ (3,191) $ 9,862
Cash and cash equivalents 17,149 1,315 824 19,288
Net foreign currency exposure $ 53,826 $ (22,309) $ (2,367) $ 29,150
Pre-tax impact of hypothetical 10% increase in USD $ (5,383) $ 2,231 $ 237 $ (2,915)
Investment in Solasglas
We may also be exposed to foreign currency risk through Solasglas’ underlying cash, forwards, options, and investments in securities denominated in foreign currencies. At December 31, 2025, most of Solasglas’ currency exposures resulting from foreign-denominated securities (longs and shorts) were reduced by offsetting cash balances denominated in the corresponding foreign currencies.
At December 31, 2025, a 10% increase in the value of the U.S. dollar against foreign currencies (mostly Euro) would result in a $3.2 million unrealized loss on our investment in Solasglas (2024 - negligible).
Interest Rate Risk
The primary market risk exposure for any debt instrument is interest rate risk, including credit spreads.
Investment in Solasglas
Our investment in Solasglas includes interest-rate sensitive securities, such as corporate and sovereign debt instruments and interest rate derivatives. At December 31, 2025, a 100 basis points increase in interest rates would result in a $20.5 million unrealized loss on our investment in Solasglas (2024: negligible). The significant increase compared to 2024 was due to Solasglas’s long position in three-month Secured Overnight Financing Rate (“SOFR”) futures.
78
Return to table of contents
Fixed Maturities
The following table presents the estimated pre-tax impact on the fair value of fixed maturities due to an increase in the U.S. yield curve of 100 basis points and an additional 100 basis points credit spread widening for corporate debt, ABS, non-agency RMBS, and municipal bond securities.
Potential adverse change in fair value
Fair value Increase in interest rate by 100 basis points Widening of credit spreads by 100 basis points Total
At December 31, 2025
U.S. government and agencies $ 17,979 $ (436) $ (436)
Agency RMBS 18,258 (485) (485)
Securities exposed to credit spreads:
Corporate bonds 9,769 (297) (306) (603)
ABS 5,565 (53) (102) (155)
Non-agency RMBS 600 (30) (29) (59)
Municipal bonds 857 (30) (30) (60)
Total fixed maturity portfolio $ 53,028 $ (1,331) $ (467) $ (1,798)
U.S. government agencies and agency RMBS have a limited range of spread widening. Accordingly, 100 basis points of spread widening for these securities is highly improbable under normal market conditions.
The interest rate risk exposure relating to the Liquidity fund is minimal due to the short duration nature of the underlying fixed maturity securities.
We, along with DME Advisors, monitor the net exposure to interest rate risk and generally do not expect changes in interest rates to have a materially adverse impact on our operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is set forth under Part IV Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.