Greenlight Capital Re, Ltd. — Q2 2022 Form 10-Q
Business context and reporting period
Global specialty property and casualty reinsurer reporting unaudited results for the three and six months ended June 30, 2022, compared with the same 2021 periods. The company operates through reinsurance subsidiaries and has one operating segment: Property & Casualty Reinsurance.
Financial results and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenues | $121.4 million | $134.5 million | $254.4 million | $287.9 million |
| Net premiums earned | $110.2 million | $132.5 million | $236.1 million | $267.9 million |
| Net income | $14.8 million | $0.6 million | $9.1 million | $7.1 million |
| Net underwriting income (non-GAAP) | $9.3 million | $4.6 million | $1.7 million | $2.6 million |
| Combined ratio | 91.6% | 96.5% | 99.3% | 99.0% |
| Operating cash flow | Not separately presented for the quarter | $(14.0) million | $(19.8) million |
For the six months, gross premiums written declined 9.9% to $280.7 million and net premiums written declined 14.1% to $267.5 million. The six-month combined ratio edged up despite lower reported loss ratios, as acquisition costs rose and catastrophe/conflict losses affected results. Q2 underwriting improved year over year, largely due to a shift away from lower-margin motor and workers’ compensation business.
Six-month investment income was $24.9 million, including a $16.0 million gain from the related-party Solasglas Investments, LP (SILP). Total equity was $484.3 million at June 30, up from $475.7 million at year-end; total assets were $1.493 billion and total liabilities $1.009 billion. Cash and cash equivalents were $28.0 million, while restricted cash was $669.6 million. The company reported $100.9 million of convertible notes payable; the notes mature August 1, 2023.
Material changes versus the prior comparable periods
- Q2 net income rose to $14.8 million from $0.6 million, reflecting higher investment income and improved underwriting. SILP contributed $11.9 million in Q2 versus a $2.0 million loss a year earlier.
- Six-month net income increased to $9.1 million from $7.1 million, but underwriting income decreased to $1.7 million from $2.6 million. Six-month investment income improved to $24.9 million from $20.7 million.
- Six-month other expense increased to $6.6 million from $0.7 million, primarily reflecting foreign-exchange losses and mark-to-market losses associated with Lloyd’s syndicate funds withheld.
- Restricted cash increased by $34.8 million from year-end, while unrestricted cash fell by $48.3 million, primarily in connection with collateral needs. Operating cash use improved year over year but remained negative.
Outlook, commentary, risks and unusual items
- Management reported improved rates in most classes and increased portfolio diversification, while reducing exposure to motor and workers’ compensation. No specific quantitative earnings or premium guidance was provided.
- The company recorded $13.6 million of losses from the Russia-Ukraine conflict and $2.8 million from Tennessee wildfires in the first half. Conflict-related estimates are uncertain, may change materially, and could increase if the conflict continues; no recoveries had been recorded against these losses at June 30.
- Management highlighted inflation-related uncertainty in claims costs and reserving, especially for longer-tail business. It said it incorporates inflation assumptions into pricing and reserves and focuses predominantly on shorter-tailed business.
- Syndicate 3456 began underwriting in Q2, but its Q2 volume was immaterial; management said volumes were committed for Q3 and beyond.
- Liquidity: management said it expected available operating and investing cash flows, including SILP withdrawals if needed, to fund the next 12 months. SILP redemptions are available on three business days’ notice, but most cash on the balance sheet is restricted for collateral.
- Key exposures include reserve-estimation uncertainty, catastrophe losses, inflation, foreign exchange, investment volatility and concentration, and counterparty/retrocessionaire credit risk. The company also disclosed related-party investment management and performance-allocation arrangements with affiliates of its chairman. The A.M. Best rating for its subsidiaries was A- (Excellent), stable outlook.
- The company adopted convertible-debt accounting guidance in 2022, reducing opening equity by approximately $2.5 million. The notes carry a 4% coupon and are due in 2023; the company reported covenant compliance at June 30.
Important facts for investors to verify
- How Russia-Ukraine, inflation, and other claims developments affect reserves, recoveries, and subsequent-period underwriting results.
- Whether premium mix changes and higher acquisition costs sustain underwriting profitability; the six-month combined ratio was 99.3%.
- SILP’s investment performance, concentration and leverage, liquidity, and related-party fees and performance allocation.
- Collateral requirements and restricted-cash levels, operating cash needs, and the availability of subsidiary dividends to the holding company.
- Plans and funding for the $100 million convertible notes maturing in August 2023, including any refinancing or capital-raising actions.