Greenlight Re(GLRE) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the nine months ended September 30, 2023, show total assets of $1.74 billion, shareholders' equity of $575.9 million, and a net income of $69.2 million, marking a significant turnaround Condensed Consolidated Balance Sheets As of September 30, 2023, total assets increased to $1.74 billion, total liabilities to $1.16 billion, and shareholders' equity to $575.9 million, reflecting overall balance sheet growth Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,739,629 | $1,580,381 | +10.1% | | Total Investments | $296,639 | $248,476 | +19.4% | | Reinsurance balances receivable | $640,391 | $505,555 | +26.7% | | Total Liabilities | $1,163,764 | $1,077,261 | +8.0% | | Loss and loss adjustment expense reserves | $658,234 | $555,468 | +18.5% | | Total Shareholders' Equity | $575,865 | $503,120 | +14.5% | Condensed Consolidated Statements of Operations For the nine months ended September 30, 2023, the company reported a net income of $69.2 million, a substantial improvement from the prior year's loss, driven by increased net premiums earned and total revenues Key Operating Results (in thousands, except EPS) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Gross Premiums Written | $524,472 | $435,812 | | Net Premiums Earned | $445,702 | $358,092 | | Total Revenues | $511,597 | $381,170 | | Net Loss and LAE Incurred | $284,072 | $252,789 | | Net Income (Loss) | $69,224 | ($9,408) | | Diluted EPS | $1.99 | ($0.28) | Q3 Operating Results (in thousands, except EPS) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Premiums Earned | $163,110 | $121,948 | | Total Revenues | $166,922 | $126,723 | | Net Income (Loss) | $13,477 | ($18,469) | | Diluted EPS | $0.39 | ($0.56) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities improved to $14.6 million, while overall cash, cash equivalents, and restricted cash decreased by $42.6 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | ($14,630) | ($27,424) | | Net Cash from Investing Activities | ($22,548) | $4,239 | | Net Cash from Financing Activities | ($5,292) | ($6,419) | | Net (Decrease) in Cash | ($42,622) | ($29,926) | Notes to the Condensed Consolidated Financial Statements Key notes detail the company's significant investment in a related party fund, loss reserve development including $29.5 million in catastrophe losses, and the refinancing of $79.6 million in convertible notes with a new $75.0 million term loan - The company's investment in the related party fund, Solasglas Investments, LP (SILP), was valued at $229.0 million as of September 30, 2023, representing 70.3% of SILP's total net assets[40] - For the nine months ended September 30, 2023, the company recognized net catastrophe losses of $29.5 million, driven by events including the Turkey earthquake, Cyclone Gabrielle, U.S. severe storms, and a Mexican oil platform fire[59] - Prior year loss reserves saw adverse development of $10.5 million in the first nine months of 2023, primarily from legacy motor, homeowners, and workers' compensation contracts, partially offset by favorable development in property catastrophe and marine lines[60][61] - In June 2023, the company entered into a new $75.0 million term loan facility, using the proceeds to repay all outstanding Convertible Senior Notes that matured on August 1, 2023[68][69][72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong performance to successful underwriting and investment strategies, with fully diluted book value per share increasing 13.6% to $16.58 and the combined ratio improving to 95.5% Consolidated Results of Operations For the nine months ended September 30, 2023, the company achieved a net income of $69.2 million and an underwriting income of $20.2 million, with the combined ratio improving to 95.5% Performance Summary (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Underwriting Income (Loss) | $20,237 | ($17,205) | | Total Investment Income | $52,496 | $36,452 | | Net Income (Loss) | $69,224 | ($9,408) | | Loss Ratio | 63.8% | 70.6% | | Combined Ratio | 95.5% | 104.8% | - The improvement in the combined ratio for the nine-month period was primarily due to the loss ratio improving by 6.8 points, driven by lower catastrophe losses compared to 2022[132] - Gross premiums written for the nine months increased by 20.3% to $524.5 million, with significant growth in the Property line (up 60.9%) and Casualty line (up 14.6%)[135][138] Investment Results Total investment income for the nine months ended September 30, 2023, reached $52.5 million, with the related-party investment fund (SILP) contributing $27.8 million in gains Investment Income Breakdown (Nine Months Ended Sep 30, in thousands) | Component | 2023 | 2022 | | :--- | :--- | :--- | | Income from SILP | $27,791 | $24,474 | | Net Investment-Related Income | $24,705 | $11,978 | | Total Investment Income | $52,496 | $36,452 | - For the nine months ended September 30, 2023, the SILP investment portfolio reported a net return of 9.1%, driven by gains in its long portfolio (22.8%) and macro positions (2.6%), which offset losses in the short portfolio (-12.8%)[161][162] Financial Condition, Liquidity and Capital Resources The company's financial condition strengthened with shareholders' equity growing to $575.9 million, maintaining sufficient liquidity, and simplifying its capital structure by eliminating the dual-class share structure - Total shareholders' equity increased by $72.7 million to $575.9 million at September 30, 2023, primarily due to the net income of $69.2 million reported for the period[176] - The company's estimated largest probable maximum loss (net of retrocession) at a 1-in-250 year return period for a single event was $80.3 million, related to a North Atlantic Hurricane[172] - The company's dual-class share structure was eliminated, with all Class A and Class B shares being reclassified as a single class of "Ordinary shares"[186] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks including equity price, commodity price, and interest rate risk, with a 10% equity decline potentially resulting in a $10.5 million loss to its investment portfolio Market Risk Sensitivity Analysis | Risk Factor | Scenario | Impact on Investment Portfolio | | :--- | :--- | :--- | | Equity Price | 10% decline | ($10.5 million) | | Commodity Prices | 10% increase/decrease | +/ - $4.5 million | | Interest Rates | 100 bps increase | +$12.0 million | | Interest Rates | 100 bps decrease | ($11.9 million) | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures are effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[197] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[200] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company does not anticipate any current legal disputes to have a material adverse effect on its financial condition or operating results - The company states that it does not expect any current legal disputes to have a material adverse effect on its business[202] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - As of September 30, 2023, no material changes have been made to the risk factors disclosed in the 2022 Form 10-K[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a share repurchase plan authorizing up to $25.0 million in repurchases, with no shares repurchased during the third quarter of 2023 - The Board of Directors re-approved a share repurchase plan authorizing up to $25.0 million of ordinary shares, effective until June 30, 2024[205] - No shares were repurchased during the third quarter of 2023[206]