Greenlight Capital Re, Ltd. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. GLRE is a global specialty property and casualty reinsurer, with an investment strategy that includes the related-party Solasglas Investments, LP (SILP). Amounts below are U.S. dollars; financial amounts are in millions unless noted.
Financial performance and position
- Q3 revenue and earnings: Total revenue was $126.7 million, down from $139.3 million a year earlier. Net premiums earned were $121.9 million versus $135.5 million. Net loss was $18.5 million, or $0.56 per share, compared with a $13.9 million loss, or $0.42 per share.
- Nine-month results: Total revenue was $381.2 million versus $427.1 million; net premiums earned were $358.1 million versus $403.4 million. Net loss was $9.4 million, or $0.28 per share, compared with a $6.7 million loss, or $0.20 per share.
- Underwriting: Net underwriting loss was $18.9 million in Q3 and $17.2 million for the nine months, versus losses of $12.6 million and $10.0 million, respectively, in 2021. The combined ratios were 115.4% and 104.8%, respectively, compared with 109.3% and 102.4%. A ratio above 100% indicates underwriting losses.
- Investments: Total investment income was $11.6 million in Q3 and $36.5 million year to date, versus $4.1 million and $24.8 million. SILP contributed $8.5 million in Q3 and $24.5 million for the nine months; other investment income was lower year over year in both periods.
- Cash flow: Operating activities used $27.4 million in the first nine months, compared with $18.8 million used in 2021. Investing activities provided $4.2 million; financing activities used $6.4 million, mainly for convertible-note repurchases. Cash, cash equivalents and restricted cash totaled $681.2 million at September 30, including $648.9 million restricted.
- Balance sheet and capital: Total assets were $1,524.5 million and shareholders’ equity was $467.0 million, versus $1,427.5 million and $475.7 million at year-end 2021. Loss reserves were $540.8 million; reinsurance balances receivable were $473.6 million. Convertible notes had a carrying value of $93.4 million and mature August 1, 2023. GLRE repurchased and canceled $6.6 million principal during the period and a further $13.8 million after quarter-end.
- Per-share value: Basic and fully diluted book value per share were $13.62 and $13.55, down 3.1% year to date on the respective reported comparisons.
Material changes and drivers
- Nine-month gross premiums written declined 1.0% to $435.8 million; net premiums written fell 6.0% to $413.8 million. Q3 gross premiums written increased 20.5% to $155.1 million, while net premiums written increased 13.7% to $146.3 million.
- Management attributed the nine-month underwriting loss chiefly to $13.6 million of Russia-Ukraine conflict losses and $25.5 million of losses from Hurricane Ian, Typhoon Nanmadol and Tennessee wildfires. Q3 included $19.5 million estimated for Hurricane Ian and $3.2 million for Typhoons Nanmadol and Hinnamnor.
- Prior-year loss development was adverse by $1.6 million for the nine months, compared with favorable development of $1.3 million in 2021. Management cited inflation-related motor and health claims, newly reported cedent losses, marine and energy claims, and cyber deterioration, partially offset by favorable mortgage and catastrophe-related developments.
- Other expense was $13.4 million for the nine months, primarily reflecting foreign-exchange losses and investment mark-to-market effects reported by Lloyd’s syndicates. Q3 included $6.8 million of other expense, with sterling weakness a principal FX driver.
- Deposit interest expense rose to $6.1 million in Q3 and $6.4 million for the nine months, from $0.04 million and $3.0 million, respectively, in 2021; it reflects revised ultimate cash-flow expectations for deposit-accounted contracts.
Outlook, risks and contingencies
- Management said reinsurance market conditions approaching the January 1 renewal season were more favorable than in over a decade, citing reduced available reinsurance capital. It expects underwriting results to remain volatile; no specific earnings or premium guidance was provided.
- Management reported that it expects to fund operations for the next 12 months from operating and investing cash flows, and considered liquidity sufficient for foreseeable needs. It was evaluating alternatives for the August 2023 notes; failure to refinance could require cash on hand or SILP withdrawals and could constrain strategy.
- Key uncertainties include catastrophe and Russia-Ukraine losses, inflation and reserve adequacy, pandemic effects, investment volatility and concentration in SILP, foreign exchange, interest rates, counterparty credit, and reinsurance-market cycles. Loss estimates are subject to substantial uncertainty and may change materially.
- At October 1, 2022, modeled net 1-in-250-year North Atlantic hurricane PML was $88.7 million for a single event and $95.9 million in aggregate; the filing cautions actual losses may differ materially from modeled estimates.
- Restricted cash supports cedent collateral: $180.2 million of letters of credit were issued under a $275 million facility, and $468.0 million was held in regulatory trusts. The company reported compliance with facility covenants and regulatory minimum capital requirements.
- GLRE said existing contractual disputes were not expected to have a material adverse effect. Disclosure controls were deemed effective, and no material changes to internal control over financial reporting were reported.
Important facts for investors to verify
- How Hurricane Ian and Russia-Ukraine loss estimates, including potential recoveries, develop in later quarters.
- Whether premium growth and renewal pricing improve underwriting results enough to bring the combined ratio below 100%.
- SILP’s returns, portfolio concentration, related-party fees and performance allocations; GLRE held 75.3% of SILP’s net assets.
- How the company will refinance, repay or otherwise settle the remaining convertible notes due in August 2023, including the effect of the post-quarter repurchase.
- Whether operating cash use, restricted-cash requirements and reserve payments remain manageable as the business and Lloyd’s participation grow.