Greenlight Re(GLRE) - 2019 Q4 - Annual Report

Part I Business Greenlight Capital Re, Ltd. is a global property and casualty reinsurer utilizing a two-pillar strategy of underwriting and value-oriented investments, primarily serving the U.S. and Caribbean markets - The company operates a two-pillar strategy combining property and casualty reinsurance with a non-traditional, value-oriented investment approach[19][20][23] - In response to A.M. Best revising its rating outlook to "negative" in Q2 2019, the Board initiated a strategic review and de-risked the investment portfolio, holding the majority of investable assets in cash and short-term treasuries[20] Gross Premiums Written by Line of Business (2017-2019) | Line of Business | 2019 ($ in thousands) | 2018 ($ in thousands) | 2017 ($ in thousands) | | :--- | :--- | :--- | :--- | | Property | 85,957 | 101,030 | 132,935 | | Commercial | 14,165 | 10,487 | 12,256 | | Motor | 59,402 | 76,425 | 71,188 | | Personal | 12,390 | 14,118 | 49,491 | | Casualty | 362,374 | 377,785 | 443,150 | | Motor Liability | 233,591 | 291,690 | 281,551 | | Workers' Compensation | 50,369 | 24,101 | 24,803 | | Multi-line | 76,461 | 57,497 | 123,340 | | Other | 75,646 | 88,716 | 116,566 | | Accident & Health | 39,175 | 69,605 | 66,800 | | Financial | 23,087 | 16,611 | 48,380 | | Total | $523,977 | $567,531 | $692,651 | Gross Premiums Written by Geographic Area (2017-2019) | Geographic Area | 2019 ($ in thousands) | 2018 ($ in thousands) | 2017 ($ in thousands) | | :--- | :--- | :--- | :--- | | U.S. and Caribbean | 435,458 | 507,705 | 606,510 | | Worldwide | 84,728 | 59,366 | 86,714 | | Europe | (13) | 506 | (612) | | Asia | 3,804 | (46) | 39 | | Total | $523,977 | $567,531 | $692,651 | - The company relies heavily on reinsurance brokers, with the top three brokers (Guy Carpenter, Trean Re, and Aon Benfield) accounting for 80.8% of gross premiums written in 2019[35] Glossary of Selected Reinsurance Terms This section defines essential reinsurance and insurance industry terms used throughout the report for clarity and understanding - The glossary defines essential terms for understanding the company's financial reporting and business operations in the reinsurance sector[105][107][108] Risk Factors The company faces significant business, regulatory, investment, and taxation risks, including strategic review uncertainties, potential rating downgrades, and PFIC classification concerns - The ongoing strategic review, initiated in August 2019, presents uncertainty and could disrupt business operations, divert management attention, and incur substantial expenses[110][111] - A potential downgrade or withdrawal of the company's A- (Excellent) A.M. Best rating could severely limit its ability to write new reinsurance contracts and negatively impact its business strategy[118][119] - The company's investment strategy, managed by DME Advisors through the SILP fund, is subject to market volatility and may be concentrated in a few large positions, creating the potential for large losses[115][192] - The company faces the risk of being classified as a Passive Foreign Investment Company (PFIC) if it fails to meet the active insurance business test under U.S. tax law, which requires applicable insurance liabilities to exceed 25% of total assets. The company met this test for 2018 and 2019 but cannot guarantee future compliance[262][271][272] - The company is subject to the risk of being classified as an investment company under the U.S. Investment Company Act of 1940 if it does not qualify for the exemption for foreign insurance companies, which could force substantial changes to its business and investment strategy[176][177] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[280] Properties The company leases its principal office spaces in Grand Cayman and Dublin, with lease agreements extending to 2020 and 2031 respectively - The company does not own its principal properties but leases office space in the Cayman Islands and Ireland[281] Legal Proceedings The company is involved in routine legal disputes but anticipates no material adverse effect on its financial condition or operating results - The company reports no material litigation that would adversely affect its business[282] Mine Safety Disclosures This item is not applicable to the company's business operations - Not applicable[283] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A ordinary shares trade on Nasdaq, with no historical or anticipated cash dividends, and a renewed share repurchase plan saw no activity in 2019 - The company has never paid a cash dividend and does not anticipate paying one in the foreseeable future, intending to retain earnings to support business growth[287][289] - A share repurchase plan authorizing the purchase of up to 2.5 million Class A ordinary shares was renewed and is effective until June 30, 2020. No shares were repurchased in 2019[293] Selected Financial Data This section presents key historical consolidated financial data, highlighting a narrowed net loss of $4.0 million in 2019 and a combined ratio of 106.9% Selected Consolidated Statement of Operations Data (2015-2019) | Metric ($ in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Gross premiums written | 523,977 | 567,531 | 692,651 | 536,072 | 502,124 | | Net premiums earned | 483,580 | 508,363 | 626,004 | 513,118 | 408,387 | | Net investment income (loss) | 52,267 | (323,106) | 20,231 | 76,183 | (281,924) | | Net income (loss) | (3,986) | (350,054) | (44,952) | 44,881 | (326,425) | Selected Ratios (2015-2019) | Ratio | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Loss ratio | 80.3% | 71.6% | 80.3% | 74.2% | 77.6% | | Combined ratio | 106.9% | 102.8% | 108.6% | 103.6% | 110.3% | Selected Consolidated Balance Sheet Data (as of Dec 31) | Metric ($ in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | 1,355,193 | 1,435,445 | 3,357,393 | 2,664,693 | 2,712,522 | | Total liabilities | 878,010 | 955,981 | 2,505,967 | 1,773,006 | 1,863,749 | | Total equity | 477,183 | 477,772 | 844,257 | 885,803 | 836,509 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 2019 financial performance, noting a narrowed net loss driven by improved investment results despite a widened underwriting loss and decreased gross premiums written - The primary driver for the improved net loss in 2019 was the positive swing in investment performance, with the investment portfolio returning 9.3% compared to a loss of 30.3% in 2018[366] - The underwriting loss increased in 2019, mainly due to $30.1 million in adverse prior-year loss development on private automobile business in Florida, which was impacted by adverse legal rulings[363] Key Performance Ratios (2019 vs. 2018) | Ratio | 2019 | 2018 | | :--- | :--- | :--- | | Loss ratio | 80.3% | 71.6% | | Acquisition cost ratio | 24.2% | 28.6% | | Composite ratio | 104.5% | 100.2% | | Underwriting expense ratio | 2.4% | 2.6% | | Combined ratio | 106.9% | 102.8% | - Gross premiums written decreased by 7.7% in 2019 to $524.0 million, primarily due to the non-renewal of certain motor contracts[368] - Fully diluted adjusted book value per share, a key management metric, decreased by 1.7% from $13.10 at year-end 2018 to $12.88 at year-end 2019[362] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to equity price risk, with lesser foreign currency, interest rate, and credit risks, as detailed by hypothetical market shifts - The primary market risk is equity price risk. As of December 31, 2019, a hypothetical 10% decline in the price of underlying listed equity securities and derivatives would result in a loss of $9.8 million, or 1.8% of the Investment Portfolio[430] - Foreign currency risk is actively monitored. As of December 31, 2019, a 10% increase or decrease in the U.S. dollar against foreign currencies would have no meaningful impact on the Investment Portfolio's value[435] - Interest rate risk from debt instruments and swaps is also monitored. A 100 basis point change in interest rates would result in a change in fair value of approximately $3.0 million[437] Financial Statements and Supplementary Data This section directs readers to the detailed consolidated financial statements and supplementary data located in Part IV, Item 15 - This item directs the reader to the full financial statements located in Part IV, Item 15[441] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable, indicating no changes in or disagreements with the company's accountants - Not applicable[442] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes reported - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[444] - Management's report on internal control over financial reporting concluded that the system was effective as of December 31, 2019, based on the COSO 2013 framework[449] - There were no material changes in the company's internal control over financial reporting during the fourth quarter of 2019[447] Other Information This section discloses potential indirect exposure to Iran through global reinsurance activities, which the company deems immaterial and not specifically reportable for 2019 - The company discloses that its global reinsurance portfolio may have indirect exposure to Iran, but believes any associated premiums are immaterial and is not aware of any specific reportable activities for 2019[451][452] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's forthcoming 2020 definitive proxy statement - Information is incorporated by reference from the forthcoming proxy statement[454] Executive Compensation Information for this item is incorporated by reference from the company's forthcoming 2020 definitive proxy statement - Information is incorporated by reference from the forthcoming proxy statement[455] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's forthcoming 2020 definitive proxy statement - Information is incorporated by reference from the forthcoming proxy statement[456] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's forthcoming 2020 definitive proxy statement - Information is incorporated by reference from the forthcoming proxy statement[457] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's forthcoming 2020 definitive proxy statement - Information is incorporated by reference from the forthcoming proxy statement[458] Part IV Exhibits and Financial Statement Schedules This section provides an index of all financial statements, schedules, and exhibits included in or filed with the annual report - This item provides an index of all financial statements, schedules, and exhibits included in or filed with the annual report[460] 10-K Summary The company indicates that no 10-K summary is provided for this report - None[461]