Greenlight Capital Re, Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021. The company provides global specialty property and casualty reinsurance and invests through its related-party fund, Solasglas Investments, LP (SILP).
Financial performance and position
- Premiums and revenue: Gross premiums written were $145.9 million, down 14.2% year over year; net premiums written were $139.9 million, down 17.7%. Net premiums earned fell 7.0% to $125.9 million. Total revenues were $133.0 million, versus $153.4 million.
- Profitability: Net loss was $5.7 million, or $0.17 per share, compared with net income of $6.5 million, or $0.19 per share, in Q1 2021. Net underwriting loss widened to $7.7 million from $2.0 million. The combined ratio rose to 106.2% from 101.5% (above 100% indicates an underwriting loss); the loss ratio was 77.4% and acquisition cost ratio 26.2%.
- Investments: Total investment income was $7.7 million, down from $18.7 million. SILP contributed $4.1 million and Innovations-related investments recorded $3.9 million of unrealized gains. The prior-year result included a $14.2 million realized gain on the sale of AccuRisk.
- Cash flow and liquidity: Operating activities used $11.6 million, versus $18.7 million used a year earlier; investing activities provided $33.3 million, mainly from net SILP redemptions. Cash, cash equivalents and restricted cash totaled $732.7 million, including $31.3 million unrestricted and $701.4 million restricted. Restricted cash supports cedent collateral and is not freely available for general use.
- Balance sheet and debt: Total assets were $1.469 billion and shareholders’ equity $468.4 million, down from $475.7 million at year-end. Loss reserves increased to $549.1 million. Convertible notes had a $99.7 million carrying value, bear 4% interest and mature August 1, 2023; the company reported covenant compliance.
- Book value: Fully diluted book value per share decreased 2.4% to $13.65 from $13.99 at year-end; basic book value per share declined 2.3% to $13.72.
Material changes versus the prior comparable period
- Underwriting results were pressured by $13.6 million of estimated Russia-Ukraine conflict losses and $2.8 million of Tennessee wildfire losses. The conflict added 10.8 percentage points to the combined ratio.
- Prior-year reserve development was adverse by $2.3 million in Q1 2022, mainly from a health contract and COVID-19 claims; Q1 2021 had $0.1 million of favorable development.
- Gross premiums written shifted away from casualty, down 31.1%, while property rose 24.3% and other business rose 18.7%. Management cited reduced or non-renewed motor and workers’ compensation participation and growth in selected specialty and Innovations-related business.
- Investment income declined mainly because Q1 2021 included the AccuRisk sale gain. SILP’s Q1 2022 reported investment return was 1.7%; its long portfolio lost 6.0%, offset by gains in short and macro positions.
- The company adopted convertible-debt accounting guidance in Q1 2022. Adoption reduced opening equity by approximately $2.5 million and contributed $0.07 per share to the quarterly book-value decline; management said it did not materially affect net income or cash flows.
Outlook, commentary and risks
- Management reported improved rates in most classes at the January 2022 renewals and said it selectively expanded specialty business, with greater portfolio diversification and lower concentration in individual counterparties. It expects favorable conditions to persist in many classes, while noting inflation could reduce pricing adequacy, particularly in longer-tailed lines.
- The company reported $13.6 million of Russia-Ukraine conflict reserves but no retrocession recoveries as of March 31; estimated losses had not reached the applicable excess layers. Management cautioned that estimates are highly uncertain, could change materially, and could increase if the conflict continues.
- Management expects cash from operations and investments, including SILP withdrawals, to fund the next 12 months’ needs. It said it may explore financing alternatives, without assurance that financing will be available on acceptable terms. Subsidiaries exceeded regulatory minimum capital requirements; dividend payments are subject to regulatory constraints and approvals.
- In April 2022, the company launched Lloyd’s-approved insurtech-focused Syndicate 3456 to support Innovations partners. The board also renewed the authorization to repurchase up to $25 million of shares through June 30, 2023; no shares were repurchased in Q1.
- Key risks include uncertain catastrophe and conflict-related reserves, inflation and emerging claims, investment volatility and concentration in SILP, performance of illiquid Innovations investments, counterparty and collateral risks, and potential rating downgrades. Subsidiaries held A.M. Best ratings of A- with stable outlook. Management reported no existing dispute expected to have a material adverse effect.
Important facts for investors to verify
- Whether Russia-Ukraine claims develop beyond the $13.6 million estimate, and whether any retrocession recoveries become available.
- Reserve development, especially in health, COVID-19 and longer-tailed casualty lines, and the assumptions underlying the $549.1 million reserve balance.
- How restricted collateral requirements and underwriting cash flows affect usable liquidity, including the availability and liquidity of SILP redemptions.
- The valuation and performance of SILP and Innovations investments, including related-party fees, performance allocations and exposures to illiquid or concentrated holdings.
- The ability to maintain underwriting profitability after a 106.2% combined ratio, and the effect of inflation, mix shifts and reinsurance pricing on future results.
- The company’s plan to meet the $100 million convertible-note maturity in August 2023 and any implications of the renewed share-repurchase authorization for capital and liquidity.