Greenlight Capital Re, Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020. Unless otherwise noted, financial amounts are U.S. dollars in millions. The company is a specialty property and casualty reinsurer with one operating segment. Financial statements are unaudited.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Gross premiums written | $169.9 | $109.8; up 54.8% |
| Net premiums earned | $135.4 | $111.0 |
| Total revenues | $150.4 | $75.9 |
| Net income (loss) | $6.5 | $(40.3) |
| Basic and diluted earnings (loss) per share | $0.19 | $(1.11) |
| Net underwriting income (loss), non-GAAP | $(2.0) | $1.3 |
| Combined ratio | 101.5% | 98.9% |
| Adjusted combined ratio, non-GAAP | 96.1% | 95.4% |
| Shareholders’ equity | $472.1 | $464.9 |
| Basic / fully diluted book value per share | $13.55 / $13.49 | $13.47 / $13.42 at year-end |
Net loss and loss adjustment expenses were $97.7 million versus $75.7 million; the loss ratio rose to 72.2% from 68.2%. Acquisition costs were $33.4 million, and general and administrative expenses were $7.5 million. Income tax expense was $3.7 million, primarily related to the AccuRisk investment sale.
Total investment income was $18.7 million, compared with a $35.3 million investment loss in Q1 2020. Q1 2021 included a $14.2 million pre-tax realized gain from selling AccuRisk and a $4.0 million gain from the related-party Solasglas Investments, LP (SILP), versus a $42.1 million SILP loss in the prior-year quarter. Thus, the return to net income reflected investment results despite an underwriting loss.
Financial position, liquidity and debt
- Total assets were $1,422.1 million and total liabilities were $950.0 million at March 31, 2021. Loss and loss adjustment expense reserves were $512.8 million, up from $494.2 million at year-end; unearned premium reserves were $235.7 million.
- Cash and cash equivalents were $33.5 million; restricted cash was $697.7 million. Restricted cash primarily collateralizes cedent trusts and letters of credit and is not freely available for general use. Total cash, cash equivalents and restricted cash declined to $731.2 million from $754.3 million.
- Reinsurance balances receivable increased to $386.9 million from $330.2 million. Funds held by cedents were $155.8 million.
- Operating cash flow was a use of $18.7 million, versus a use of $31.8 million in Q1 2020. Investing cash flow was a use of $4.3 million, versus a source of $8.0 million. Net cash, cash equivalents and restricted cash decreased by $23.1 million.
- Convertible notes had a $95.3 million carrying value, $100 million face amount, a 4.0% coupon and an August 1, 2023 maturity. The company reported compliance with note and letter-of-credit covenants.
- Letters of credit issued totaled $141.3 million under a $275 million facility. Total collateral provided to cedents through letters of credit and trusts was approximately $696.6 million.
Material changes and management commentary
- Gross premiums written rose 54.8%, led by casualty premiums, which increased 84.6%, including growth in Lloyd’s multi-line quota shares, motor and workers’ compensation. Management attributed expansion to improved rates and a hardening market. Casualty represented 66.9% of written premiums.
- Management reduced “pure catastrophe” property business because rate increases were viewed as insufficient for the risk, while stating overall catastrophe exposure remained largely consistent due to incidental exposure in other specialty classes. Motor and workers’ compensation premiums may decrease as contracts renew over the coming year.
- Q1 underwriting loss was primarily attributed to Texas winter storm Uri and losses on deposit-accounted contracts. Uri contributed 3.4 percentage points to the combined ratio. A satellite loss and a change in business mix also affected the “other” loss ratio.
- The current-year loss ratio was 72.3%, versus 64.4%. Prior-year development was slightly favorable in 2021 (approximately $0.1 million in the reserve reconciliation), compared with adverse development in 2020. The adjusted combined ratio excludes specified prior-year, catastrophe and other items; it is a non-GAAP measure.
- SILP’s net asset value attributable to GLRE was $199.9 million, or 78.8% of SILP’s net assets. The company can request redemptions on three business days’ notice, but has limited control over the related-party fund’s investment management. A revised SILP agreement sets the investment cap at 50% of applicable surplus.
- Management said it expected available operating and investing cash flows, including possible SILP withdrawals, to fund operations for the next 12 months and did not expect COVID-19 to materially affect operational liquidity needs. It retains the option to explore financing alternatives; no specific earnings guidance was provided. The company does not currently expect to pay ordinary-share dividends.
- On May 4, 2021, the board approved a new repurchase plan, effective July 1, 2021 through June 30, 2022, authorizing up to $25 million of Class A shares or convertible securities. No shares or notes were repurchased in Q1.
Risks, contingencies and unusual items
- COVID-19 loss reserves rely on uncertain coverage interpretations, cedent estimates, economic assumptions and management judgment. The company considered its estimates adequate at quarter-end but warned actual losses and future reserve adjustments could differ materially.
- At April 1, 2021, estimated net 1-in-250-year natural-catastrophe loss exposure was $87.7 million for a single event and $112.9 million in aggregate. The filing cautions that modeled PML estimates may not match actual event losses.
- Subsidiary financial strength ratings were A- (Excellent) with a negative outlook. A downgrade or withdrawal could constrain the ability to write new reinsurance business.
- Other key exposures include SILP investment volatility and concentration, equity and commodity-price changes, reinsurer/counterparty credit risk, foreign currency risk, and possible adverse loss-reserve development. A hypothetical 10% decline in listed equity and equity-based derivative prices would reduce the investment portfolio by an estimated $4.6 million.
- Restricted collateral, regulatory capital and dividend restrictions constrain subsidiary cash transfers. The company reported that both reinsurance subsidiaries exceeded regulatory minimum capital requirements.
- Management did not expect existing contractual disputes to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether premium growth and improved market pricing translate into profitable underwriting, particularly as casualty business expands and motor/workers’ compensation renew.
- Updates to COVID-19, Texas storm Uri and other catastrophe reserves, including any material adverse development.
- SILP performance, portfolio concentration, related-party fees and allocations, liquidity, and the company’s limited control over the fund.
- Availability of usable liquidity after accounting for restricted collateral, growing reinsurance receivables and claims payments.
- Maintenance of the A.M. Best A- rating, regulatory capital and covenant compliance, and any execution or terms of the announced repurchase plan.