Greenlight Capital Re, Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited U.S. GAAP financial statements. GLRE is a global property and casualty reinsurer with one operating segment. Amounts below are in U.S. dollars; financial statement values are shown in millions unless noted.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Gross premiums written | $186.5 million | $145.9 million; up 27.8% |
| Net premiums written | $175.2 million | $139.9 million; up 25.3% |
| Net premiums earned | $142.6 million | $125.9 million; up 13.3% |
| Total revenues | $155.0 million | $133.0 million |
| Net income (loss) | $5.9 million; $0.17 per share | $(5.7) million; $(0.17) per share |
| Net underwriting income (loss), non-GAAP | $0.4 million | $(7.7) million |
| Combined ratio | 99.8% | 106.2% |
| Total investment income | $5.2 million | $7.7 million |
| Operating cash flow | $(1.3) million | $(11.6) million |
The combined ratio improved as the loss ratio declined to 67.8% from 77.4%, partly offset by a higher acquisition-cost ratio of 29.1% versus 26.2%. The current-year loss ratio was 59.4%; adverse prior-year development contributed 8.4 percentage points.
At March 31, total assets were $1.645 billion, total liabilities $1.134 billion, and shareholders’ equity $510.0 million. Basic and fully diluted book value per share, non-GAAP measures, were $14.82 and $14.75, respectively, each up 1.1% from year-end 2022.
Cash and cash equivalents were $40.0 million and restricted cash was $626.2 million, for $666.3 million combined. Restricted cash primarily collateralizes letters of credit and trust arrangements and is not equivalent to freely available cash. Total investments were $267.2 million, including $196.1 million invested in related-party fund SILP. Loss reserves were $595.8 million, up from $555.5 million at year-end.
Convertible notes had a carrying value of $62.4 million, including accrued interest, at quarter-end. GLRE repurchased and canceled $17.5 million principal during the quarter for a $0.3 million gain. The remaining principal and interest obligation was estimated at $63.4 million; the notes mature in August 2023.
Material changes versus the prior comparable period
- GLRE moved from a quarterly net loss to net income, while underwriting results improved from a loss to modest income.
- Premium growth reflected increases in property, casualty, and other business. Gross property premiums rose 63.9%; casualty rose 21.6% and other rose 24.0%.
- Catastrophe and weather-related losses totaled $10.3 million, versus $17.9 million in Q1 2022. Prior-year losses developed adversely by $12.0 million, compared with $2.3 million in incurred losses in the prior-year reserve reconciliation.
- SILP recorded a $3.1 million loss, compared with a $4.1 million gain in Q1 2022. Higher interest income, primarily on restricted cash, helped lift other investment income to $8.4 million from $3.7 million.
- Other income was $7.1 million versus other expense of $0.6 million, mainly reflecting $4.9 million in foreign-exchange gains and income reported by Lloyd’s syndicates.
- General and administrative expenses increased 37.4% to $9.9 million, including higher personnel and outsourced-service costs, severance related to the former CFO, and higher legal fees.
Outlook, commentary, risks, and unusual items
- Management reported favorable reinsurance pricing conditions following recent losses, inflation, and reduced available market capacity. Property premiums grew, and management said Innovations-related premiums grew 57.2% year over year; it sees potential for continued Innovations growth in 2023. No specific earnings or premium guidance was provided.
- Management expects operating cash flows, financing arrangements, and SILP redemptions as needed to cover foreseeable liquidity requirements. It was arranging refinancing for the August 2023 convertible-note maturity; if refinancing is unavailable, it may seek other financing, use cash, or withdraw funds from SILP.
- Key uncertainties include catastrophe claims, reserve estimates and adverse development, inflation’s effect on claim costs, market and currency volatility, SILP investment performance and liquidity, and credit risk from retrocessionaires. Management noted that actual catastrophe losses may differ materially from estimates.
- GLRE reported $14.3 million of incurred losses to date related to the Russia-Ukraine conflict and had not recorded recoveries under excess-of-loss coverage as losses had not reached the relevant layers. The conflict may generate further losses.
- SILP is managed by DME-affiliated entities related to the board chairman. GLRE’s share of SILP net assets was $196.1 million, or 71.6% of SILP’s total net assets; GLRE stated its maximum exposure is limited to its investment. SILP management fees were $1.1 million in the quarter; no performance allocation was recorded.
- Letters of credit issued totaled $282.3 million, supported by $283.1 million of pledged cash. Regulatory trusts held another $343.2 million of collateral. Management reported compliance with facility covenants. The main committed letter-of-credit facility, with a $275 million limit, was scheduled to terminate August 20, 2023.
- The board approved a new share-repurchase authorization of up to $25 million for July 2023–June 2024; no shares were repurchased in Q1. Management said existing disputes are not expected to have a material adverse effect. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Progress and terms of refinancing or repayment of the convertible notes due August 2023, and the availability of unrestricted liquidity.
- Subsequent reserve development, especially the $12.0 million adverse prior-year development and losses from recent catastrophe events and the Russia-Ukraine conflict.
- Whether premium growth and favorable pricing translate into sustained underwriting profitability, given the 99.8% combined ratio and higher acquisition costs.
- SILP performance, liquidity, exposure concentration, and related-party management fees and governance arrangements.
- Cash-flow trends and the degree to which reported cash is restricted or held by cedents; also monitor collateral and letter-of-credit facility renewal.
- Valuation uncertainty in private and unlisted investments, including Level 3 assets, and the impact of market, interest-rate, foreign-exchange, and catastrophe risks.