Greenlight Capital Re, Ltd. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The company is a Cayman Islands-based specialty property and casualty reinsurer, operating through entities in the Cayman Islands and Ireland. Its investment portfolio is managed through related-party fund Solasglas Investments, LP (SILP), using a long/short strategy. Figures below are U.S. dollars.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Gross premiums written | $565.4 million | $479.8 million |
| Net premiums earned | $539.3 million | $455.4 million |
| Investment income | $50.2 million | $25.5 million |
| Net income | $17.6 million | $3.9 million |
| Diluted earnings per share | $0.51 | $0.11 |
| Combined ratio | 100.9% | 100.4% |
| Operating cash flow | $(56.3) million | $(91.3) million |
| Total shareholders’ equity | $475.7 million | $464.9 million |
- Underwriting produced a $5.2 million loss, versus a $1.6 million loss in 2020. Net favorable prior-year reserve development of $14.1 million partly offset current-year claims and expenses. The 2021 combined ratio included 6.1 percentage points from catastrophe losses.
- Investment income included $18.1 million from SILP, $19.5 million of unrealized gains on Innovations and other strategic investments, and a $14.2 million realized pre-tax gain from selling AccuRisk. SILP’s reported net return was 7.5%, compared with 1.4% in 2020.
- Fully diluted book value per share rose 4.2% to $13.99. Management attributed the increase primarily to net income and share repurchases.
- At year-end, total assets were $1.427 billion and total liabilities were $951.8 million. Investment assets were $231.0 million; loss and loss adjustment expense reserves were $524.0 million, up from $494.2 million.
- Cash and cash equivalents were $76.3 million, with a further $634.8 million restricted as collateral. Operating cash use improved from 2020; investing activities provided $23.1 million and share repurchases used $10.0 million.
- Convertible notes had a $98.1 million carrying value, $100 million principal, a 4% coupon and an August 2023 maturity. Reported interest expense was $6.3 million.
Material changes versus FY2020
- Gross premiums written increased 17.8%, with growth concentrated in casualty and “other” business; property premiums declined. Casualty grew 25.4%, while total property premiums fell 9.4%.
- Net premiums earned increased 18.4%. The overall loss ratio improved to 69.5% from 74.2%, mainly reflecting favorable development in “other” lines, while the acquisition cost ratio increased to 26.9% from 24.0%.
- Catastrophe losses rose to $32.7 million from $9.0 million. COVID-19 contributed $7.1 million of underwriting loss in 2020; the filing does not report a comparable 2021 COVID-19 underwriting-loss figure.
- Premiums shifted geographically: U.S. and Caribbean business fell to 55.9% of gross premiums from 81.3%, while worldwide business rose to 42.5% from 17.5%.
- Restricted cash declined $110.6 million, primarily due to collateral released by cedents. Reinsurance balances receivable increased 22.8% to $405.4 million, partly due to increased Lloyd’s-related balances.
Outlook, risks and unusual items
- Management reported improved rates in most classes during 2021 and said this supported selective portfolio growth and diversification. It expects recent catastrophe losses may support favorable conditions in many classes, but said the response of the catastrophe market is uncertain; higher inflation and interest rates may weaken pricing support.
- Management expects liquidity from operating and investing cash flows to cover foreseeable needs over the next 12 months, with SILP withdrawals available for operational purposes on three business days’ notice. This is an expectation, not a quantified earnings forecast.
- In January 2022, Lloyd’s gave in-principle approval for insurtech-focused Syndicate 3456; management expected operations to begin in Q2 2022.
- Key exposures include uncertain loss-reserve estimates, catastrophe and inflation losses, COVID-19 claim uncertainty, investment-market volatility and illiquid Innovations holdings. The auditor identified IBNR reserves as a critical audit matter. The filing notes reserves are estimates and actual outcomes may differ materially.
- Three brokers generated 67.4% of 2021 gross premiums. Contracts representing about 15% of gross premiums written included rating- or capital-related cancellation or collateral provisions; management estimated that triggering all additional collateral requirements at year-end could require about $75 million.
- SILP is a related-party investment fund managed by an affiliate of board chair David Einhorn. The company has limited control over investment decisions; a board waiver permitted an investment concentration above the normal Greenlight Re limit in Green Brick Partners. SILP and DME-related affiliates collectively owned 34.3% of Green Brick Partners at year-end.
- Greenlight Re and GRIL met their stated regulatory capital requirements, and the company reported compliance with its letter-of-credit facility covenants. The $275 million facility had $136.8 million of letters of credit issued. The company had not paid ordinary-share dividends and did not expect to do so in the foreseeable future.
- The financial statements received an unqualified audit opinion; the auditor also reported effective internal control over financial reporting.
Important facts for investors to verify
- How 2021 catastrophe claims, casualty loss trends, inflation and emerging COVID-19 claims affect reserve adequacy and future loss development.
- Whether underwriting profitability improves from the 100.9% combined ratio, especially given higher acquisition costs and the 2021 deposit-contract expense.
- The valuation, liquidity and concentration of Innovations investments and SILP positions, including the Green Brick Partners exposure and related-party governance safeguards.
- Whether the expected Q2 2022 launch of Syndicate 3456 occurred and what capacity, costs and underwriting results followed.
- Cash available for claims and collateral after distinguishing unrestricted cash from restricted collateral, and the company’s ability to manage the 2023 convertible-note maturity.
- Developments in broker concentration, rating-sensitive contract provisions, regulatory capital and potential collateral calls.