Greenlight Capital Re, Ltd. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Greenlight Re is a global specialty property and casualty reinsurer, with investment results also materially affected by its related-party investment fund, SILP. Amounts below are in U.S. dollars; financial statement figures are rounded to millions.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Gross premiums written | $183.1m | $155.1m | $524.5m | $435.8m |
| Net premiums earned | $163.1m | $121.9m | $445.7m | $358.1m |
| Total revenues | $166.9m | $126.7m | $511.6m | $381.2m |
| Net income (loss) | $13.5m | ($18.5m) | $69.2m | ($9.4m) |
| Diluted EPS | $0.39 | ($0.56) | $1.99 | ($0.28) |
| Combined ratio | 91.2% | 115.4% | 95.5% | 104.8% |
| Net underwriting income (loss), non-GAAP | $14.4m | ($18.9m) | $20.2m | ($17.2m) |
| Total investment income | $5.1m | $11.6m | $52.5m | $36.5m |
- Premium growth reflected expanded property and casualty business. Nine-month gross premiums written rose 20.3%; net premiums earned increased 24.5%.
- Q3 underwriting improved substantially year over year, primarily from lower catastrophe losses and lower deposit-contract interest expense. Nine-month underwriting also turned profitable, although prior-year reserve development was adverse by $10.5m.
- Q3 investment income was lower mainly because SILP recorded a $1.9m loss, versus an $8.5m gain a year earlier. For the first nine months, SILP generated $27.8m of income, versus $24.5m.
- Book value per share at September 30 was $16.67 basic and $16.58 fully diluted. Fully diluted book value per share rose 13.6% from year-end 2022.
Financial position, cash flow and debt
- Total assets were $1.740bn and shareholders’ equity $575.9m at September 30, versus $1.580bn and $503.1m, respectively, at December 31, 2022.
- Cash and cash equivalents were $41.3m; restricted cash and cash equivalents were $622.6m. Combined cash, including restricted balances, was $663.9m, down $42.6m since year-end. Restricted cash mainly supports trusts and letters of credit and should not be treated as unrestricted liquidity.
- Operating cash flow was negative $14.6m for the nine months, compared with negative $27.4m in 2022. The filing attributes cash use partly to the timing of underwriting activity; receivables increased materially. Investing cash flow was negative $22.5m, including net contributions to SILP.
- Debt was $74.9m, comprising $75.0m of term loans. The company repaid its remaining convertible notes at maturity in August 2023, refinancing primarily with a $75.0m facility due August 2026. The term loans bear adjusted SOFR plus 3.5%; half the floating-rate exposure is hedged. The stated rate was 8.9% at quarter-end, and the company reported compliance with covenants.
- Loss reserves increased to $658.2m from $555.5m at year-end, including $468.1m of incurred-but-not-reported reserves. Reinsurance balances receivable were $640.4m, including $422.4m of funds held by cedents.
Material changes, outlook and risks
- Q3 catastrophe losses were $13.1m net of reinsurance; nine-month catastrophe losses were $29.5m, including U.S. severe storms, the Turkey earthquake, Cyclone Gabrielle, a Mexican oil-platform fire and satellite losses. Management noted event loss estimates remain uncertain.
- Nine-month prior-year loss development was adverse by $10.5m: $31.3m of adverse development, largely in legacy motor, homeowners and workers’ compensation, was partly offset by $20.8m favorable development in other lines.
- Management said reinsurance market conditions remained attractive and expected them to continue into the January 2024 renewals. It cited inflation and social inflation as claim-cost and reserving concerns, while noting a focus on shorter-tail business and frequent repricing. No quantified earnings or premium guidance was provided.
- Management expects liquidity to be sufficient for foreseeable needs, supported by operating cash flows, financing arrangements and SILP redemptions as needed. It also cautioned that operating and investment results may fluctuate materially.
- Key exposures include catastrophe claims, reserve-estimation uncertainty, inflation, retrocessionaire credit risk, equity and foreign-exchange movements, and floating interest rates. A.M. Best reaffirmed the subsidiaries’ A- financial strength rating with a stable outlook on September 29, 2023.
- SILP is managed by entities affiliated with the company’s chairman. The company’s $229.0m SILP investment represented 70.3% of SILP’s net assets; management and performance fees apply. The filing reports no existing dispute expected to have a material adverse effect and no material change to previously disclosed risk factors.
- Shareholders eliminated the dual-class share structure in July 2023. A repurchase plan authorizes up to $25m through June 30, 2024; no shares were repurchased during Q3.
Important facts for investors to verify
- Whether catastrophe claims and the $10.5m adverse prior-year development lead to further reserve strengthening.
- Whether premium growth and improved combined ratios persist without unusually favorable catastrophe or reserve-development comparisons.
- SILP performance, liquidity, concentration, related-party fees and the effect of its leverage and investment positions on reported earnings.
- Cash conversion and the collectability and timing of the $640.4m reinsurance receivable, including funds held by cedents.
- Refinancing terms, SOFR exposure and covenant headroom under the term-loan facility.
- Whether the expected favorable renewal conditions and management’s liquidity expectations are borne out; these are forward-looking statements, not guarantees.