Greenlight Re(GLRE) - 2022 Q4 - Annual Report

PART I Business The company is a global specialty property and casualty reinsurer with a dual strategy of traditional underwriting and a value-oriented investment approach - The company employs a two-pillar strategy: 1) Traditional property and casualty reinsurance, and 2) Risk innovation and strategic partnerships through its Greenlight Re Innovations unit[23][24] - The investment strategy is non-traditional, managed by value-oriented advisor DME Advisors, focusing on long and short positions in publicly-traded securities to achieve higher long-term returns than typical reinsurance investment portfolios[21][24] - The company has a high concentration of business from a small number of brokers, with five brokerage firms accounting for 69.4% of gross premiums written in 2022[33] Gross Premiums Written by Line of Business (2020-2022) | Line of Business | 2022 ($ in millions) | 2021 ($ in millions) | 2020 ($ in millions) | | :--- | :--- | :--- | :--- | | Property | 85.3 | 52.9 | 58.5 | | Commercial | 14.8 | 10.9 | 11.2 | | Motor | 2.3 | 30.0 | 33.1 | | Personal | 68.2 | 12.1 | 14.2 | | Casualty | 325.1 | 379.1 | 302.2 | | General Liability | 60.3 | 18.0 | 4.2 | | Motor Liability | 8.6 | 118.3 | 127.4 | | Professional Liability | 1.9 | 0.3 | 0.2 | | Workers' Compensation | 28.4 | 62.2 | 82.2 | | Multi-line | 225.9 | 180.3 | 88.2 | | Other | 152.7 | 133.3 | 119.1 | | Total | $563.2 | $565.4 | $479.8 | Gross Premiums Written by Geographic Area (2020-2022) | Geographic Area | 2022 ($ in millions) | 2021 ($ in millions) | 2020 ($ in millions) | | :--- | :--- | :--- | :--- | | U.S. and Caribbean | 295.4 | 316.0 | 390.0 | | Worldwide | 242.6 | 240.3 | 84.2 | | Asia | 20.3 | 4.6 | 5.6 | | Europe | 4.8 | 4.5 | 0.0 | | Total | $563.2 | $565.4 | $479.8 | Glossary of Selected Reinsurance Terms This section defines key reinsurance and insurance terms used in the report, covering premiums, losses, contract types, and financial metrics Risk Factors The company faces material risks from underwriting and investment volatility, potential rating downgrades, uncertain loss reserves, and its non-traditional investment strategy - A downgrade or withdrawal of the company's "A- (Excellent)" A.M. Best rating would severely limit its ability to write new reinsurance contracts[124][126][127] - The company's investment performance is highly dependent on the Solasglas Investments, LP (SILP) fund, which employs a volatile, value-oriented strategy that may be concentrated in a few large positions[186][189] - There is a significant risk that the company could be classified as a Passive Foreign Investment Company (PFIC), which would have adverse tax consequences for U.S. shareholders[261][262][270] - The company is vulnerable to losses from unpredictable catastrophic events, and climate change may increase the frequency and severity of these events[149][150] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[282] Properties The company leases sufficient office space for its current operations in Grand Cayman and Dublin - The company leases office space in Grand Cayman (expiring 2026) and Dublin (expiring 2031, with a 2026 termination option)[283] Legal Proceedings Management believes no existing legal disputes will have a material adverse effect on the company's financial condition - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business[284] Mine Safety Disclosures This item is not applicable to the company - Not applicable[285] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's Class A shares trade on Nasdaq, no dividends have been paid, and a share repurchase plan is active - The company's Class A ordinary shares trade on the Nasdaq Global Select Market under the symbol "GLRE"[287] - The company has not paid any cash dividends since its inception and does not intend to in the foreseeable future[288][290] - A share repurchase plan is authorized for up to $25.0 million of Class A ordinary shares, effective until June 30, 2023[293] - No share repurchases were made under the plan during the three months ended December 31, 2022[295] Management's Discussion and Analysis of Financial Condition and Results of Operations Strong investment performance drove net income growth in 2022, offsetting underwriting losses from catastrophes and the Russia-Ukraine conflict - The 2022 underwriting loss was primarily driven by $13.6 million in losses from the Russia-Ukraine conflict and $25.7 million from Hurricane Ian and other natural catastrophes[363] - The investment in SILP generated a net return of 25.3% in 2022, a significant driver of the company's overall net income[309][385] - The company is addressing inflation by focusing on short-tailed business, with an estimated payout duration of existing reserves of approximately two years[306][313] Key Financial Results (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $25.3 million | $17.6 million | | Net Underwriting Loss | ($10.7 million) | ($5.2 million) | | Total Investment Income | $69.0 million | $50.2 million | | Combined Ratio | 102.3% | 100.9% | | Fully Diluted Book Value Per Share | $14.59 | $13.99 | Quantitative and Qualitative Disclosures About Market Risk The company's principal market risks, primarily from its SILP investment, include equity price, commodity, currency, and interest rate exposures - A hypothetical 10% decline in equity prices would result in an estimated $8.1 million loss to the Company's Investment Portfolio as of December 31, 2022[439] - As of December 31, 2022, a 100 basis point increase or decrease in interest rates would result in a $4.4 million gain or a $4.9 million loss, respectively, to the Investment Portfolio in SILP[453] - The company has foreign currency risk from contracts denominated in GBP and EUR; a 10% adverse move in the GBP/USD and EUR/USD rates would cause a $0.6 million loss and $1.1 million loss, respectively[448] Impact of 10% Commodity Price Change on Investment Portfolio | Commodity | 10% Increase ($ in millions) | 10% Decrease ($ in millions) | | :--- | :--- | :--- | | Gold | $3.6 | ($3.6) | | Silver | $0.3 | ($0.3) | | Uranium | $0.3 | ($0.3) | | Crude oil | $0.2 | ($0.2) | | Total | $4.4 | ($4.4) | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and the independent auditor's unqualified opinion for the year ended December 31, 2022 Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2022 ($ in millions) | 2021 ($ in millions) | | :--- | :--- | :--- | | Total Investments | 248.5 | 231.0 | | Total Assets | 1,580.4 | 1,427.5 | | Loss and Loss Adjustment Expense Reserves | 555.5 | 524.0 | | Total Liabilities | 1,077.3 | 951.8 | | Total Shareholders' Equity | 503.1 | 475.7 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account | 2022 ($ in millions) | 2021 ($ in millions) | | :--- | :--- | :--- | | Net Premiums Earned | 469.5 | 539.3 | | Total Revenues | 526.7 | 588.6 | | Net Loss and LAE Incurred | 316.5 | 375.0 | | Total Expenses | 502.2 | 567.2 | | Net Income | 25.3 | 17.6 | | Diluted EPS | $0.73 | $0.51 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable as there were no changes in or disagreements with accountants - Not applicable[458] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[459] - There were no material changes in internal control over financial reporting during the fourth quarter of 2022[462] - Management concluded that the system of internal control over financial reporting was effective as of December 31, 2022, which was audited by Deloitte Ltd., which issued an unqualified opinion[464][466] Other Information The company reports no other information for this item - None[472] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[473] PART III Directors, Executive Officers and Corporate Governance Information for this item will be incorporated by reference from the company's definitive proxy statement Executive Compensation Information for this item will be incorporated by reference from the company's definitive proxy statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item will be incorporated by reference from the company's definitive proxy statement Certain Relationships and Related Transactions, and Director Independence Information for this item will be incorporated by reference from the company's definitive proxy statement Principal Accounting Fees and Services Information for this item will be incorporated by reference from the company's definitive proxy statement PART IV Exhibits and Financial Statement Schedules This section lists all documents filed with the Form 10-K, including financial statements, schedules, and material contracts - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[481] - The audited financial statements of the related-party investment fund, Solasglas Investments, LP, are filed as Exhibit 99.1[481] Form 10-K Summary The company has not provided a summary for this item - None[482]