Greenlight Capital Re, Ltd. — Q1 2024 Form 10-Q
Business context and period: Cayman Islands-based global specialty property and casualty reinsurer; results cover the three months ended March 31, 2024, compared with Q1 2023. Amounts are U.S. dollars. Financial statement figures below are rounded to millions unless stated otherwise.
Key financial results and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Gross premiums written | $217.3 million | $186.5 million; up 16.5% |
| Net premiums earned | $161.5 million | $142.6 million; up 13.2% |
| Total revenues | $191.3 million | $155.0 million |
| Net income / diluted EPS | $27.0 million / $0.78 | $5.9 million / $0.17 |
| Net underwriting income (non-GAAP) | $3.4 million | $0.4 million |
| Combined ratio | 98.0% | 99.8% |
| Operating cash flow | $18.0 million provided | $1.3 million used |
| Cash, cash equivalents and restricted cash | $642.8 million | $655.7 million at December 31, 2023 |
| Total investments | $379.8 million | $332.2 million at December 31, 2023 |
| Total debt / shareholders’ equity | $72.5 million / $624.5 million | $73.3 million / $596.1 million |
| Fully diluted book value per share | $17.39 | $16.74 at December 31, 2023 |
Net income increased by $21.1 million, principally because the related-party Solasglas Investments, LP (SILP) investment earned $18.2 million, versus a $3.1 million loss in Q1 2023. SILP’s reported net return was 5.2%. Net premiums earned grew, while the combined ratio improved 1.8 percentage points. The current-year loss ratio rose to 64.4% from 59.4%, but lower prior-year adverse development and acquisition costs helped offset that increase. Acquisition cost ratio was 25.8%, versus 29.1%.
Operating cash flow improved, but investing activity used $29.8 million, including a $30.0 million net contribution to SILP. Total cash including restricted balances fell $12.9 million. Only $61.6 million was unrestricted cash; $581.2 million was restricted, primarily to secure trusts and letters of credit. Debt-to-equity was 11.7%, down from 12.4%.
Material changes and management commentary
- Gross premiums written increased 16.5%; casualty and other business grew, while property premiums declined 17.6%, mainly after the non-renewal of a homeowners treaty to reduce U.S. severe convective storm exposure.
- Ceded premiums rose to $23.2 million from $11.2 million, reflecting additional protection for Marine and Energy growth and more quota-share retrocession for Other Specialty.
- Q1 2024 included $12.4 million of net current-year catastrophe losses, mainly from the Baltimore bridge collapse and satellite failures, and $4.9 million of net adverse prior-year catastrophe development. Total prior-year net reserve development was adverse by $5.4 million, including casualty reserve strengthening related partly to economic and social inflation; favorable development in other specialty business partly offset it.
- Gross loss and loss adjustment expense reserves increased to $730.7 million from $661.6 million at year-end, with most reserves classified as incurred but not reported. Management cautions that catastrophe and reserve estimates are uncertain.
- Management described competition as higher across most classes, including increased capacity at April 1 renewals. It nevertheless views property and specialty markets as attractive and expects Marine and Energy reinsurance pricing to remain favorable following the Baltimore bridge loss. No specific earnings or revenue guidance was provided.
- At April 1, estimated North Atlantic hurricane 1-in-250-year PML was $103.3 million for a single event and $111.5 million in aggregate, above January 1 estimates of $89.7 million and $97.0 million. Management attributed the increase to attractive opportunities and higher surplus.
Liquidity, risks and unusual items
- The committed $275 million capacity under the Citi letter-of-credit facility is scheduled to terminate August 20, 2024. Citi said it intends to continue providing the facility on an uncommitted basis afterward. The company reported compliance with facility covenants at March 31, 2024. The facility supports reinsurance operations, and the company cash-collateralizes issued letters of credit.
- Management expects existing capital and internally generated funds to be sufficient for its strategy for the foreseeable future. Its $200 million Form S-3 registration statement was expected to expire in July 2024. The board re-approved a share repurchase authorization of up to $25 million through June 30, 2025; no shares were repurchased in Q1.
- SILP represented $307.1 million, or 80.9%, of total investments and is a related-party investment managed by DME Advisors. The company’s share was 74.2% of SILP’s net assets. Investment performance, valuation and concentration therefore materially affect results.
- Market-risk sensitivities include a modeled $14.4 million loss to the SILP investment from a 10% decline in underlying listed equities. A 100-basis-point interest-rate increase was estimated to produce a $14.0 million gain, while a 100-basis-point decrease was estimated to produce a $2.5 million loss. These are scenario estimates, not forecasts.
- The company says existing disputes are not expected to have a material adverse effect. It reported no material changes to the risk factors in its 2023 Form 10-K. Management identified reserves, premium estimates, investment impairments, credit-loss allowances and share-based compensation as important accounting estimates.
Important facts for investors to verify
- Whether the Citi LOC capacity is replaced or maintained on acceptable terms before the committed facility terminates in August 2024.
- Subsequent development of catastrophe losses and reserves, especially the Baltimore bridge, satellite failures, the Mexican oil-platform fire and casualty claims affected by inflation trends.
- SILP’s subsequent investment performance, risk exposures, related-party fees and the effect of its concentration on GLRE’s earnings and book value.
- Whether premium growth and market pricing remain attractive as competition and capacity increase, and how the company’s higher catastrophe PMLs evolve.
- The availability and terms of liquidity, considering that most reported cash is restricted and operating cash flows can vary with claims and underwriting activity.