Greenlight Re(GLRE) - 2020 Q4 - Annual Report

Part I Business Greenlight Capital Re, Ltd. is a global specialty property and casualty reinsurer with a dual-pillar strategy and value-oriented investment approach - The company operates a two-pillar strategy: 1) Traditional property and casualty reinsurance (excess of loss and quota share) and 2) Risk innovation and strategic partnerships (Greenlight Re Innovations)[22][23][27] - The company's investment strategy is non-traditional, managed by DME Advisors with a value-oriented philosophy of taking long positions in undervalued securities and short positions in overvalued securities[19][70] - Success is measured by long-term growth in book value per share, which is the primary gauge of performance and aligns with incentive compensation plans[26] Gross Premiums Written by Line of Business ($ in thousands) | Line of Business | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Property | $58,463 | $85,957 | $101,030 | | Commercial | $11,190 | $14,165 | $10,487 | | Motor | $33,054 | $59,402 | $76,425 | | Personal | $14,219 | $12,390 | $14,118 | | Casualty | $302,237 | $362,374 | $377,785 | | General Liability | $4,228 | $2,401 | $1,429 | | Motor Liability | $127,379 | $233,591 | $291,690 | | Workers' Compensation | $82,189 | $50,369 | $24,101 | | Multi-line | $88,237 | $76,461 | $57,497 | | Other | $119,091 | $75,646 | $88,716 | | Accident & Health | $56,284 | $39,175 | $69,605 | | Financial | $23,231 | $23,087 | $16,611 | | Other Specialty | $38,806 | $13,224 | $2,106 | | Total | $479,791 | $523,977 | $567,531 | Gross Premiums Written by Geographic Area ($ in thousands) | Geographic Area | 2020 | % of Total | 2019 | % of Total | | :--- | :--- | :--- | :--- | :--- | | U.S. and Caribbean | $390,000 | 81.3% | $435,458 | 83.1% | | Worldwide | $84,204 | 17.5% | $84,728 | 16.2% | | Asia | $5,587 | 1.2% | $3,804 | 0.7% | | Europe | $0 | 0.0% | ($13) | 0.0% | | Total | $479,791 | 100.0% | $523,977 | 100.0% | - The company sources a majority of its business through reinsurance brokers, with the top four brokers (Guy Carpenter, Trean Re, Willis Re, Aon Benfield) accounting for 76.9% of gross premiums written in 2020[30][33] - The company holds an "A- (Excellent)" rating from A.M. Best, which is the fourth highest of 13 ratings, with A.M. Best assigning a negative outlook on this rating[53][54] Investment Portfolio Returns (Net) | Year | Full Year Return | | :--- | :--- | | 2020 | 1.4% | | 2019 | 9.3% | | 2018 | (30.3)% | | 2017 | 1.5% | | 2016 | 7.2% | Risk Factors The company faces significant risks across business, regulatory, investment, and share structure, including COVID-19, ratings, reserves, and tax - Business Risks: The ongoing COVID-19 pandemic presents significant uncertainty, potentially impacting premiums, increasing loss expenses, and causing investment volatility, while results are also subject to fluctuation due to underwriting and investment strategies[114][117][125] - Ratings Risk: A downgrade or withdrawal of the company's "A- (Excellent)" A.M. Best rating could severely limit its ability to write new reinsurance contracts and may trigger cancellation clauses in existing agreements[126][127] - Reserve Risk: The company's financial condition could be materially affected if actual losses and loss adjustment expenses significantly exceed established reserves, a risk heightened for reinsurers due to reporting delays and reliance on cedent data[133][135] - Investment Strategy Risks: The investment portfolio, managed by DME Advisors via SILP, is concentrated in a value-oriented strategy with potentially large, undiversified positions and the use of short sales, exposing the company to unlimited loss potential and volatility greater than traditional fixed-income strategies[194][199] - Regulatory & Compliance Risks: The company relies on an exemption under the U.S. Investment Company Act for foreign insurance companies, and if deemed inapplicable, it would be subject to extensive, restrictive regulations, also requiring maintenance of minimum capital and surplus in the Cayman Islands and Ireland[176][177][181] - Taxation Risks: U.S. shareholders may be subject to adverse tax consequences if the company is classified as a Passive Foreign Investment Company (PFIC) or a Controlled Foreign Corporation (CFC), with the Tax Cuts and Jobs Act of 2017 introducing a bright-line test (applicable insurance liabilities > 25% of total assets) to avoid PFIC status[266][270][275] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[286] Properties The company leases office space in Grand Cayman and Dublin, which management deems sufficient for current operations - The company leases office space in Grand Cayman, Cayman Islands and Dublin, Ireland[287] Legal Proceedings The company may be involved in routine legal disputes, but management anticipates no material adverse effect on its financial condition or results - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business[288] Mine Safety Disclosures This item is not applicable to the company - Not applicable[289] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A ordinary shares trade on Nasdaq under 'GLRE', with no dividends paid or planned, and an active share repurchase program - The company's Class A ordinary shares trade on the Nasdaq Global Select Market under the symbol "GLRE"[291] - The company has not paid any cash dividends since its inception and does not currently intend to declare or pay dividends in the foreseeable future[293][295] - The Board of Directors has authorized a share repurchase plan for up to 5.0 million Class A ordinary shares and up to $25.0 million of its 4.00% Convertible Senior Notes due 2023, with the plan extended to June 30, 2021[299] Share Repurchases (Q4 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | Oct 1-31, 2020 | 176,025 | $6.89 | 2,949,556 | | Nov 1-30, 2020 | 296,634 | $7.85 | 2,652,922 | | Dec 1-31, 2020 | 200,019 | $7.85 | 2,452,903 | | Total Q4 | 672,678 | $7.60 | 2,452,903 | Selected Financial Data The company presents five-year selected financial data, showing improved net income and combined ratio in 2020 despite decreased gross premiums written Selected Consolidated Statement of Operations Data ($ in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Gross premiums written | $479,791 | $523,977 | $567,531 | $692,651 | $536,072 | | Net premiums earned | $455,411 | $483,580 | $508,363 | $626,004 | $513,118 | | Net investment income (loss) | $25,532 | $52,267 | ($323,106) | $20,231 | $76,183 | | Net income (loss) | $3,866 | ($3,986) | ($350,054) | ($44,952) | $44,881 | | Basic EPS | $0.11 | ($0.11) | ($9.74) | ($1.21) | $1.20 | | Diluted EPS | $0.11 | ($0.11) | ($9.74) | ($1.21) | $1.20 | | Combined ratio | 100.4% | 106.9% | 102.8% | 108.6% | 103.6% | Selected Consolidated Balance Sheet Data ($ in thousands, except per share data) | Metric | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total investments | $196,153 | $256,440 | $283,928 | | Total assets | $1,357,650 | $1,355,193 | $1,435,445 | | Loss and loss adjustment expense reserves | $494,179 | $470,588 | $482,662 | | Total liabilities | $892,793 | $878,010 | $955,981 | | Total shareholders' equity | $464,857 | $477,183 | $477,772 | | Basic adjusted book value per share* | $13.47 | $12.90 | $13.12 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, Greenlight Re's book value per share increased, driven by net income and share repurchases, with improved underwriting and decreased gross premiums - The company's primary financial goal is to increase fully diluted book value per share over the long term, with a 4.2% increase to $13.42 in 2020[364][376] Key Performance Indicators | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Income (Loss) | $3.9M | ($4.0M) | | Underwriting Loss | ($1.6M) | ($33.5M) | | Total Investment Income | $25.5M | $52.3M | | Combined Ratio | 100.4% | 106.9% | | Adjusted Combined Ratio* | 96.0% | 97.1% | - Gross premiums written decreased by 8.4% in 2020, primarily due to the non-renewal of motor contracts, partially offset by growth in workers' compensation and new contracts in other specialty lines[380] - The loss ratio improved to 74.2% in 2020 from 80.3% in 2019, mainly due to a significant reduction in adverse prior year loss development, particularly in motor contracts[386][387] - Total investments decreased by 23.5% to $196.2 million as of Dec 31, 2020, primarily due to withdrawals from SILP to pay claims, fund collateral, and post Funds at Lloyd's[403] - As of January 1, 2021, the company's estimated Probable Maximum Loss (PML) from a single catastrophic event at a 1-in-250 year return period was $86.8 million[414] Contractual Obligations ($ in thousands) | Obligation | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $581 | $0 | $0 | $0 | $581 | | Interest and convertible note payable | $4,000 | $108,000 | $0 | $0 | $112,000 | | Loss and loss adjustment expense reserves | $242,148 | $144,794 | $53,371 | $53,866 | $494,179 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to equity price, commodity, foreign currency, interest rate, credit, and political risks, primarily from its SILP investment - Equity Price Risk: A hypothetical 10% decline in the price of each underlying listed equity security and derivative instrument in the Investment Portfolio would result in a $9.2 million loss as of December 31, 2020[438] Commodity Price Risk Sensitivity ($ in millions) | Commodity | Impact of 10% Price Increase | Impact of 10% Price Decrease | | :--- | :--- | :--- | | Gold | $1.8 | ($1.8) | | Natural Gas | $0.5 | ($0.5) | | Total | $2.2 | ($2.2) | - Foreign Currency Risk: The company has net liability exposures in GBP and EUR, where a 10% decrease in the U.S. dollar against these currencies would result in an estimated foreign exchange loss of $0.2 million for each currency[445] - Interest Rate Risk: As of December 31, 2020, a 100 basis point increase or decrease in interest rates would have no meaningful impact on the value of the Investment Portfolio[449] - Credit Risk: The company is exposed to credit risk from reinsurance counterparties and brokers, mitigated by obtaining collateral (funds withheld, trusts, letters of credit) and monitoring counterparty financial strength[450][451] Financial Statements and Supplementary Data This section refers to the detailed financial statements and schedules located in Part IV, Item 15 of the report - This item refers to the full financial statements and supplementary data schedules included in Part IV, Item 15[455] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[455] Controls and Procedures Management, including CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - 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[456] - Management concluded that the company's system of internal control over financial reporting was effective as of December 31, 2020, based on the COSO 2013 framework[461] - There were no changes in the company's internal control over financial reporting during the fourth quarter of 2020 that materially affected, or are reasonably likely to materially affect, these controls[459] Other Information The company reports no other information for this item - None[462] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive proxy statement for the 2021 annual meeting - This information is incorporated by reference from the definitive proxy statement to be filed with the SEC[463] Executive Compensation Information for this item is incorporated by reference from the company's definitive proxy statement for the 2021 annual meeting - This information is incorporated by reference from the definitive proxy statement to be filed with the SEC[464] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive proxy statement for the 2021 annual meeting - This information is incorporated by reference from the definitive proxy statement to be filed with the SEC[465] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive proxy statement for the 2021 annual meeting - This information is incorporated by reference from the definitive proxy statement to be filed with the SEC[466] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's definitive proxy statement for the 2021 annual meeting - This information is incorporated by reference from the definitive proxy statement to be filed with the SEC[467] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K - This section lists all documents filed as part of the Form 10-K, including financial statements, schedules, and exhibits[470] 10-K Summary The company did not provide a 10-K summary - None[471]