Greenlight Re(GLRE) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Shareholders' Equity, and Cash Flows, for the periods ended June 30, 2020 and 2019 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (unaudited) | December 31, 2019 (audited) | | :--- | :--- | :--- | | Total Assets | $1,279,456 | $1,355,193 | | Total Investments | $199,703 | $256,440 | | Restricted Cash and Cash Equivalents | $731,292 | $742,093 | | Total Liabilities | $849,552 | $878,010 | | Loss and Loss Adjustment Expense Reserves | $467,655 | $470,588 | | Total Shareholders' Equity | $429,904 | $477,183 | Condensed Consolidated Statements of Operations Key Operating Results (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Premiums Earned | $108,414 | $120,441 | $219,435 | $245,803 | | Total Revenues | $114,745 | $140,349 | $190,690 | $299,103 | | Net Income (Loss) | $(63) | $15,314 | $(40,333) | $21,220 | | Diluted EPS | $0.00 | $0.42 | $(1.12) | $0.58 | Condensed Consolidated Statements of Shareholders' Equity - Total shareholders' equity decreased from $477.2 million at the end of 2019 to $429.9 million as of June 30, 2020. The decrease was primarily driven by a net loss of $40.3 million and the repurchase of Class A ordinary shares for $7.8 million during the six-month period[16] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(42,724) | $(5,775) | | Net Cash Provided by Investing Activities | $21,322 | $63,466 | | Net Cash Used in Financing Activities | $(7,772) | $0 | | Net (Decrease) Increase in Cash | $(29,296) | $57,611 | Notes to the Condensed Consolidated Financial Statements - The COVID-19 pandemic is expected to have a significant adverse impact on the property and casualty insurance industry. The company has included its best estimate of losses in its reserves, but notes considerable uncertainty remains, and significant adjustments may be required in future periods[25] - In Q1 2020, the company adopted ASU 2016-13 regarding expected credit losses, resulting in a cumulative-effect adjustment to retained earnings of $0.9 million as of January 1, 2020[27][49] - The company's investment in the related party investment fund, Solasglas Investments, LP (SILP), had a net asset value of $177.7 million as of June 30, 2020, down from $240.1 million at year-end 2019. The company recognized a loss of $40.5 million from this investment for the six months ended June 30, 2020, primarily due to market disruptions from the COVID-19 pandemic[55][56] - For the six months ended June 30, 2020, the company recognized a $5.7 million increase in estimated net losses related to prior accident years, primarily from general liability, health, and multi-line contracts[74] - During the six months ended June 30, 2020, the company repurchased 1.2 million Class A ordinary shares. As of June 30, 2020, 3.8 million shares remained available for repurchase under the plan[92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results for the three and six months ended June 30, 2020, noting a $40.3 million net loss driven by investment losses, improved underwriting with a 100.0% combined ratio, and the impact of COVID-19 on liquidity and capital Results of Operations - For the six months ended June 30, 2020, the company reported a net loss of $40.3 million, a significant shift from the $21.2 million net income in the same period of 2019. The loss was primarily driven by a net investment loss of $29.7 million, compared to a $51.1 million gain in the prior year[163] - Fully diluted book value per share decreased by 8.3% to $11.81 in the first six months of 2020, down from $12.88 at the end of 2019[162] Underwriting Ratio Summary | Ratio | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Loss Ratio | 75.1% | 81.9% | | Acquisition Cost Ratio | 22.6% | 23.9% | | Composite Ratio | 97.7% | 105.8% | | Combined Ratio | 100.0% | 108.3% | - Gross premiums written decreased by 28.1% to $226.5 million for the first six months of 2020, primarily due to the non-renewal of certain motor contracts in both the Property and Casualty segments[166] - The investment portfolio managed by DME Advisors (SILP) returned a loss of 7.8% for the first six months of 2020, compared to a gain of 9.1% in the same period of 2019. The loss was driven by disruptions in global financial markets associated with the COVID-19 pandemic[183] Financial Condition - Total investments decreased by 22.1% to $199.7 million as of June 30, 2020, from $256.4 million at year-end 2019, mainly due to investment losses in SILP and withdrawals for claim payments[193] - Total shareholders' equity fell by $47.3 million to $429.9 million as of June 30, 2020. The decline was caused by the $40.3 million net loss and $7.8 million used for share repurchases[205] - As of July 1, 2020, the company's estimated probable maximum loss (PML) for a single 1-in-250 year catastrophe event was $90.9 million, with the peak exposure in the United States, Canada, and the Caribbean[204] Liquidity and Capital Resources - The company believes it has sufficient cash flow from operations and investments to meet its foreseeable liquidity needs for the next twelve months, including potential impacts from the COVID-19 pandemic[211] - As of June 30, 2020, the company provided $731.7 million in collateral to cedents through letters of credit and trust arrangements, secured by $731.3 million in restricted cash and cash equivalents[214] - The Board extended the share repurchase plan to June 30, 2021, authorizing the repurchase of up to 5.0 million Class A shares and $25.0 million of its convertible senior notes. During the first six months of 2020, 1.2 million shares were repurchased[217] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are equity price and foreign currency, with a $7.0 million loss for a 10% equity decline and a $1.2 million loss for a 10% USD/GBP change - The company's primary market risk exposure is equity price risk through its investment in SILP. A hypothetical 10% decline in the price of underlying listed equity securities and derivatives would result in a loss of $7.0 million, or 1.5% of the Investment Portfolio[228] - The company is exposed to foreign currency risk, with a net exposure to GBP-denominated balances of £9.8 million. A 10% adverse change in the U.S. dollar against the GBP would result in an estimated $1.2 million foreign exchange loss[234] - As of June 30, 2020, a 100 basis point change in interest rates or a 10% change in the value of the U.S. dollar against other foreign currencies would have no meaningful impact on the value of the Investment Portfolio[236][238] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[244] - No changes were made to the company's internal control over financial reporting during the fiscal quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, these controls[247] PART II — OTHER INFORMATION Legal Proceedings The company may face legal disputes in the normal course of business, but management does not anticipate any material adverse effects - The company states that while it may be involved in legal disputes in the normal course of business, it does not expect any existing disputes to have a material adverse effect on its financial condition or results[250] Risk Factors No material changes to risk factors were reported since the Form 10-K/A filing for the fiscal year ended December 31, 2019 - The report states there have been no material changes to the risk factors previously disclosed in the Form 10-K/A filed on April 29, 2020[252] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,161,659 Class A ordinary shares at an average of $6.69 per share in Q2 2020, with 3,838,341 shares remaining for repurchase Issuer Purchases of Equity Securities (Q2 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2020 | 292,985 | $6.46 | | May 2020 | 344,776 | $6.50 | | June 2020 | 523,898 | $6.77 | | Total | 1,161,659 | $6.69 | - The Board of Directors extended the share repurchase plan to June 30, 2021, and increased the authorization to 5.0 million Class A ordinary shares and up to $25.0 million of its convertible senior notes[253] Other Information An amended agreement with investment advisors limits gross long exposure to 50% of surplus and waives management fees on cash and short-term government securities until June 30, 2021 - Effective July 1, 2020, the company amended its agreement with DME Advisors to limit the gross long exposure of its investment portfolio to 50% of the company's surplus[258] - Under the amended agreement, until June 30, 2021, cash, cash equivalents, and short-term U.S. government securities held in the investment portfolio will not be subject to management or performance fees[258] Exhibits This section lists exhibits filed with the Form 10-Q, including employment agreements, bonus agreements, an advisor letter agreement, and CEO/CFO certifications