Greenlight Re(GLRE) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements H1 2023 unaudited financial statements report net income of $55.7 million, driving significant growth in total assets and shareholders' equity Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, significant estimates, covering SILP investment, $621.1 million loss reserves, convertible notes, and subsequent debt refinancing - The company's investment in the related party investment fund, Solasglas Investments, LP ("SILP"), had a net asset value of $216.8 million as of June 30, 2023, representing 68.9% of SILP's total net assets, with the company not being the primary beneficiary of this VIE[38][39] - Gross loss and loss adjustment expense reserves increased to $621.1 million at June 30, 2023, from $555.5 million at year-end 2022, with $13.8 million net adverse prior year reserve development recognized for H1 2023[55][56][59] - During the first six months of 2023, the company repurchased and canceled $17.5 million of its convertible senior notes, realizing a gain of $0.3 million[67] - Subsequent to the quarter end, in July 2023, the company drew down a new $75.0 million term loan facility to repay all remaining outstanding Convertible Senior Notes[97][98] - In July 2023, shareholders approved a share capital reorganization, eliminating the dual-class share structure by re-designating all Class B shares as Class A shares, then reclassifying them as "ordinary shares"[96] Condensed Consolidated Balance Sheet Highlights (As of June 30, 2023) | Metric | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Total Investments | 285,515 | 248,476 | | Total Assets | 1,715,665 | 1,580,381 | | Total Liabilities | 1,154,544 | 1,077,261 | | Total Shareholders' Equity | 561,121 | 503,120 | Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended June 30, 2023 ($ thousands) | Six Months Ended June 30, 2023 ($ thousands) | | :--- | :--- | :--- | | Net Premiums Earned | 139,943 | 282,592 | | Total Revenues | 189,689 | 344,675 | | Net Income | 49,860 | 55,747 | | Diluted EPS | $1.32 | $1.49 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, 2023) | Cash Flow Activity | Amount ($ thousands) | | :--- | :--- | | Net cash provided by operating activities | 566 | | Net cash used in investing activities | (7,049) | | Net cash used in financing activities | (17,085) | | Net decrease in cash | (23,217) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong H1 2023 performance to excellent investment returns and underwriting growth, improving fully diluted book value per share and the combined ratio Overview and Outlook Despite H1 2023 CAT losses, the global specialty (re)insurer views current market conditions as highly favorable with widespread pricing improvements - The company's reinsurance subsidiaries hold an A.M. Best Financial Strength Rating of A- (Excellent) with a stable outlook[107] - CAT losses for the six months ended June 30, 2023, were $16.4 million, primarily from U.S. severe storms, the Turkey earthquake, and Cyclone Gabrielle[109][130] - Management views current market conditions as highly favorable, with significant pricing improvements in aviation, war, terror, marine, and property catastrophe classes, representing a significant portion of the 2023 business plan[112] Key Financial Measures and Non-GAAP Measures The company evaluates performance using non-GAAP measures, showing fully diluted book value per share growth and improved net underwriting income in H1 2023 Book Value Per Share Growth | Metric | June 30, 2023 ($) | Dec 31, 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Basic Book Value Per Share | 16.29 | 14.66 | 11.1% | | Fully Diluted Book Value Per Share | 16.21 | 14.59 | 11.0% | Net Underwriting Income (Loss) Reconciliation | Period | Income before tax ($ thousands) | Net Underwriting Income ($ thousands) | | :--- | :--- | :--- | | Three months ended June 30, 2023 | 49,888 | 5,443 | | Three months ended June 30, 2022 | 14,797 | 9,342 | | Six months ended June 30, 2023 | 55,829 | 5,820 | | Six months ended June 30, 2022 | 9,054 | 1,660 | Consolidated Results of Operations Consolidated results show H1 2023 net income of $55.7 million, driven by significantly increased total investment income and improved underwriting - The combined ratio for the first six months of 2023 improved to 98.0% from 99.3% in 2022, despite higher CAT losses and adverse prior year development, offset by favorable pricing and a change in business mix[130] Key Performance Indicators (Six Months Ended June 30) | Metric | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Net Income | 55,747 | 9,061 | | Total Investment Income | 47,391 | 24,893 | | Net Underwriting Income | 5,820 | 1,660 | | Combined Ratio | 98.0% | 99.3% | Underwriting Results H1 2023 underwriting results show gross premiums written increased 21.6%, with an improved loss ratio and decreased acquisition cost ratio - The current accident year loss ratio for H1 2023 improved by 5.8 points compared to H1 2022, primarily due to favorable pricing and a change in business mix[142] - The company experienced adverse prior year loss development of 4.9% for H1 2023, compared to favorable development of 0.2% in H1 2022[143] Gross Premiums Written by Line (Six Months Ended June 30) | Line of Business | 2023 ($ thousands) | 2022 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Property | 61,720 | 41,664 | 48.1% | | Casualty | 175,596 | 154,073 | 14.0% | | Other | 104,082 | 84,929 | 22.6% | | Total | 341,398 | 280,666 | 21.6% | Total Investment Income (Loss) H1 2023 total investment income substantially increased to $47.4 million, driven by a 9.7% gain in the SILP portfolio from key positions - For the first six months of 2023, SILP's long portfolio gained 27.3%, while the short portfolio lost 14.8% and macro positions lost 0.1%[156] Investment Performance (Net Return) | Period | SILP Net Return (%) | | :--- | :--- | | Three months ended June 30, 2023 | 10.9% | | Six months ended June 30, 2023 | 9.7% | Financial Condition, Liquidity and Capital Resources Financial condition strengthened with increased total investments and shareholders' equity, supported by a new $75 million credit facility for debt repayment - Total investments increased by $37.0 million (14.9%) to $285.5 million at June 30, 2023, primarily due to strong performance from the SILP portfolio[161] - Total shareholders' equity increased by $58.0 million to $561.1 million at June 30, 2023, mainly due to the net income of $55.7 million for the period[172] - The company entered into a new $75 million credit facility and subsequently used the proceeds to repay its outstanding convertible senior notes, which matured on August 1, 2023[184] Item 3. Quantitative and Qualitative Disclosures about Market Risk Principal market risks include equity price, commodity, foreign currency, and interest rate, with a 10% equity decline causing an $11.4 million loss - A 10% decline in the price of underlying listed equity securities and derivatives would result in an $11.4 million loss to the Investment Portfolio[191] - A 100 basis point change in interest rates would result in a $7.4 million gain (for an increase) or a $3.9 million loss (for a decrease) to the Investment Portfolio[195] Commodity Price Risk (10% Price Change) | Commodity | Change in Fair Value ($ millions) | | :--- | :--- | | Gold | +/- 5.5 | | Silver | +/- 0.5 | | Uranium | +/- 0.4 | | Crude oil | +/- 0.3 | | Total | +/- 6.7 | Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective[196] - No changes in the Company's internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[199] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal disputes but does not anticipate any material adverse effect on its financial condition or operating results - The company does not expect any existing legal disputes to have a material adverse effect on its business, financial condition, or operating results[201] Item 1A. Risk Factors No material changes to previously disclosed risk factors have occurred since the company's 2022 Annual Report on Form 10-K - As of June 30, 2023, there have been no material changes to the risk factors disclosed in the company's 2022 Form 10-K[203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds A $25.0 million share repurchase plan was re-approved, effective July 1, 2023, though no shares were repurchased during Q2 2023 - A share repurchase plan authorizing up to $25.0 million was re-approved, effective from July 1, 2023, until June 30, 2024[204] - No Class A ordinary shares were repurchased during the quarter ended June 30, 2023[205] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including the Credit Agreement, CEO/CFO certifications, and Inline XBRL data files - Exhibits filed include a new Credit Agreement, CEO/CFO certifications, and XBRL financial data[212]