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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 March 31, 2021

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 value28,595,813
Class B Ordinary Shares, $0.10 par value6,254,715
(Class)Outstanding as of April 30, 2021



GREENLIGHT CAPITAL RE, LTD.
 
TABLE OF CONTENTS
 
  Page
 Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (unaudited)
 Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (unaudited)
 Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2021 and 2020 (unaudited)
 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (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) 

March 31, 2021 and December 31, 2020
(expressed in thousands of U.S. dollars, except per share and share amounts)
 March 31, 2021December 31, 2020
Assets  
Investments  
Investment in related party investment fund$199,882 $166,735 
Other investments26,152 29,418 
Total investments226,034 196,153 
Cash and cash equivalents33,537 8,935 
Restricted cash and cash equivalents697,689 745,371 
Reinsurance balances receivable (net of allowance for expected credit losses of $89 and $89)
386,858 330,232 
Loss and loss adjustment expenses recoverable (net of allowance for expected credit losses of $47 and $47)
15,009 16,851 
Deferred acquisition costs 58,591 51,014 
Notes receivable 6,101 
Other assets4,394 2,993 
Total assets$1,422,112 $1,357,650 
Liabilities and equity 
Liabilities 
Loss and loss adjustment expense reserves$512,843 $494,179 
Unearned premium reserves235,725 201,089 
Reinsurance balances payable94,059 92,247 
Funds withheld3,622 4,475 
Other liabilities8,406 5,009 
Convertible senior notes payable95,338 95,794 
Total liabilities949,993 892,793 
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, 28,595,813 (2020: 28,260,075): Class B: par value $0.10; authorized, 25,000,000; issued and outstanding, 6,254,715 (2020: 6,254,715))
3,485 3,452 
Additional paid-in capital489,218 488,488 
Retained earnings (deficit)(20,584)(27,083)
Total shareholders' equity472,119 464,857 
Total liabilities and equity$1,422,112 $1,357,650 
 
  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 months ended March 31, 2021 and 2020
(expressed in thousands of U.S. dollars, except per share and share amounts)
Three months ended March 31
 20212020
Revenues 
Gross premiums written$169,935 $109,787 
Gross premiums ceded55 (678)
Net premiums written169,990 109,109 
Change in net unearned premium reserves(34,594)1,912 
Net premiums earned135,396 111,021 
Income (loss) from investment in related party investment fund (net of related party expenses of $1,301 (three months ended March 31, 2020: $662))
4,024 (42,126)
Net investment income (loss)14,650 6,837 
Other income (expense), net(3,650)213 
Total revenues150,420 75,945 
Expenses
Net loss and loss adjustment expenses incurred97,721 75,697 
Acquisition costs33,381 31,739 
General and administrative expenses7,541 6,794 
Interest expense1,544 1,561 
Total expenses140,187 115,791 
Income (loss) before income tax10,233 (39,846)
Income tax (expense) benefit(3,734)(424)
Net income (loss)$6,499 $(40,270)
Earnings (loss) per share
Basic$0.19 $(1.11)
Diluted$0.19 $(1.11)
Weighted average number of ordinary shares used in the determination of earnings and loss per share
Basic34,522,994 36,138,245 
Diluted34,646,783 36,138,245 
 

 
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 months ended March 31, 2021 and 2020
(expressed in thousands of U.S. dollars)

Three months ended March 31
20212020
Ordinary share capital
Balance - beginning of period$3,452 $3,699 
Issue of Class A ordinary shares, net of forfeitures33 44 
Balance - end of period3,485 3,743 
Additional paid-in capital
Balance - beginning of period488,488 503,547 
Share-based compensation expense730 828 
Balance - end of period489,218 504,375 
Retained earnings (deficit)
Balance - beginning of period(27,083)(30,063)
Cumulative effect of adoption of accounting guidance for expected credit losses at January 1, 2020
 (886)
Net income (loss)6,499 (40,270)
Balance - end of period(20,584)(71,219)
Total shareholders' equity$472,119 $436,899 


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 three months ended March 31, 2021 and 2020
(expressed in thousands of U.S. dollars) 
Three months ended March 31
 20212020
Cash provided by (used in) operating activities 
Net income (loss)$6,499 $(40,270)
Adjustments to reconcile net income or loss to net cash provided by (used in) operating activities
Loss (income) from investments in related party investment fund(4,024)42,126 
Loss (income) from investment accounted for under the equity method (888)
Net change in unrealized gains and losses on investments and notes receivable(1,228)(15,771)
Net realized (gains) losses on investments and notes receivable(14,210)15,000 
Foreign exchange (gains) losses on investments19 441 
Current expected credit losses recognized on notes receivable and reinsurance assets  250 
Share-based compensation expense763 872 
Amortization and interest expense, net of change in accruals(456)(438)
Depreciation expense7 7 
Net change in
Reinsurance balances receivable(56,626)(13,459)
Loss and loss adjustment expenses recoverable1,842 4,389 
Deferred acquisition costs(7,577)1,631 
Unearned premiums ceded 343 
Other assets, excluding depreciation(1,408)419 
Loss and loss adjustment expense reserves18,664 (14,919)
Unearned premium reserves34,636 (1,991)
Reinsurance balances payable1,812 (8,457)
Funds withheld(853)706 
Other liabilities3,397 (1,761)
Net cash provided by (used in) operating activities(18,743)(31,770)
Investing activities
Proceeds from redemptions from related party investment fund19,481 19,220 
Contributions to related party investment fund(48,604)(11,188)
Purchases of investments(2,070) 
Sales of investments20,755  
Net change in notes receivable6,101 2 
Net cash provided by (used in) investing activities(4,337)8,034 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash (122)
Net increase (decrease) in cash, cash equivalents and restricted cash(23,080)(23,858)
Cash, cash equivalents and restricted cash at beginning of the period 754,306 767,906 
Cash, cash equivalents and restricted cash at end of the period $731,226 $744,048 
Supplementary information 
Interest paid in cash$2,000 $2,000 

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)
 
March 31, 2021
 
 
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 Act, 2010 (as amended) and underlying regulations thereto (the “Act”) and is subject to regulation by the Cayman Islands Monetary Authority, in terms of the Act. 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.  In 2020, GLRE established Greenlight Re Marketing (UK) Limited (“Greenlight Re UK”) as a wholly-owned subsidiary to increase the Company’s presence in the London market. 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 include the results of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and 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 financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission on March 10, 2021.

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented.

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, including losses arising from the novel coronavirus (the “COVID-19 pandemic”), may be subject to significant adjustments in future periods (see Note 5 for the significant assumptions which served as the basis for the Company's estimates of reserves for the COVID-19 pandemic). All significant intercompany accounts and transactions have been eliminated.

The results for the three months ended March 31, 2021, are not necessarily indicative of the results expected for the full calendar year.

2. SIGNIFICANT ACCOUNTING POLICIES
 
There have been no material changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2020.

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. The significant estimates reflected in the Company’s
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condensed consolidated financial statements include, but are not limited to, loss and loss adjustment expense reserves, premium revenues and risk transfer, bonus accruals, and share-based payments.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
 
The Company maintains cash and cash equivalent balances to collateralize regulatory trusts and letters of credit issued to cedents (see Note 12). 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:

 March 31, 2021December 31, 2020
 ($ in thousands)
Cash and cash equivalents$33,537 $8,935 
Restricted cash and cash equivalents697,689 745,371 
Total cash, cash equivalents and restricted cash presented in the condensed consolidated statements of cash flows$731,226 $754,306 

Funds Held by Cedents

The caption “Reinsurance balances receivable” in the Company’s condensed consolidated balance sheets includes amounts held by cedents. Such amounts held include Funds at Lloyd’s, which is held in trust at Lloyd's as security
for members’ underwriting activities. At March 31, 2021, funds held by cedents were $155.8 million (December 31, 2020: $127.6 million).
 
Reinsurance Assets

The Company calculates 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. In calculating the probability of default, the Company also considers the estimated duration of its reinsurance assets.

Each counterparty’s creditworthiness is evaluated individually on the basis of credit ratings assigned by independent agencies. The Company manages its credit risk in its reinsurance assets by transacting only with insurers and reinsurers that it considers financially sound.

For its retrocessional counterparties that are unrated, the Company may hold collateral in the form of funds withheld, trust accounts, 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 cedents and retrocessionaires to honor their respective obligations.

At March 31, 2021, the Company has recorded an allowance for expected credit loss on its Reinsurance Assets of $0.1 million (December 31, 2020: $0.1 million).

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 March 31, 2021, deposit assets and deposit liabilities were $3.4 million and $31.1 million, respectively (December 31, 2020: $4.6 million and $31.0 million, respectively). For the three months ended March 31, 2021 and 2020, the interest income/(expense) on deposit accounted contracts was as follows:
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 Three months ended March 31
 20212020
($ in thousands)
Deposit interest income$ $607 
Deposit interest expense$(2,947)$ 
Deposit interest income/(expense), net$(2,947)$607 

Derivative instruments

The Company’s derivative financial instruments are recognized in the consolidated balance sheets at their fair values with any changes in unrealized gains and losses included in the caption “Net investment income (loss)” in the Company’s consolidated statements of operations.

The Company’s derivatives do not qualify as hedges for financial reporting purposes and are recorded in the consolidated balance sheets on a gross basis and not offset against any collateral pledged or received.

Other Assets

The caption “Other assets” in the Company’s condensed consolidated balance sheets consists primarily of prepaid expenses, fixed assets, right-of-use lease assets, other receivables, and deferred tax assets.

Other Liabilities

The caption “Other liabilities” in the Company’s condensed consolidated balance sheets consists primarily of accruals for legal and other professional fees, employee bonuses, taxes payable, 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 in-the-money stock options are exercised, determined using the treasury stock method; and
those common shares with the potential to be issued in connection with 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 with regards to earnings per share. In the event of a net loss, all RSUs, stock options, 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 calculation of earnings (loss) per share for the three months ended March 31, 2021 and 2020:
 Three months ended March 31
 20212020
Weighted average shares outstanding - basic34,522,994 36,138,245 
Effect of dilutive employee and director share-based awards123,789  
Weighted average shares outstanding - diluted34,646,783 36,138,245 
Anti-dilutive stock options outstanding835,627 875,627 
Participating securities excluded from calculation of loss per share  1,326,613 
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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% (2020: 21%). Verdant’s tax years 2017 and beyond remain open and subject to examination by the IRS.

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

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 during the first quarter of 2021 had no material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

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” or a “fully retrospective” method of transition. Early adoption is permitted no earlier than for fiscal years beginning after December 15, 2020. The Company intends to adopt ASU 2020-06 during the first quarter of 2022 and is currently evaluating the effect that the new standard will have on its consolidated financial statements.

3. INVESTMENT IN RELATED PARTY INVESTMENT FUND

On September 1, 2018, the Company entered into an amended and restated exempted limited partnership agreement (as amended by the letter agreement dated as of August 5, 2020, (the “Previous SILP LPA”) of Solasglas Investments, LP
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(“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”). On September 1, 2018, SILP also entered into a SILP investment advisory agreement (“IAA”) with DME Advisors. LP (“DME Advisors”) pursuant to which DME Advisors is the investment manager for SILP. DME II 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 January 7, 2021, the Company and DME II, entered into the Second Amended and Restated Exempted Limited Partnership Agreement, effective as of January 1, 2021 (the “SILP LPA”). The SILP LPA agreement amends, restates, supersedes and incorporates all material terms of the Previous SILP LPA, as amended as of February 26, 2019, and the letter agreements dated as of June 18, 2019, December 27, 2019 and August 5, 2020 (collectively, the “Amendments”). The SILP LPA agreement also amended the definition of “Additional Investment Ratio” and amended each of the defined terms “Greenlight Re Surplus” and the “GRIL Surplus” so as to clarify that each of the respectively referenced “financial statements” are “U.S. GAAP financial statements.” In addition, the SILP LPA included the following: “The Investment Portfolio of each Partner will not exceed the product of (a) such Partner’s surplus (Greenlight Re Surplus or GRIL Surplus, as the case may be) multiplied by (b) the Investment Cap (50%), and the General Partner will designate any portion of a Partner’s Investment Portfolio as Designated Securities to effectuate such limit”. The SILP LPA also amended the investment guidelines to reflect the amended investment guidelines adopted by the Company’s Board of Directors effective as of January 1, 2021.

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.”

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. At March 31, 2021, the net asset value of the GLRE Limited Partners’ investment in SILP was $199.9 million (December 31, 2020: $166.7 million), representing 78.8% (December 31, 2020: 75.7%) of SILP’s total net assets. DME II held the remaining 21.2% (December 31, 2020: 24.3%) of SILP’s total net assets. 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. At March 31, 2021, the majority of SILP’s long investments were composed of cash and publicly traded equity securities, which could be readily liquidated to meet the GLRE Limited Partners’ redemption requests.

The Company’s share of the change in the net asset value of SILP for the three months ended March 31, 2021, was $4.0 million (three months ended March 31, 2020: $(42.1) million), and shown in the caption “Income (loss) from investment in related party investment fund” in the Company’s condensed consolidated statements of operations.

The summarized financial statements of SILP are presented below.

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Summarized Statement of Assets and Liabilities of Solasglas Investments, LP
March 31, 2021December 31, 2020
($ in thousands)
Assets
Investments, at fair value$247,476 $272,398 
Derivative contracts, at fair value5,447 1,450 
Due from brokers121,525 92,053 
Cash and cash equivalents3,758  
Interest and dividends receivable15 59 
Total assets378,221 365,960 
Liabilities and partners’ capital
Liabilities
Investments sold short, at fair value(107,238)(131,902)
Derivative contracts, at fair value(5,370)(4,156)
Due to brokers(11,442)(9,179)
Interest and dividends payable(318)(429)
Other liabilities(176)(175)
Total liabilities(124,544)(145,841)
Net Assets$253,677 $220,119 
GLRE Limited Partners’ share of Net Assets$199,882 $166,735 


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Summarized Statement of Operations of Solasglas Investments, LP
Three months ended March 31
20212020
($ in thousands)
Investment income
Dividend income (net of withholding taxes)$204 $747 
Interest income149 209 
Total Investment income353 956 
Expenses
Management fee(854)(662)
Interest(242)(17)
Dividends(245)(145)
Professional fees and other(222)(208)
Total expenses(1,563)(1,032)
Net investment income (loss)(1,210)(76)
Realized and change in unrealized gains (losses)
Net realized gain (loss) (7,066)(11,953)
Net change in unrealized appreciation (depreciation) 12,791 (39,793)
Net gain (loss) on investment transactions5,725 (51,746)
Net income (loss)$4,515 $(51,822)
GLRE Limited Partners’ share of net income (loss) (1)
$4,024 $(42,126)

(1) Net income (loss) is net of management fees and performance allocation presented below:

Three months ended March 31
20212020
($ in thousands)
Management fees$854 $662 
Performance allocation$447 $ 
Total$1,301 $662 

See Note 11 for further details on management fees and performance allocation.

4. FINANCIAL INSTRUMENTS 
 
Investments
  
Other Investments

The Company’s “Other investments” are composed of the following:

Private investments and unlisted equities, which consist primarily of Innovations-related investments supporting technology innovators in the (re)insurance market; and
Derivative financial instruments associated with the Company’s Innovations investments.

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At March 31, 2021, the following securities were included in the caption “Other investments”:
CostUnrealized
gains
Unrealized
losses
Fair value / carrying value
 ($ in thousands)
Private investments and unlisted equities $14,485 $11,877 $(1,300)$25,062 
Derivative financial instruments (not designated as hedging instruments) 1,090  1,090 
Total other investments$14,485 $12,967 $(1,300)$26,152 

At December 31, 2020, the following securities were included in the caption “Other investments”: 
CostUnrealized
gains
Unrealized
losses
Fair value / carrying value
 ($ in thousands)
Private investments and unlisted equities$12,414 $10,679 $(1,300)$21,793 
Derivative financial instruments (not designated as hedging instruments) 1,080  1,080 
Other investments12,414 11,759 (1,300)22,873 
Investment accounted for under the equity method6,545 
Total other investments$29,418 

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 March 31, 2021, the carrying value of private investments and unlisted equities was $25.1 million (December 31, 2020: $21.8 million). It incorporated upward adjustments of $1.2 million during the three months ended March 31, 2021 (2020: $9.3 million), excluding any unrealized gains or losses related to changes in foreign currency exchange rates.

At December 31, 2020, the investment accounted for under the equity method represented an investment in AccuRisk Holdings LLC (“AccuRisk”), a Chicago, Illinois-based managing general underwriter focused on employee and health insurance benefits. During the three months ended March 31, 2021, the Company sold its investment in AccuRisk and realized a gain (pre-tax) of $14.2 million.

Derivative instruments include warrants issued by certain entities granting the Company the right, but not the obligation, to purchase shares at a specified price on or before the maturity date. During the three months ended March 31, 2021, and the year ended December 31, 2020, warrants were issued to the Company in connection with certain Innovations-related investments. The Company has not designated these warrants as hedging instruments. The Company’s maximum exposure to loss relating to these warrants is limited to the warrants’ carrying amount.

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. The term “unobservable inputs” includes certain pricing models, discounted cash flow methodologies, and similar techniques.

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The Company values its derivative instruments using the Black-Scholes option pricing model on the basis of Level 3 inputs. The Company uses the carrying value of the underlying stock as an input in the option pricing model. The underlying stock does not have a readily determinable fair value. Its carry value is determined based on its original cost minus impairment, if any, plus or minus changes resulting from observable price changes. The other assumptions applied to the option pricing model include a risk-free rate of 0.50% and estimated volatility of 50%. The carrying value of the derivative instruments represents the fair value.

For the derivative instruments valued on the basis of Level 3 inputs, any change in unrealized gains or losses is included in the caption “Net investment income (loss)” in the Company’s consolidated statements of operations.

At March 31, 2021, and December 31, 2020, the Company did not carry any other investments at fair value with an assigned Level within the fair value hierarchy. The Company’s investment in the related party investment fund is measured at 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 on the related party investment fund.)

Financial Instruments Disclosed, But Not Carried, at Fair Value

The caption “Convertible senior notes payable” represents financial instruments that the Company carries at amortized cost. 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 March 31, 2021, the loss and loss adjustment expense 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;
information received from clients, brokers, and loss adjusters;
an understanding of the underlying business written and its exposures to catastrophe event-related losses;
industry data;
catastrophe scenario modelling software; and
management’s judgement.

The COVID-19 pandemic is unprecedented, and the Company does not have previous loss experience on which to base the associated estimate for loss and loss adjustment expenses. The Company based its estimate on the following:

a review of in-force treaties that may provide coverage and incur losses;
catastrophe and scenario modelling 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 which served as the basis for the Company's estimates of reserves for the COVID-19 pandemic losses and loss adjustment expenses include:

the scope of coverage provided by the underlying policies, particularly those that provide for business interruption coverage;
the regulatory, legislative, and judicial actions that could influence contract interpretations across the insurance industry;
the extent of economic contraction caused by the COVID-19 pandemic and associated actions, 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 March 31, 2021, 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
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becomes available and will adjust its estimates accordingly. Such adjustments may be material to the Company's results of operations and financial condition.

The Company made no significant changes in the actuarial methodology or reserving process related to its loss and loss adjustment expense reserves for the three months ended March 31, 2021.

At March 31, 2021 and December 31, 2020, loss and loss adjustment expense reserves were composed of the following:
March 31, 2021December 31, 2020
 ($ in thousands)
Case reserves$171,780 $176,805 
IBNR341,063 317,374 
Total$512,843 $494,179 

A summary of changes in outstanding loss and loss adjustment expense reserves for all lines of business consolidated
for the three months ended March 31, 2021 and 2020 is as follows: 
Consolidated20212020
 ($ in thousands)
Gross balance at January 1$494,179 $470,588 
Less: Losses recoverable(16,851)(27,531)
Net balance at January 1477,328 443,057 
Incurred losses related to:  
Current year97,861 71,525 
Prior years(140)4,172 
Total incurred97,721 75,697 
Paid losses related to:  
Current year(11,860)(10,649)
Prior years(65,500)(73,296)
Total paid(77,360)(83,945)
Foreign currency revaluation145 (2,235)
Net balance at March 31497,834 432,574 
Add: Losses recoverable15,009 23,095 
Gross balance at March 31$512,843 $455,669 
    

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The changes in the outstanding loss and loss adjustment expense reserves for health claims for the three months ended March 31, 2021 and 2020 are as follows:
Health20212020
 ($ in thousands)
Gross balance at January 1$17,485 $18,063 
Less: Losses recoverable  
Net balance at January 117,485 18,063 
Incurred losses related to: 
Current year12,997 8,033 
Prior years(1,317)851 
Total incurred11,680 8,884 
Paid losses related to: 
Current year(3,362)(1,719)
Prior years(7,904)(8,964)
Total paid(11,266)(10,683)
Foreign currency revaluation  
Net balance at March 3117,899 16,264 
Add: Losses recoverable  
Gross balance at March 31$17,899 $16,264 

For the three months ended March 31, 2021, the estimate of net losses incurred relating to prior accident years decreased by $0.1 million.

For the three months ended March 31, 2020, the estimate of net losses incurred relating to prior accident years increased by $4.2 million primarily in relation to certain general liability, health, and multi-line contracts.

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

For the three months ended March 31, 2021, the Company’s earned ceded premiums were $0.1 million (2020: $1.0 million). For the three months ended March 31, 2021, loss and loss adjustment expenses incurred of $97.7 million (2020: $75.7 million), reported on the condensed consolidated statements of operations are net of loss and loss expenses recovered of $17.0 thousand (2020: $3.5 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 March 31, 2021, the Company’s loss reserves recoverable consisted of (i) $11.3 million (December 31, 2020: $12.6 million) from unrated retrocessionaires, of which $10.6 million (December 31, 2020: $11.9 million) were secured by cash, letters of credit and collateral held in trust accounts for the benefit of the Company and (ii) $3.7 million (December 31, 2020: $4.3 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 March 31, 2021, the Company had recorded an allowance for expected credit losses of $47.0 thousand (December 31, 2020: $47.0 thousand).

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.
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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 March 31, 2021, 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. At March 31, 2021 and December 31, 2020, the unamortized debt discount was $3.8 million and $4.2 million, respectively, which the Company expects to amortize 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. At March 31, 2021, the unamortized portion of these costs attributed to the debt component was $1.5 million (December 31, 2020: $1.6 million), which the Company expects to amortize 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 at March 31, 2021, including accrued interest of $0.7 million, was $95.3 million (December 31, 2020: $95.8 million). At March 31, 2021, the the Company estimated the fair value of the Notes to be $92.5 million (December 31, 2020: $83.6 million) (see Note 4 Financial Instruments).
For the three months ended March 31, 2021, the Company recognized interest expense of $1.5 million (2020: $1.6 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 at March 31, 2021, and December 31, 2020.

8. SHARE CAPITAL

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. At March 31, 2021, 3,101,738 (December 31, 2020: 3,474,888) Class A ordinary shares remained available for future issuance under the Company’s stock incentive plan. The Compensation Committee of the Board of Directors administers the Company’s stock incentive plan. 

The Board has adopted a share repurchase plan. The timing of such repurchases and the actual number of shares repurchased will depend on various 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 or more tender offers. The Company is not required to repurchase any of the Class A ordinary shares or the Notes. The repurchase plans may be modified, suspended, or terminated at the election of our Board of Directors at any time without prior notice.

The Company did not repurchase any Class A ordinary shares during the three months ended March 31, 2021 or 2020. At March 31, 2021, 2.5 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.

The following table is a summary of ordinary shares issued and outstanding:
Three months ended March 31Three months ended March 31
 20212020
Class AClass BClass AClass B
Balance – beginning of period28,260,075 6,254,715 30,739,395 6,254,715 
Issue of ordinary shares, net of forfeitures335,738  440,134  
Repurchase of ordinary shares    
Balance – end of period28,595,813 6,254,715 31,179,529 6,254,715 
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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.

9. SHARE-BASED COMPENSATION
 
The Company has a stock incentive plan for directors, employees, and consultants administered by the Compensation Committee of the Board of Directors.
 
Employee and Director Restricted Shares
 
For the three months ended March 31, 2021, 334,312 (2020: 306,264) 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 three months ended March 31, 2021, 19,285 (2020: 18,701) restricted shares were forfeited by grantees. For the three months ended March 31, 2021, the Company reversed $0.1 million of stock compensation expense (2020: $0.1 million) in relation to the forfeited restricted shares.

The Company recorded $0.5 million of share-based compensation expense, net of forfeiture reversals, relating to restricted shares for the three months ended March 31, 2021 (2020: $0.6 million). At March 31, 2021, there was $3.6 million (December 31, 2020: $1.9 million) of unrecognized compensation cost relating to non-vested restricted shares (excluding any restricted shares with performance conditions currently not expected to be met), which the Company expects to recognize over a weighted-average period of 2.4 years (December 31, 2020: 1.5 years). For the three months ended March 31, 2021, the total fair value of restricted shares vested was $1.1 million (2020: $2.1 million).

The following table summarizes the activity for unvested outstanding restricted share awards during the three months ended March 31, 2021:

 Number of
non-vested
restricted
 shares
Weighted
 average
grant date
fair value
Balance at December 31, 2020697,549 $9.38 
Granted334,312 9.18 
Vested(66,226)15.90 
Forfeited(19,285)8.30 
Balance at March 31, 2021946,350 $8.88 
 
Employee and Director Stock Options

For the three months ended March 31, 2021, no Class A ordinary share purchase options were granted or exercised by directors or employees, and no stock options expired or 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 Board of Directors does not currently anticipate that the Company will declare any dividends during the expected term of the options. The Company uses graded vesting for expensing employee stock options. The total compensation cost expensed relating to stock options for the three months ended March 31, 2021, was $0.1 million (2020: $0.2 million). At March 31, 2021, the total compensation cost related to non-vested options not yet recognized was $0.5 million (December 31, 2020: $0.7 million), which will be recognized over a weighted-average period of 1.7 years (December 31, 2020: 1.8 years) assuming the grantee completes the service period for vesting of the options.
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At March 31, 2021 and December 31, 2020, 0.8 million stock options were outstanding, with a weighted average exercise price of $22.22 per share and a weighted average grant date fair value of $10.25 per share. The weighted-average remaining contractual term of the stock options was 4.8 years and 5.1 years, at March 31, 2021, and December 31, 2020, 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 three months ended March 31, 2021, the Company issued 58,123 (2020: 60,622) RSUs to employees pursuant to the Company’s stock incentive plan. For the three months ended March 31, 2021 and 2020, no RSUs were forfeited.

The Company recorded $0.1 million of share-based compensation expense relating to RSUs for the three months ended March 31, 2021 (2020: $0.1 million).
 
Employee RSU activity during the three months ended March 31, 2021 was as follows:
 Number of
non-vested
RSUs
Weighted
 average
grant date
fair value
Balance at December 31, 2020116,722 $9.60 
Granted58,123 9.18 
Vested(20,711)15.90 
Forfeited  
Balance at March 31, 2021154,134 $8.59 

For the three months ended March 31, 2021 and 2020, the combined stock compensation expense (net of forfeitures) included in the caption “General and administrative expenses” in the Company’s statements of operations, was $0.8 million and $0.9 million, respectively.

Performance Restricted Shares

Prior to 2021, the Company issued Class A ordinary shares to the 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 the CEO’s employment, and transferability. These restricted shares cliff vest five years after the date of issuance, subject to the performance condition being met and the CEO’s continued service with the Company. The weighted average grant date fair value of these restricted shares subject to performance conditions was $6.72 per share. At March 31, 2021, 193,149 unvested performance restricted shares were outstanding (December 31, 2020: 193,149). As the performance conditions associated with these restricted shares have not been met, the Company recognized no compensation cost relating to the unvested shares for the three months ended March 31, 2021 and 2020.


10. TAXATION

At March 31, 2021, the Company recorded a gross deferred tax asset of $3.7 million (2020: $3.5 million) and a deferred tax asset valuation allowance of $3.2 million (2020: $3.0 million). The net deferred tax asset is included in the caption “Other assets” in the Company’s condensed consolidated balance sheets. The Company has determined that it is more likely than not that it will fully realize the recorded deferred tax asset (net of the valuation allowance) in the future. The Company based this determination on the expected timing of the reversal of the temporary differences, and the likelihood of generating sufficient taxable income to realize the future tax benefit.

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The following table sets forth our current and deferred income tax benefit (expense) on a consolidated basis for the three months ended March 31, 2021 and 2020:
Three months ended March 31
 20212020
 ($ in thousands)
Current tax (expense) benefit$(3,734)$171 
Deferred tax (expense) benefit184  
Increase in deferred tax valuation allowance(184)(595)
Income tax (expense) benefit $(3,734)$(424)

For the three months ended March 31, 2021, the income tax expense of $3.7 million resulted from Verdant’s gain on the sale of its AccuRisk investment.


11. RELATED PARTY TRANSACTIONS 
 
Investment Advisory Agreement
 
DME, DME II, and DME Advisors are each an affiliate of David Einhorn, Chairman of the Company’s Board of Directors, and therefore, are related parties to the Company.

The Company has entered into the SILP LPA (as described in Note 3 of the condensed consolidated financial statements). DME II receives a performance allocation equal to (with capitalized terms having the meaning provided under the SILP LPA) (a) 10% of the portion of the Positive Performance Change for each limited partner’s capital account that is less than or equal to the positive balance in such limited partner’s Carryforward Account, plus (b) 20% of the portion of the Positive Performance Change for each limited partner’s capital account that exceeds the positive balance in such limited partner’s Carryforward Account. The Carryforward Account for Greenlight Re and GRIL includes the amount of losses that were to be recouped under the Joint Venture as well as any loss generated on the assets invested in SILP, subject to adjustments for redemptions. The loss carry-forward provision contained in the SILP LPA allows DME II to earn a reduced performance allocation of 10% of profits in years subsequent to any year in which SILP has incurred a loss until all losses are recouped, and an additional amount equal to 150% of the loss is earned.

In accordance with the SILP LPA, DME Advisors constructs a levered investment portfolio as agreed by the Company (the “Investment Portfolio” as defined in the SILP LPA). On September 1, 2018, SILP entered into the IAA with DME Advisors, which entitles DME Advisors to a monthly management fee equal to 0.125% (1.5% on an annual basis) of each limited partner’s Investment Portfolio. The IAA has an initial term ending on August 31, 2023, subject to an automatic extension for successive three-year terms.

For a detailed breakdown of management fees and performance compensation for the three months ended March 31, 2021 and 2020, refer to Note 3 of the condensed consolidated financial statements.
 
Pursuant to the SILP LPA and the IAA, the Company has agreed to indemnify DME, DME II, and DME Advisors for any expense, loss, liability, or damage arising out of any claim asserted or threatened in connection with DME Advisors serving as the Company’s or SILP’s investment advisor. The Company will reimburse DME, DME II and DME Advisors for reasonable costs and expenses of investigating and defending such claims provided such claims were not caused due to gross negligence, breach of contract, or misrepresentation by DME, DME II, or DME Advisors. The Company incurred no indemnification amounts during the periods presented.

Green Brick Partners, Inc.

David Einhorn also serves as the Chairman of the Board of Directors of Green Brick Partners, Inc. (“GRBK”), a publicly traded company. At March 31, 2021, SILP, along with certain affiliates of DME Advisors, collectively owned 34.4% of the issued and outstanding common shares of GRBK. Under applicable securities laws, DME Advisors may be limited at times in its ability to trade GRBK shares on behalf of SILP.

Service Agreement
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The Company has entered into a service agreement with DME Advisors, pursuant to which DME Advisors provides certain investor relations services to the Company for compensation of five thousand dollars per month (plus expenses). The agreement is automatically renewed annually until terminated by either the Company or DME Advisors for any reason with 30 days prior written notice to the other party. 

Collateral Assets Investment Management Agreement

Effective January 1, 2019, the Company (and its subsidiaries) entered into a collateral assets investment management agreement (the “CMA”) with DME Advisors, pursuant to which DME Advisors manages certain assets of the Company that are not subject to the SILP LPA and are held by the Company to provide collateral required by the cedents in the form of trust accounts and letters of credit. In accordance with the CMA, DME Advisors receives no fees and is required to comply with the collateral investment guidelines. The CMA can be terminated by any of the parties upon 30 days’ prior written notice to the other parties.

12. COMMITMENTS AND CONTINGENCIES 
 
Letters of Credit and Trusts
 
At March 31, 2021, the Company had one letter of credit facility, which automatically renews each year unless terminated by either party in accordance with the applicable required notice period:
Maximum Facility LimitTermination DateNotice period required for termination
 ($ in thousands)  
Citibank Europe plc$275,000 August 20, 2021
120 days before the termination date

At March 31, 2021, an aggregate amount of $141.3 million (December 31, 2020: $135.3 million) in letters of credit were issued under the credit facility. At March 31, 2021, the Company had pledged total cash and cash equivalents with a fair value in the aggregate of $142.4 million (December 31, 2020: $137.6 million) as collateral against the letters of credit issued and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets. The credit facility contains customary events of default and restrictive covenants, including but not limited to limitations on liens on collateral, transactions with affiliates, mergers and sales of assets, as well as solvency and maintenance of certain minimum pledged equity requirements, and restricts issuance of any debt without the consent of the letter of credit provider. Additionally, if an event of default exists, as defined in the letter of credit facility, Greenlight Re will be prohibited from paying dividends to its parent company. The Company was in compliance with all the covenants of the credit facility at March 31, 2021 and December 31, 2020.

The Company has also established regulatory trust arrangements for certain cedents. At March 31, 2021, collateral of $555.3 million (December 31, 2020: $607.8 million) was provided to cedents in the form of regulatory trust accounts and included in the caption “Restricted cash and cash equivalents” in the Company’s condensed consolidated balance sheets.

Lease Obligations
 
Greenlight Re has entered into lease agreements for office space in the Cayman Islands that expired on December 31, 2020. The Company and the landlord have agreed to extend the lease until December 31, 2021, while negotiating a new lease agreement. The Company has determined that the current arrangement qualifies as a short-term lease. The short-term lease expense for the three months ended March 31, 2021 was $0.1 million (2020: $0.1 million).

GRIL has entered into a lease agreement for office space in Dublin, Ireland. Under the terms of this lease agreement, GRIL is committed to minimum annual rent payments denominated in Euros approximating €0.1 million until May 2021. GRIL has exercised its option to terminate the lease agreement effective May 2021 and is evaluating alternative office space in Dublin.

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Schedule of Commitments and Contingencies
The following is a schedule of future minimum payments required under the above commitments:  

 20212022202320242025ThereafterTotal
 ($ in thousands)
Operating lease obligations$386 $ $ $ $ $ $386 
Interest and convertible note payable$2,000 $4,000 $104,000    110,000 
 $2,386 $4,000 $104,000 $ $ $ $110,386 

Litigation
 
From time to time in the normal course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation. The outcomes of these procedures determine the rights and obligations under the Company’s reinsurance contracts and other contractual agreements. In some disputes, the Company may seek to enforce its rights under an agreement or to collect funds owed to it. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. While the Company cannot predict the outcome of legal disputes with certainty, the Company does not believe that any existing dispute, when finally resolved, will have a material adverse effect on the Company’s business, financial condition, or operating results.


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13. SEGMENT REPORTING
 
The Company has one operating segment, Property & Casualty Reinsurance.

Substantially all of the Company’s business is sourced through reinsurance brokers. The following table sets forth the premiums generated through our largest brokers and their subsidiaries and affiliates:   

Gross Premiums Written by Line of Business
  Three months ended March 31
20212020
  ($ in thousands)
Property
Commercial$2,148 1.3 %$2,965 2.7 %
Motor9,709 5.7 8,233 7.5 
Personal3,058 1.8 2,961 2.7 
Total Property14,915 8.8 14,159 12.9 
Casualty
General Liability1,695 1.0 168 0.1 
Motor Liability41,564 24.5 29,395 26.8 
Professional Liability151 0.1 90 0.1 
Workers' Compensation22,149 13.0 10,324 9.4 
Multi-line 48,115 28.3 21,586 19.6 
Total Casualty113,674 66.9 61,563 56.0 
Other
Accident & Health14,664 8.6 17,876 16.3 
Financial13,330 7.8 10,162 9.3 
Marine4,530 2.7 356 0.3 
Other Specialty8,822 5.2 5,671 5.2 
Total Other41,346 24.3 34,065 31.1 
$169,935 100.0 %$109,787 100.0 %

Gross Premiums Written by Geographic Area of Risks Insured
 Three months ended March 31
20212020
 ($ in thousands)
U.S. and Caribbean$104,854 61.7 %$86,050 78.4 %
Worldwide (1)
62,991 37.1 22,796 20.7 
Europe
920 0.5   
Asia
1,170 0.7 941 0.9 
$