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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
__________________________
FORM 10-Q 
__________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33493
____________________________________________________________________________________
GREENLIGHT CAPITAL RE, LTD.
(Exact name of registrant as specified in its charter)
____________________________________________________________________________________
Cayman IslandsN/A
(State or other jurisdiction of incorporation or organization)(I.R.S. employer identification no.)
65 Market Street
Suite 1207, Jasmine Court
P.O. Box 31110
Camana Bay
Grand Cayman
Cayman IslandsKY1-1205
(Address of principal executive offices)(Zip code)

(345) 943-4573
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Ordinary SharesGLRENasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer ☐          Accelerated filer ☒          Non-accelerated filer ☐          Smaller reporting company           Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) 
Yes No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class A Ordinary Shares, $0.10 par value28,933,957
Class B Ordinary Shares, $0.10 par value6,254,715
(Class)Outstanding as of October 30, 2020



GREENLIGHT CAPITAL RE, LTD.
 
TABLE OF CONTENTS
 
  Page
 Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)
 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)
 Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)
 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)
 Notes to the Condensed Consolidated Financial Statements (unaudited)


 
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PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS 
GREENLIGHT CAPITAL RE, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) 

September 30, 2020 and December 31, 2019
(expressed in thousands of U.S. dollars, except per share and share amounts)
 September 30, 2020December 31, 2019
Assets  
Investments  
Investment in related party investment fund$184,956 $240,056 
Other investments22,241 16,384 
Total investments207,197 256,440 
Cash and cash equivalents8,159 25,813 
Restricted cash and cash equivalents723,107 742,093 
Reinsurance balances receivable (net of allowance for expected credit losses of $89)
264,227 230,384 
Loss and loss adjustment expenses recoverable (net of allowance for expected credit losses of $47)
19,949 27,531 
Deferred acquisition costs 51,696 49,665 
Unearned premiums ceded 901 
Notes receivable (net of allowance for expected credit losses of $1,000)
18,461 20,202 
Other assets3,264 2,164 
Total assets$1,296,060 $1,355,193 
Liabilities and equity 
Liabilities 
Loss and loss adjustment expense reserves$481,770 $470,588 
Unearned premium reserves203,855 179,460 
Reinsurance balances payable80,364 122,665 
Funds withheld5,232 4,958 
Other liabilities3,756 6,825 
Convertible senior notes payable94,216 93,514 
Total liabilities869,193 878,010 
Shareholders' equity 
Preferred share capital (par value $0.10; authorized, 50,000,000; none issued)
  
Ordinary share capital (Class A: par value $0.10; authorized, 100,000,000; issued and outstanding, 29,113,702 (2019: 30,739,395): Class B: par value $0.10; authorized, 25,000,000; issued and outstanding, 6,254,715 (2019: 6,254,715))
3,537 3,699 
Additional paid-in capital492,429 503,547 
Retained earnings (deficit)(69,099)(30,063)
Total shareholders' equity426,867 477,183 
Total liabilities and equity$1,296,060 $1,355,193 
 
  The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of the Condensed Consolidated Financial Statements.
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GREENLIGHT CAPITAL RE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
For the three and nine months ended September 30, 2020 and 2019
(expressed in thousands of U.S. dollars, except per share and share amounts)
Three months ended September 30Nine months ended September 30
 2020201920202019
Revenues 
Gross premiums written$135,596 $110,607 $362,072 $425,507 
Gross premiums ceded(1,464)(4,035)(2,274)(48,577)
Net premiums written134,132 106,572 359,798 376,930 
Change in net unearned premium reserves(18,613)22,582 (24,844)(1,973)
Net premiums earned115,519 129,154 334,954 374,957 
Income (loss) from investment in related party investment fund [net of related party expenses of $703 and $1,981, (three and nine months ended September 30, 2019: $1,325 and $9,888, respectively)]
6,431 6,609 (34,086)51,770 
Net investment income 466 3,312 11,237 9,265 
Other income (expense), net1,569 (887)2,570 1,299 
Total revenues123,985 138,188 314,675 437,291 
Expenses
Net loss and loss adjustment expenses incurred88,053 92,962 252,944 294,303 
Acquisition costs27,018 30,962 76,660 89,660 
General and administrative expenses5,152 7,725 18,095 22,484 
Interest expense1,579 1,578 4,702 4,684 
Total expenses121,802 133,227 352,401 411,131 
Income (loss) before income tax2,183 4,961 (37,726)26,160 
Income tax (expense) benefit 179 (424)200 
Net income (loss)$2,183 $5,140 $(38,150)$26,360 
Earnings (loss) per share
Basic$0.06 $0.14 $(1.07)$0.72 
Diluted$0.06 $0.14 $(1.07)$0.72 
Weighted average number of ordinary shares used in the determination of earnings and loss per share
Basic35,677,554 36,841,623 35,569,292 36,646,515 
Diluted35,779,703 36,921,490 35,569,292 36,720,550 
 

 
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of the Condensed Consolidated Financial Statements. 


 
 
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GREENLIGHT CAPITAL RE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
 
For the three and nine months ended September 30, 2020 and 2019
(expressed in thousands of U.S. dollars)

Three months ended September 30Nine months ended September 30
2020201920202019
Ordinary share capital
Beginning balance$3,627 $3,679 $3,699 $3,638 
Issue of Class A ordinary shares, net of forfeitures(19)20 25 61 
Repurchase of Class A ordinary shares(71)— (187)— 
Ending balance3,537 3,699 3,537 3,699 
Additional paid-in capital
Beginning balance497,559 501,916 503,547 499,726 
Repurchase of Class A ordinary shares(4,828)— (12,484)— 
Share-based compensation expense(302)645 1,366 2,835 
Ending balance492,429 502,561 492,429 502,561 
Retained earnings (deficit)
Beginning balance(71,282)(4,857)(30,063)(26,077)
Cumulative effect of adoption of accounting guidance for expected credit losses at January 1, 2020
— — (886)— 
Net income (loss)2,183 5,140 (38,150)26,360 
Ending balance(69,099)283 (69,099)283 
Total shareholders' equity$426,867 $506,543 $426,867 $506,543 


The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of the Condensed Consolidated Financial Statements. 


 
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GREENLIGHT CAPITAL RE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended September 30, 2020 and 2019
(expressed in thousands of U.S. dollars) 
Nine months ended September 30
 20202019
Cash provided by (used in) operating activities 
Net income (loss)$(38,150)$26,360 
Adjustments to reconcile net income or loss to net cash provided by (used in) operating activities
Loss (income) from investments in related party investment fund34,086 (51,770)
Loss (income) from investment accounted for under the equity method(870)(267)
Net change in unrealized gains and losses on investments and notes receivable(19,153)(14,362)
Net realized (gains) losses on investments15,000 14,150 
Foreign exchange (gains) losses on investments232 (160)
Current expected credit losses recognized on notes receivable and reinsurance assets 250  
Share-based compensation expense1,391 2,896 
Amortization and interest expense, net of change in accruals702 751 
Depreciation expense21 21 
Net change in
Reinsurance balances receivable(33,932)26,981 
Loss and loss adjustment expenses recoverable7,535 2,170 
Deferred acquisition costs(2,031)(678)
Unearned premiums ceded901 17,242 
Other assets, excluding depreciation(1,121)(561)
Loss and loss adjustment expense reserves11,182 (3,227)
Unearned premium reserves24,395 (15,211)
Reinsurance balances payable(42,301)(9,259)
Funds withheld274 (6,465)
Other liabilities(3,069)2,709 
Net cash provided by (used in) operating activities(44,658)(8,680)
Investing activities
Proceeds from redemptions from related party investment fund69,108 107,162 
Contributions to related party investment fund(48,094)(11,306)
Purchases of investments(944)(4,702)
Change in due to related party investment fund (9,642)
Notes receivable collected (issued)741 (1,016)
Non-controlling interest contribution into (withdrawal from) related party joint venture, net (1,278)
Net cash provided by (used in) investing activities20,811 79,218 
Financing activities
Repurchase of Class A ordinary shares(12,671) 
Net cash provided by (used in) financing activities(12,671) 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(122)237 
Net increase (decrease) in cash, cash equivalents and restricted cash(36,640)70,775 
Cash, cash equivalents and restricted cash at beginning of the period (see Note 2)767,906 703,231 
Cash, cash equivalents and restricted cash at end of the period (see Note 2)$731,266 $774,006 
Supplementary information 
Interest paid in cash$4,000 $3,933 
Income tax paid in cash  
Non-cash transfer of investments (Note 3) 36,673 
Non-cash addition of right-of-use asset 323 

The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of the Condensed Consolidated Financial Statements. 
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GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
September 30, 2020
 
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Greenlight Capital Re, Ltd. (“GLRE”) was incorporated as an exempted company under the Companies Law of the Cayman Islands on July 13, 2004. GLRE’s principal wholly-owned subsidiary, Greenlight Reinsurance, Ltd. (“Greenlight Re”), provides global specialty property and casualty reinsurance. Greenlight Re has a Class D insurer license issued in accordance with the terms of The Insurance Law, 2010 and underlying regulations thereto (the “Law”) and is subject to regulation by the Cayman Islands Monetary Authority, in terms of the Law. Greenlight Re commenced underwriting in April 2006. Verdant Holding Company, Ltd. (“Verdant”), a wholly-owned subsidiary of GLRE, was incorporated in 2008 in the state of Delaware. During 2010, GLRE established Greenlight Reinsurance Ireland, Designated Activity Company (“GRIL”), a wholly-owned reinsurance subsidiary based in Dublin, Ireland. GRIL is authorized as a non-life reinsurance undertaking in accordance with the provisions of the European Union (Insurance and Reinsurance) Regulations 2015. GRIL provides multi-line property and casualty reinsurance capacity to the European broker market and provides GLRE with an additional platform to serve clients located in Europe and North America.  As used herein, the “Company” refers collectively to GLRE and its consolidated subsidiaries.

The Class A ordinary shares of GLRE are listed on Nasdaq Global Select Market under the symbol “GLRE”.

These unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019. In the opinion of management, these unaudited condensed consolidated financial statements reflect all of the normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented.

The global pandemic related to the novel coronavirus (the “COVID-19 pandemic”) is expected to have a significant adverse impact on the property and casualty insurance and reinsurance industry. The Company has included in the loss and loss adjustment reserves, its best estimate of losses arising from the COVID-19 pandemic. However, there remains considerable uncertainty relating to the ultimate losses, which will depend on the extent and duration of economic contraction, particularly in the United States. Accordingly, significant estimates used in the preparation of the Company’s consolidated financial statements including those associated with premiums, expected credit losses on amounts owed to us and the estimations of loss and loss adjustment expense reserves may be subject to significant adjustments in future periods.

The results for the nine months ended September 30, 2020 are not necessarily indicative of the results expected for the full calendar year.

2. SIGNIFICANT ACCOUNTING POLICIES
 
In the first quarter of 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”) which requires an entity to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. ASU 2016-13 was effective for public business entities for annual and interim periods beginning after December 15, 2019. The financial assets included in the captions “Reinsurance balances receivable,” “Loss and loss adjustment expenses recoverable” (collectively, “Reinsurance Assets”) and “Notes receivable,” in the Company’s condensed consolidated balance sheets are carried at amortized cost and therefore affected by ASU 2016-13. Other than the changes relating to the adoption of ASU 2016-13, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2019.
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Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the period. Actual results could differ from these estimates. 

Restricted Cash and Cash Equivalents
 
The Company maintains cash and cash equivalent balances to collateralize regulatory trusts and letters of credit issued to cedents (see Note 11). The following table reconciles the cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total presented in the condensed consolidated statements of cash flows:

 September 30, 2020December 31, 2019
 ($ in thousands)
Cash and cash equivalents$8,159 $25,813 
Restricted cash and cash equivalents723,107 742,093 
Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows$731,266 $767,906 

Reinsurance Assets

Upon adoption of ASU 2016-13, the Company calculated an allowance for expected credit losses for its reinsurance balances receivable and loss and loss adjustment expenses recoverable by applying a Probability of Default (“PD”) / Loss Given Default (“LGD”) model that considers both the Company’s collectibility history on its reinsurance assets as well as representative external loss history. The external loss history that the Company uses includes a long-term probability of liquidation study specific to insurance companies. Additionally, the life of each of the Company’s reinsurance treaties is also considered as the probability of default is calculated over the contractual length of the reinsurance contracts.

The credit worthiness of a counterparty is evaluated by considering the credit ratings assigned by independent agencies and individually evaluating all the counterparties. The Company manages its credit risk in its reinsurance assets by transacting with insurers and reinsurers that it considers financially sound.

For its retrocessionaire counterparties that are unrated, the Company may hold collateral in the form of funds withheld, trust accounts and/or irrevocable letters of credit. In evaluating credit risk associated with reinsurance balances receivable, the Company considers its right to offset loss obligations or unearned premiums against premiums receivable. The Company regularly evaluates its net credit exposure to assess the ability of retrocessionaires to honor their respective obligations.

Upon adoption of ASU 2016-13, the Company recorded an allowance for expected credit loss on its Reinsurance Assets of $0.1 million with an offset to retained earnings. At September 30, 2020, the allowance for expected credit losses was $0.1 million.

Notes Receivable
 
Notes receivable represent promissory notes receivable from third parties. These notes are recorded at cost plus accrued interest, if any, net of valuation allowance for expected credit losses. Interest income, changes in the allowance for expected credit losses and unrealized and realized gains or losses on the notes receivable are included in the caption “Net investment income (loss)” in the Company’s condensed consolidated statements of operations.

The allowance for expected credit losses is calculated using a PD / LGD model that takes into account the Company’s experience as well as representative external loss history. The expected loss percentage is calculated as the product of the PD and LGD for each period over the life of a note. The Company evaluates the financial condition of the notes receivable counterparties and monitors its exposure on a regular basis. At September 30, 2020, the Company considers the notes receivable balance to be collectible and has not experienced any default on payments since inception of these notes. The notes receivable originated between 2015 and 2018.
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At September 30, 2020 and December 31, 2019, $0.1 million and $0.1 million, respectively, of accrued interest was included in the caption “Notes receivable” in the Company’s condensed consolidated balance sheets. When there is uncertainty as to the collection of interest contractually due, the Company places the note on non-accrual status. For notes receivable placed on non-accrual status, the notes are presented excluding any accrued interest amount. The Company resumes the accrual of interest on a note when none of the principal or interest remains past due, and the Company expects to collect the remaining contractual principal and interest. Interest collected on notes that are placed on non-accrual status is recorded as interest income when collected, provided that the recorded value of the note is deemed to be fully collectible. Where doubt exists as to the collectibility of the remaining recorded value of the notes placed on non-accrual status, the Company immediately reverses any previous accrued interest through interest income and any payments received are applied to reduce the recorded value of the notes. The allowance for expected credit losses for notes receivable is calculated on the amortized cost excluding accrued interest and interest written off due to non-accrual status.

Charge offs of notes receivable are recorded when all or a portion of the financial asset is deemed uncollectible. Full or partial charge offs are recorded as reductions to the amortized cost and deducted from the allowance in the period in which the note receivable is deemed uncollectible. In instances where the Company collects cash that it has previously charged off, the recovery will be recognized through earnings or as a reduction of the amortized cost for interest and principal, respectively.

The following table provides a roll-forward of the Company’s allowance for credit losses on notes receivable:
Nine months ended September 30
20202019
($ in thousands)
Balance at beginning of period$15,000 $9,012 
Cumulative effect of adoption of ASU 2016-13 at January 1, 2020750  
Charge offs(15,000) 
Net increase (decrease) in allowance250  
Balance at end of period$1,000 $9,012 

Deposit Assets and Liabilities
 
The Company applies deposit accounting to reinsurance contracts that do not transfer sufficient insurance risk to merit reinsurance accounting. Under deposit accounting, an asset or liability is recognized based on the consideration paid or received. The deposit asset or liability balance is subsequently adjusted using the interest method with a corresponding income or expense recorded in the Company’s condensed consolidated statements of operations under the caption “Other income (expense).” The Company’s deposit assets and liabilities are recorded in the Company’s condensed consolidated balance sheets in the caption “Reinsurance balances receivable” and “Reinsurance balances payable,” respectively. At September 30, 2020, deposit assets and deposit liabilities were $5.3 million and $35.2 million, respectively (December 31, 2019: $5.2 million and $56.9 million, respectively). For the three and nine months ended September 30, 2020 and 2019, the interest income/(expense) on deposit accounted contracts was as follows:
 Three months ended September 30Nine months ended September 30
 2020201920202019
($ in thousands)($ in thousands)
Deposit interest income$560 $1,023 $1,812 $2,493 
Deposit interest expense$ $(656)$ $(135)
Deposit interest income/(expense), net$560 $367 $1,812 $2,358 
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Other Assets

Other assets consist primarily of prepaid expenses, fixed assets, right-of-use lease assets, other receivables and deferred tax assets.

Other Liabilities

Other liabilities consist primarily of accruals for legal and other professional fees, employee bonuses and lease liabilities.

Earnings (Loss) Per Share
 
The Company’s unvested restricted stock awards, which contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered “participating securities” for the purposes of calculating earnings (loss) per share. Basic earnings per share is calculated on the basis of the weighted average number of common shares and participating securities outstanding during the period. Diluted earnings (or loss) per share includes the dilutive effect of the following:

Restricted Stock Units (“RSUs”) issued that would convert to common shares upon vesting;
additional potential common shares issuable when stock options are exercised, determined using the treasury stock method; and
those common shares with the potential to be issued by virtue of convertible debt and other such convertible instruments, determined using the treasury stock method.

Diluted earnings (or loss) per share contemplates a conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share. In the event of a net loss, all RSUs, stock options outstanding, convertible debt and participating securities are excluded from the calculation of both basic and diluted loss per share as their inclusion would be anti-dilutive.

The table below presents the shares outstanding for the purposes of the calculation of earnings (loss) per share for the three and nine months ended September 30, 2020 and 2019:
 Three months ended September 30Nine months ended September 30
 2020201920202019
Weighted average shares outstanding - basic35,677,554 36,841,623 35,569,292 36,646,515 
Effect of dilutive employee and director share-based awards102,149 79,867  74,035 
Weighted average shares outstanding - diluted35,779,703 36,921,490 35,569,292 36,720,550 
Anti-dilutive stock options outstanding835,627 875,627 835,627 875,627 
Participating securities excluded from calculation of loss per share   878,498  

Taxation
 
Under current Cayman Islands law, no corporate entity, including GLRE and Greenlight Re, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company has an undertaking from the Governor-in-Cabinet of the Cayman Islands, pursuant to the provisions of the Tax Concessions Law, as amended, that, in the event that the Cayman Islands enacts any legislation that imposes tax on profits, income, gains or appreciations, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to GLRE, Greenlight Re nor their respective operations, or to the Class A or Class B ordinary shares or related obligations, before February 1, 2025.
 
Verdant is incorporated in Delaware and therefore is subject to taxes in accordance with the U.S. federal rates and regulations prescribed by the U.S. Internal Revenue Service (“IRS”). Verdant’s taxable income is generally expected to be taxed at a marginal rate of 21% (2019: 21%). Verdant’s tax years 2014 and beyond remain open and subject to examination by the IRS.

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GRIL is incorporated in Ireland and therefore is subject to the Irish corporation tax rate of 12.5% on its trading income, and 25% on its non-trading income.

The Company records a valuation allowance to the extent that the Company considers it more likely than not that all or a portion of the deferred tax asset will not be realized in the future. Other than this valuation allowance, the Company has not taken any income tax positions that are subject to significant uncertainty that is reasonably likely to have a material impact on the Company. 

Recent Accounting Pronouncements

Recently Issued Accounting Standards Adopted

As discussed above, the Company adopted ASU 2016-13 during the first quarter of 2020 using a modified retrospective transition method. The adoption resulted in a cumulative-effect adjustment to retained earnings of $0.9 million as of January 1, 2020.

Recently Issued Accounting Standards Not Yet Adopted

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (“ASU 2020-01”). The amendments in ASU 2020-01 clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. ASU 2020-01 is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The adoption of ASU 2020-01 is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). ASU 2020-06 is designed to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The amendments remove the separation models in Subtopic 470-20 for certain contracts. As a result, embedded conversion features would not be presented separately in equity; rather, the contract would be accounted for as a single liability measured at its amortized cost. Subtopic 815-40 simplifies the analysis of whether an embedded conversion feature meets the derivative scope exception for contracts that are indexed to, and classified in, stockholders equity, as well as addresses the computation of earnings per share for convertible debt instruments. ASU 2020-06 requires the application of the if-converted method when calculating diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 using either a modified retrospective method of transition or a fully retrospective method of transition. Early adoption is permitted no earlier than for fiscal years beginning after December 15, 2020. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements.

3. INVESTMENT IN RELATED PARTY INVESTMENT FUND

Prior to January 2, 2019, the Company and its reinsurance subsidiaries were party to a joint venture agreement (the “venture agreement”) with DME Advisors, LP (“DME Advisors”) and DME Advisors LLC (“DME”) under which the Company, its reinsurance subsidiaries and DME were participants in a joint venture (the “Joint Venture”) for the purpose of managing certain jointly held assets. DME and DME Advisors are related to the Company and each is an affiliate of David Einhorn, Chairman of the Company’s Board of Directors.

On September 1, 2018, the Company entered into an amended and restated exempted limited partnership agreement (as amended by that certain letter agreement dated as of August 5, 2020, the “SILP LPA”) of Solasglas Investments, LP (“SILP”), with DME Advisors II, LLC (“DME II”), as General Partner, Greenlight Re and GRIL, (together the “GLRE Limited Partners”), and the initial limited partner (each, a “Partner”). The SILP LPA, in conjunction with a participation agreement, replaced the venture agreement and assigned and/or transferred Greenlight Re’s and GRIL’s invested assets in the Joint Venture to SILP. The Joint Venture was terminated on January 2, 2019 by which date all assets were transferred to SILP. On September
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1, 2018, SILP also entered into a SILP investment advisory agreement (“IAA”) with DME Advisors pursuant to which DME Advisors is the investment manager for SILP.

The Company has concluded that SILP qualifies as a variable interest entity (“VIE”) under U.S. GAAP. In assessing its interest in SILP, the Company noted the following:

DME II serves as SILP’s general partner and has the power of appointing the investment manager. The Company does not have the power to appoint, change or replace the investment manager or the general partner except “for cause.” Neither of the GLRE Limited Partners can participate in the investment decisions of SILP as long as SILP adheres to the investment guidelines provided within the SILP LPA. For these reasons, the GLRE Limited Partners are not considered to have substantive participating rights or kick-out rights.

DME II holds an interest in excess of 10% of SILP’s net assets which the Company considers to represent an obligation to absorb losses and a right to receive benefits of SILP that are significant to SILP.

Consequently, the Company has concluded that DME II’s interests, and not the Company’s, meet both the “power” and “benefits” criteria associated with VIE accounting guidance, and therefore DME II is SILP’s primary beneficiary. The Company’s investment in SILP is presented in the Company’s condensed consolidated balance sheets in the caption “Investment in related party investment fund.”

During 2019, SILP’s investment portfolio was de-risked in order to reduce the Company’s investment volatility in the near-term. As a result, a significant proportion of the Company’s investment assets in SILP was held in cash and short-term treasuries as of December 31, 2019. On August 5, 2020, the Company entered into an amended and restated letter agreement with DME Advisors and DME II whereby the deployed Investment Portfolio can not exceed an amount equal to 50% of the Company’s shareholders’ equity, as reported in the Company’s then most recent quarterly U.S. GAAP financial statements, adjusted monthly for investment gains and losses as reported by SILP during any intervening period.

The Company’s maximum exposure to loss relating to SILP is limited to the net asset value of the GLRE Limited Partners’ investment in SILP. As of September 30, 2020, the net asset value of the GLRE Limited Partners’ investment in SILP was $185.0 million (December 31, 2019: $240.1 million), representing 81.0% (December 31, 2019: 81.0%) of SILP’s total net assets. The remaining 19.0% (December 31, 2019: 19.0%) of SILP’s total net assets was held by DME II. The investment in SILP is recorded at the GLRE Limited Partners’ share of the net asset value of SILP as reported by SILP’s third-party administrator. The GLRE Limited Partners can redeem their assets from SILP for operational purposes by providing three business days’ notice to DME II. As of September 30, 2020, the majority of SILP’s long investments are composed of cash and publicly-traded equity securities, which can be readily liquidated to meet GLRE Limited Partners’ redemption requests.

The Company’s share of the change in the net asset value of SILP for the three and nine months ended September 30, 2020 was $6.4 million and $(34.1) million, respectively, (three and nine months ended September 30, 2019: $6.6 million and $51.8 million, respectively), and shown in the caption “Income (loss) from investment in related party investment fund” in the Company’s condensed consolidated statements of operations. The change in the net asset value of SILP for the nine months ended September 30, 2020 was primarily driven by the impact of changes in fair value primarily attributable to the disruptions in global financial markets associated with the COVID–19 pandemic.

The summarized financial statements of SILP are presented below.

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Summarized Statement of Assets and Liabilities of Solasglas Investments, LP
September 30, 2020December 31, 2019
($ in thousands)
Assets
Investments, at fair value$220,116 $162,928 
Derivative contracts, at fair value3,097 6,324 
Due from brokers130,220 68,060 
Cash and cash equivalents2,202 111,046 
Interest and dividends receivable281 47 
Total assets355,916 348,405 
Liabilities and partners’ capital
Liabilities
Investments sold short, at fair value(116,336)(47,834)
Derivative contracts, at fair value(10,962)(2,054)
Due to brokers (1,180)
Interest and dividends payable(32)(828)
Other liabilities(233)(101)
Total liabilities(127,563)(51,997)
Net Assets$228,353 $296,408 
GLRE Limited Partners’ share of Net Assets$184,956 $240,056 


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Summarized Statement of Operations of Solasglas Investments, LP
Three months ended September 30Nine months ended September 30
2020201920202019
($ in thousands)
Investment income
Dividend income (net of withholding taxes)$170 $652 $1,204 $2,334 
Interest income36 279 262 1,869 
Total Investment income206 931 1,466 4,203 
Expenses
Management fee(703)(653)(1,981)(4,235)
Interest(176)(89)(518)(2,308)
Dividends(213)(96)(612)(1,532)
Professional fees and other(432)(204)(764)(1,009)
Total expenses(1,524)(1,042)(3,875)(9,084)
Net investment income (loss)(1,318)(111)(2,409)(4,881)
Realized and change in unrealized gains (losses)
Net realized gain (loss) (1,412)14,760 (44,972)26,989 
Net change in unrealized appreciation (depreciation) 10,832 (5,675)5,811 45,708 
Net gain (loss) on investment transactions9,420 9,085 (39,161)72,697 
Net income (loss)$8,102 $8,974 $(41,570)$67,816 
GLRE Limited Partners’ share of net income (loss) (1)$6,431 $6,609 $(34,086)$51,770 

(1) Net of management fees and accrued performance allocation as follows:

Three months ended September 30Nine months ended September 30
2020201920202019
($ in thousands)
Management fees$703 $652 $1,981 $4,234 
Performance allocation$ $673 $ $5,654 

4. FINANCIAL INSTRUMENTS 
 
Investments
  
Other Investments
 
“Other investments” include unlisted securities and investments accounted for under the equity method.

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At September 30, 2020, the following securities were included in the caption “Other investments”:
September 30, 2020CostUnrealized
gains
Unrealized
losses
Fair value / carrying value
 ($ in thousands)
Private investments and unlisted equities $11,364 $5,373 $(1,067)$15,670 
Investment accounted for under the equity method — — — 6,571 
Total other investments$22,241 

At December 31, 2019, the following securities were included in the caption “Other investments”: 
December 31, 2019CostUnrealized
gains
Unrealized
losses
Fair value / carrying value
 ($ in thousands)
Private investments and unlisted equities$10,420 $265 $(4)$10,681 
Investment accounted for under the equity method— — — 5,703 
Total other investments$16,384 

Private investments and unlisted equities include securities that do not have readily determinable fair values. The carrying values of these holdings are determined based on their original cost minus impairment, if any, plus or minus changes resulting from observable price changes. At September 30, 2020, the carrying value of private investments and unlisted equities was $15.7 million (December 31, 2019: $10.7 million), and incorporated upward adjustments of $0.0 million and $4.1 million during the three and nine months ended September 30, 2020, respectively (2019: $0.0 million and $0.2 million, respectively), excluding any unrealized gains or losses related to changes in foreign currency exchange rates.

 The Company’s investment accounted for under the equity method represents its investment in AccuRisk Holdings LLC (“AccuRisk”), a Chicago, Illinois-based managing general underwriter focused on employee and health insurance benefits. At September 30, 2020, the Company held a 58% (December 31, 2019: 58%) economic interest in AccuRisk and had provided a $6.0 million credit facility. In addition to providing capital and funding in support of AccuRisk’s expansion plans, the Company also provides reinsurance capacity for business produced by AccuRisk. The Company has determined that AccuRisk is a VIE, of which the Company is not the primary beneficiary. The Company’s carrying value represents its ownership share of AccuRisk’s net assets. The Company’s maximum exposure to loss relating to AccuRisk is limited to the carrying amount of its investment, plus the credit facility extended. For the three and nine months ended September 30, 2020, the Company’s share of AccuRisk’s net income was $0.1 million and $0.9 million, respectively (2019: $(0.2) million and $0.3 million, respectively), which was included in the caption “Net investment income” in the Company’s condensed consolidated statements of operations.

Fair Value Hierarchy

The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

As of September 30, 2020 and December 31, 2019, the Company did not carry any investments at fair value that were assigned a Level within the fair value hierarchy. The Company’s investment in the related party investment fund is measured at
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fair value using the net asset value practical expedient, and is therefore not classified within the fair value hierarchy. (See Note 3 for further details.)

Financial Instruments Disclosed, But Not Carried, at Fair Value

The captions “Notes receivable (net of allowance for expected credit loss)” and “Convertible senior notes payable” represent financial instruments that are carried at amortized cost. The carrying values of the notes receivable (net of allowance for expected credit loss) approximate their fair values, which the Company has determined on the basis of Level 3 inputs. The fair value of the convertible senior notes payable is estimated based on the bid price observed in an inactive market for the identical instrument (Level 2 input) (see Note 7).

5. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

At September 30, 2020, the loss and loss adjustment expenses reserves included estimated amounts for several catastrophe events. For significant catastrophe events including, but not limited to, hurricanes, typhoons, floods, wildfires and pandemics, loss reserves are generally established based on loss payments and case reserves reported by clients when, and if, received. To establish IBNR loss estimates, the Company makes use of, among other things, the following:

estimates communicated by ceding companies;
industry data;
information received from clients, brokers and loss adjusters;
an understanding of the underlying business written and its exposures to catastrophe event related losses;
catastrophe scenario modelling software; and
management’s judgement.

The COVID-19 pandemic is unprecedented. Therefore, the Company does not have previous loss experience on which to base its estimates for loss and loss adjustment expenses related to the COVID-19 pandemic. The determination of the Company's estimate was based on:

a review of in-force treaties that may provide coverage and incur losses;
catastrophe and scenario modeling analyses and results shared by cedents;
preliminary loss estimates received from clients and their analysts and loss adjusters;
reviews of industry insured loss estimates and market share analyses; and
management’s judgement.

Significant assumptions on which the Company's estimates of reserves for the COVID-19 pandemic losses and loss adjustment expenses are based include:

the scope of coverage provided by the underlying policies, particularly those that provide for business interruption coverage;
the regulatory, legislative or judicial actions and social impact that could influence contract interpretations across the insurance industry;
the extent of economic contraction caused by the COVID-19 pandemic, particularly in the United States; and
the ability of the cedents and insured to mitigate some or all of their losses.

While the Company believes its estimate of loss and loss adjustment expense reserves for the COVID-19 pandemic is adequate as of September 30, 2020 based on available information, actual losses may ultimately differ materially from the Company's current estimates. The Company will continue to monitor the appropriateness of its assumptions as new information becomes available and will adjust its estimates accordingly. Such adjustments may be material to the Company's results of operations and financial condition.

There were no significant changes in the actuarial methodology or reserving process related to the Company’s loss and loss adjustment expense reserves for the nine months ended September 30, 2020.

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At September 30, 2020 and December 31, 2019, loss and loss adjustment expense reserves were composed of the following:
September 30, 2020December 31, 2019
 ($ in thousands)
Case reserves$224,732 $217,834 
IBNR257,038 252,754 
Total$481,770 $470,588 

A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated
for the nine months ended September 30, 2020 and 2019 is as follows: 
Consolidated20202019
 ($ in thousands)
Gross balance at January 1$470,588 $482,662 
Less: Losses recoverable(27,531)(43,705)
Net balance at January 1443,057 438,957 
Incurred losses related to:  
Current year247,559 264,129 
Prior years5,385 30,174 
Total incurred252,944 294,303 
Paid losses related to:  
Current year(72,453)(93,822)
Prior years(161,222)(200,384)
Total paid(233,675)(294,206)
Foreign currency revaluation(505)(1,154)
Net balance at September 30461,821 437,900 
Add: Losses recoverable19,949 41,535 
Gross balance at September 30$481,770 $479,435 
    

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The changes in the outstanding loss and loss adjustment expense reserves for health claims for the nine months ended September 30, 2020 and 2019 are as follows:
Health20202019
 ($ in thousands)
Gross balance at January 1$18,063 $24,502 
Less: Losses recoverable  
Net balance at January 118,063 24,502 
Incurred losses related to: 
Current year25,032 26,013 
Prior years1,341 2,196 
Total incurred26,373 28,209 
Paid losses related to: 
Current year(15,115)(14,741)
Prior years(16,327)(23,160)
Total paid(31,442)(37,901)
Foreign currency revaluation  
Net balance at September 3012,994 14,810 
Add: Losses recoverable  
Gross balance at September 30$12,994 $14,810 

For the nine months ended September 30, 2020, the estimate of net losses incurred relating to prior accident years increased by $5.4 million, primarily in relation to certain general liability, health and multi-line contracts, partially offset by favorable loss development on professional liability contracts. The net financial impact of the prior year unfavorable loss development for the nine months ended September 30, 2020, taking into account earned reinstatement premiums assumed and ceded, adjustments to assumed and ceded acquisition costs and adjustments to deposit accounted contracts, was a loss of $4.8 million.

For the nine months ended September 30, 2019, the estimate of net losses incurred relating to prior accident years increased by $30.2 million that originated primarily from certain private passenger automobile contracts. These unanticipated automobile losses were the result of adverse court rulings that affected a significant number of loss events that occurred in Florida between 2015 and early 2018, including many claims that had previously been considered closed. The net financial impact of the prior year adverse loss development for the nine months ended September 30, 2019 was a loss of $27.7 million.

6. RETROCESSION
 
The Company, from time to time, purchases retrocessional coverage for one or more of the following reasons: to manage its overall exposure, to reduce its net liability on individual risks, to obtain additional underwriting capacity and to balance its underwriting portfolio. Loss and loss adjustment expenses recoverable from retrocessionaires are recorded as assets.

For the three and nine months ended September 30, 2020, the Company’s earned ceded premiums were $1.7 million and $3.2 million, respectively (2019: $22.0 million and $65.8 million, respectively). For the three and nine months ended September 30, 2020, loss and loss adjustment expenses incurred of $88.1 million and $252.9 million, respectively (2019: $93.0 million and $294.3 million, respectively), reported on the condensed consolidated statements of operations are net of loss and loss expenses recovered and recoverable of $2.5 million and $6.2 million (2019: $13.9 million and $56.2 million).

Retrocession contracts do not relieve the Company from its obligations to the insureds. Failure of retrocessionaires to honor their obligations could result in losses to the Company. At September 30, 2020, the Company’s loss reserves recoverable consisted of (i) $15.0 million (December 31, 2019: $21.2 million) from unrated retrocessionaires, of which $14.5 million (December 31, 2019: $20.0 million) were secured by cash, letters of credit and collateral held in trust accounts for the benefit of the Company and (ii) $5.0 million (December 31, 2019: $6.4 million) from retrocessionaires rated A- or above by A.M. Best.

The Company regularly evaluates its net credit exposure to assess the ability of the retrocessionaires to honor their respective obligations. At September 30, 2020, the Company had recorded an allowance for expected credit losses of $0.1 million (December 31, 2019: nil).
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7. SENIOR CONVERTIBLE NOTES

On August 7, 2018, the Company issued $100.0 million of senior unsecured convertible notes (the “Notes”), which mature on August 1, 2023. The Notes bear interest at 4.0% payable semi-annually on February 1 and August 1 of each year beginning on February 1, 2019.

Note holders have the option, under certain conditions, to redeem the Notes prior to maturity.
If the Notes are redeemed by the holder, the Company shall have the option to settle the conversion obligation in cash, ordinary shares of the Company, or a combination thereof pursuant to the terms of the indenture governing the Notes. The Company has therefore bifurcated the Notes into liability and equity components.
At September 30, 2020, the Company’s share price was lower than the conversion price of $17.19 per share.
The Company’s effective borrowing rate for non-convertible debt at the time of issuance of the Notes was estimated to be 6.0%, which equated to an $8.2 million discount. As of September 30, 2020 and December 31, 2019, the unamortized debt discount was $4.7 million and $5.9 million, respectively, and is expected to be amortized through the maturity date. The debt discount also represents the portion of the Note’s principal amount allocated to the equity component.
The Company incurred issuance costs in connection with the issuance of the Notes. As of September 30, 2020, the unamortized portion of these costs attributed to the debt component was $1.8 million (December 31, 2019: $2.3 million), which are expected to be amortized through the maturity date. The portion of these issuance costs attributed to the equity component was netted against the gross proceeds allocated to equity, resulting in $7.9 million being included in the caption “Additional paid-in capital” in the Company’s condensed consolidated balance sheets.

The carrying value of the Notes as of September 30, 2020, including accrued interest of $0.7 million, was $94.2 million (December 31, 2019: $93.5 million). As of September 30, 2020, the fair value of the Notes was estimated to be $80.1 million (December 31, 2019: $94.9 million) (see Note 4 Financial Instruments).
For the three and nine months ended September 30, 2020, the Company recognized interest expense of $1.6 million and $4.7 million (2019: $1.6 million and $4.7 million) in connection with the interest coupon, amortization of issuance costs and amortization of the discount.

The Company was in compliance with all covenants relating to the Notes as of September 30, 2020 and December 31, 2019.

8. SHARE CAPITAL

As of September 30, 2020, 293,939 (December 31, 2019: 555,805) Class A ordinary shares remained available for future issuance under the Company’s stock incentive plan. The stock incentive plan is administered by the Compensation Committee of the Board of Directors. On October 29, 2020, the Company’s shareholders approved an amendment to the stock incentive plan to increase the number of Class A ordinary shares available for issuance by 3.0 million shares from 5.0 million to 8.0 million.

The Board has adopted a share repurchase plan. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. On March 26, 2020, the Board of Directors extended the share repurchase plan to June 30, 2021 and increased the number of shares authorized to be repurchased to 5.0 million Class A ordinary shares or securities convertible into Class A ordinary shares in the open market, through privately negotiated transactions or Rule 10b5-1 stock trading plans. In addition, the Board of Directors also authorized the Company to repurchase up to $25.0 million aggregate face amount of the Company’s 4.00% Convertible Senior Notes due 2023 (the “Notes”) in privately negotiated transactions, in open market repurchases or pursuant to one more tender offers. The Company is not required to repurchase any of the Class A ordinary shares or the Notes and the repurchase plans may be modified, suspended or terminated at the election of our Board of Directors at any time without prior notice.

During the nine months ended September 30, 2020, 1.9 million Class A ordinary shares were repurchased by the Company (2019: 0). As of September 30, 2020, 3.1 million Class A ordinary shares and $25.0 million of the Notes, remained available for repurchase under the repurchase plans. All Class A ordinary shares repurchased are canceled immediately upon repurchase.
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The following table is a summary of voting ordinary shares issued and outstanding:
Nine months ended September 30Nine months ended September 30
 20202019
Class AClass BClass AClass B
Balance – beginning of period30,739,395 6,254,715 30,130,214 6,254,715 
Issue of ordinary shares, net of forfeitures248,726  408,233  
Repurchase of ordinary shares(1,874,419)   
Balance – end of period29,113,702 6,254,715 30,538,447 6,254,715 

Additional paid-in capital includes the premium per share paid by the subscribing shareholders for Class A and B ordinary shares which have a par value of $0.10 each. It also includes the earned portion of the grant-date fair value of share-based awards that have not yet vested.

9. SHARE-BASED COMPENSATION
 
The Company has a stock incentive plan for directors, employees and consultants that is administered by the Compensation Committee of the Board of Directors.
 
Employee and Director Restricted Shares
 
For the nine months ended September 30, 2020, 306,264 (2019: 235,701) Class A ordinary shares were issued to employees pursuant to the Company’s stock incentive plan. These shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. The restricted shares cliff vest three years after the date of issuance, subject to the grantee’s continued service with the Company. During the vesting period, the holder of the restricted shares retains voting rights and is entitled to any dividends declared by the Company.

For the nine months ended September 30, 2020, 145,089 (2019: 326,240) Class A ordinary shares were issued to the Company’s Chief Executive Officer (“CEO”) pursuant to the Company’s stock incentive plan. These shares contain performance and service conditions and certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. These restricted shares cliff vest 5 years after the date of issuance, subject to the performance condition being met and the grantee’s continued service with the Company. During the vesting period, the holder of the restricted shares retains voting rights and is entitled to any dividends declared by the Company. The weighted average grant date fair value of these restricted shares subject to performance conditions was $6.72 (2019: $10.84) per share. On July 30, 2020, the Company accelerated the vesting of a portion of the CEO’s restricted shares resulting in 72,545 shares vesting immediately. The remaining restricted shares are still subject to performance and service conditions. As the performance conditions associated with these restricted shares have not been met, no compensation cost was recognized relating to the unvested shares for the nine months ended September 30, 2020 and 2019.

For the nine months ended September 30, 2020, 210,109 (2019: 27,386) restricted shares were forfeited by employees who left the Company and prior to the expiration of the applicable vesting periods. For the nine months ended September 30, 2020, $0.7 million stock compensation expense (2019: $0.2 million) relating to the forfeited restricted shares was reversed.

The Company recorded $0.6 million of share-based compensation expense, net of forfeiture reversals, relating to restricted shares for the nine months ended September 30, 2020 (2019: $2.0 million). As of September 30, 2020, there was $2.2 million (December 31, 2019: $2.7 million) of unrecognized compensation cost relating to non-vested restricted shares (excluding CEO’s restricted shares with performance conditions) which are expected to be recognized over a weighted average period of 2.4 years (December 31, 2019: 1.6 years). For the nine months ended September 30, 2020, the total fair value of restricted shares vested was $2.8 million (2019: $3.1 million).

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The following table summarizes the activity for unvested outstanding restricted share awards during the nine months ended September 30, 2020:

 Number of
non-vested
restricted
 shares
Weighted
 average
grant date
fair value
Balance at December 31, 2019873,087 $12.83 
Granted451,353 6.72 
Vested(235,833)13.83 
Forfeited(210,109)10.90 
Balance at September 30, 2020878,498 $9.88 
 
Employee and Director Stock Options

For the nine months ended September 30, 2020, no Class A ordinary share purchase options were granted or exercised by directors or employees, while 40,000 (2019: 60,000) stock options expired and 80,000 (2019: 80,000) stock options vested. When stock options are granted, the Company reduces the corresponding number from the shares authorized for issuance as part of the Company’s stock incentive plan.

The total compensation cost expensed relating to stock options for the nine months ended September 30, 2020 was $0.5 million (2019: $0.7 million). At September 30, 2020, the total compensation cost related to non-vested options not yet recognized was $0.8 million (December 31, 2019: $1.3 million), which will be recognized over a weighted average period of 2.0 years (December 31, 2019: 2.4 years) assuming the grantee completes the service period for vesting of the options.

At September 30, 2020 and December 31, 2019, there were 0.8 million and 0.9 million stock options outstanding, respectively, with a weighted average exercise price of $22.22 and $22.68 per share, respectively and weighted average grant date fair value of $10.25 and $10.25 per share, respectively. The weighted average remaining contractual term of the stock options was 5.3 years and 5.8 years, at September 30, 2020 and December 31, 2019, respectively.

 Employee Restricted Stock Units

The Company issues RSUs to certain employees as part of the stock incentive plan.

These RSUs contain restrictions relating to vesting, forfeiture in the event of termination of employment, transferability and other matters. Each RSU grant cliff vests three years after the date of issuance, subject to the grantee’s continued service with the Company. On the vesting date, the Company converts each RSU into one Class A ordinary share and issues new Class A ordinary shares from the shares authorized for issuance as part of the Company’s stock incentive plan. For the nine months ended September 30, 2020, 60,622 (2019: 48,535) RSUs were issued to employees pursuant to the Company’s stock incentive plan. For the nine months ended September 30, 2020, no (2019: 24,165) RSUs were forfeited by employees who left the Company prior to the expiration of the applicable vesting periods.

The Company recorded $0.3 million of share-based compensation expense, net of forfeitures, relating to RSUs for the nine months ended September 30, 2020 (2019: $0.1 million).
 
Employee RSU activity during the nine months ended September 30, 2020 was as follows:
 Number of
non-vested
RSUs
Weighted
 average
grant date
fair value
Balance at December 31, 201963,582 $13.76 
Granted60,622 6.72 
Vested(7,482)21.65 
Forfeited  
Balance at September 30, 2020116,722 $9.60 
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For the nine months ended September 30, 2020 and 2019, the combined stock compensation expense (net of forfeitures), which was included in the caption “General and administrative expenses” in the Company’s statements of operations, was $1.4 million and $2.9 million, respectively.

10. RELATED PARTY TRANSACTIONS 
 
Investment Advisory Agreement