Greenlight Re(GLRE) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The company achieved a net income in Q1 2023, reversing prior losses, with total assets increasing and cash flow improving Condensed Consolidated Balance Sheets - Total assets increased to $1.64 billion as of March 31, 2023, from $1.58 billion at the end of 2022, primarily due to growth in total investments and reinsurance balances receivable[12] - Total liabilities grew to $1.13 billion from $1.08 billion, mainly driven by an increase in loss and loss adjustment expense reserves. Convertible senior notes payable decreased due to repurchases[12] Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,644,516 | $1,580,381 | | Total investments | $267,222 | $248,476 | | Restricted cash and cash equivalents | $626,236 | $668,310 | | Reinsurance balances receivable | $581,641 | $505,555 | | Total Liabilities | $1,134,475 | $1,077,261 | | Loss and loss adjustment expense reserves | $595,799 | $555,468 | | Convertible senior notes payable | $62,381 | $80,534 | | Total Shareholders' Equity | $510,041 | $503,120 | Condensed Consolidated Statements of Operations - The company achieved a net income of $5.9 million in Q1 2023, reversing a net loss of $5.7 million in Q1 2022. This was driven by higher net premiums earned and net investment income, despite a loss from the related party investment fund[13] Q1 2023 vs Q1 2022 Performance (in thousands, except EPS) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Gross premiums written | $186,455 | $145,886 | | Net premiums earned | $142,649 | $125,925 | | Total revenues | $154,986 | $133,029 | | Net loss and loss adjustment expenses | $96,725 | $97,407 | | Total expenses | $149,045 | $138,772 | | Net income (loss) | $5,887 | $(5,727) | | Diluted EPS | $0.17 | $(0.17) | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(1,259) | $(11,618) | | Net cash provided by (used in) investing activities | $(22,076) | $33,256 | | Net cash provided by (used in) financing activities | $(17,085) | $— | | Net decrease in cash | $(40,288) | $21,638 | - Cash used in investing activities was primarily due to a net contribution of $21.0 million to the related party investment fund, contrasting with a net redemption of $36.7 million in the prior-year period[18][165] - Financing activities used $17.1 million in cash for the repurchase of convertible senior notes payable[18] Notes to the Condensed Consolidated Financial Statements Key notes detail the company's structure, SILP investment, increased loss reserves, catastrophe losses, and convertible note repurchases - The company operates through several subsidiaries, including Greenlight Re in the Cayman Islands, GRIL in Ireland, and provides underwriting capacity for Lloyd's syndicates, including its own Greenlight Innovation Syndicate 3456[20][21][22] - The investment in Solasglas Investments, LP (SILP) is treated as a Variable Interest Entity (VIE), with the company concluding it is not the primary beneficiary. The company's investment in SILP was $196.1 million at March 31, 2023, representing 71.6% of SILP's total net assets[33][34] - For Q1 2023, the company recognized $10.3 million in catastrophe and weather-related losses, net of reinsurance, primarily from the Turkey earthquake, New Zealand Cyclone Gabrielle, U.S. convective storms, and 2022's Winter Storm Elliott[54] - Prior accident year loss estimates increased by $12.0 million in Q1 2023, mainly due to $4.1 million for Winter Storm Elliott and $9.8 million in attritional losses on casualty and property contracts[55][57] - During Q1 2023, the company repurchased and canceled $17.5 million of its 4.0% senior convertible notes due 2023, resulting in a realized gain of $0.3 million. The remaining carrying value was $62.4 million[63] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported increased book value per share, a shift to net income, and improved underwriting, offsetting investment portfolio losses Outlook and Trends - Market conditions are considered more favorable than in over a decade due to recent loss events, inflation, and rising interest rates, which have reduced reinsurance capital and led to widespread pricing improvements, especially in property catastrophe, aviation, war, and marine classes[112] - The company is managing inflation risk by focusing on short-tailed business (estimated reserve payout duration of less than three years), incorporating inflation assumptions into pricing, and minimizing exposure to classes with severe supply-chain inflation[110] - Premiums from the Greenlight Re Innovations unit, including Syndicate 3456, grew by 57.2% year-over-year and accounted for 14.9% of net premiums written in Q1 2023, with potential for continued growth[113] Key Financial Measures and Non-GAAP Measures Book Value Per Share Performance | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Basic book value per share | $14.82 | $14.66 | | Fully diluted book value per share | $14.75 | $14.59 | | Increase in fully diluted BVPS (%) | 1.1% | N/A | Net Underwriting Income (Loss) Reconciliation (in thousands) | Line Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Income (loss) before income tax (GAAP) | $5,941 | $(5,743) | | Total investment (income) loss | $(5,240) | $(7,737) | | Other non-underwriting (income) expense | $(7,097) | $633 | | Corporate expenses | $5,997 | $4,011 | | Interest expense | $776 | $1,154 | | Net underwriting income (loss) (Non-GAAP) | $377 | $(7,682) | Results of Operations Financial performance improved in Q1 2023, driven by net income, positive underwriting, and increased gross premiums, despite investment income decline Underwriting Ratio Summary | Ratio | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Loss ratio | 67.8% | 77.4% | | Acquisition cost ratio | 29.1% | 26.2% | | Underwriting expense ratio | 2.9% | 2.6% | | Combined ratio | 99.8% | 106.2% | - Gross premiums written increased by $40.6 million (27.8%) in Q1 2023, with significant growth in Property (+63.9%), Casualty (+21.6%), and Other (+24.0%) lines, driven by favorable pricing and new contracts[130] - The investment portfolio managed by DME Advisors (SILP) reported a loss of 1.1% in Q1 2023, compared to a 1.7% gain in Q1 2022. The loss was driven by the short portfolio (-9.0%) and macro positions (-0.3%), which offset gains in the long portfolio (+8.9%)[144][146] - Other income was $7.1 million, a significant positive swing from a $0.6 million expense in Q1 2022, primarily due to $4.9 million in foreign exchange gains and higher investment income from Funds at Lloyd's business[128] Financial Condition, Liquidity and Capital Resources - Total investments increased by $18.7 million to $267.2 million at March 31, 2023, mainly due to a net contribution into the SILP fund resulting from the release of restricted cash[149] - Restricted cash and cash equivalents decreased by $42.1 million to $626.2 million, primarily due to the release of collateral from cedents for legacy contracts in run-off[153] - Gross loss and loss adjustment expense reserves increased by 7.3% to $595.8 million during the quarter[156] - The company is arranging to refinance its convertible senior notes that mature in August 2023. If unsuccessful, it may use alternative financing, cash on hand, or withdrawals from SILP to fund the settlement[171] Quantitative and Qualitative Disclosures about Market Risk The company's market risk profile saw changes in Q1 2023, with hypothetical impacts on its investment portfolio from equity, commodity, and interest rate movements Market Risk Sensitivity Analysis (as of March 31, 2023) | Risk Factor | Scenario | Impact on Investment Portfolio | | :--- | :--- | :--- | | Equity Price | -10% price decline | $(12.0) million | | Commodity Price | +10% price increase | $4.9 million | | Interest Rate | +100 bps rate increase | $7.5 million | | Interest Rate | -100 bps rate decrease | $(5.8) million | - The company's net exposure to foreign currency risk from reinsurance liabilities is relatively small, with a hypothetical 10% adverse movement in GBP and Euro rates resulting in a net loss of $0.3 million[178] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management, including 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[180] - No material changes were made to the company's internal control over financial reporting during the fiscal quarter ended March 31, 2023[183] PART II — OTHER INFORMATION Legal Proceedings The company is involved in routine legal disputes, none of which are expected to materially adversely affect its financial condition or operations - The company states that while it is involved in routine legal disputes and arbitrations, none are expected to have a material adverse effect on its business or financial condition[185] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2022 Form 10-K - As of March 31, 2023, no material changes have occurred to the risk factors previously disclosed in the company's 2022 Form 10-K[187] Unregistered Sales of Equity Securities and Use of Proceeds No Class A ordinary shares were repurchased in Q1 2023, but the Board re-approved a $25.0 million share repurchase plan - No Class A ordinary shares were repurchased during Q1 2023[189] - The Board re-approved the $25.0 million share repurchase plan, extending it from July 1, 2023, to June 30, 2024[188]