GREENLIGHT CAPITAL RE LTD
For the period ended Dec 31, 2023. Filed Mar 5, 2024.
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FY2023 · Filed Mar 5, 2024
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Consolidated Results of Operations
The table below summarizes our consolidated operating results for the years ended December 31:
| 2023 | 2022 | |
|---|---|---|
| Underwriting revenue | ||
| Gross premiums written | $636,810 | $563,171 |
| Gross premiums ceded | (42,762) | (33,429) |
| Net premiums written | 594,048 | 529,742 |
| Change in net unearned premium reserves | (10,901) | (60,265) |
| Net premiums earned | 583,147 | 469,477 |
| Underwriting related expenses | ||
| Net loss and loss adjustment expenses incurred: | ||
| Current year | 348,798 | 316,367 |
| Prior year (1) | 11,206 | 118 |
| Net loss and loss adjustment expenses incurred | 360,004 | 316,485 |
| Acquisition costs | 168,877 | 143,148 |
| Underwriting expenses | 19,587 | 13,813 |
| Deposit interest expense | 2,687 | 6,717 |
| Net underwriting income (loss) (2) | 31,992 | (10,686) |
| Income from investment in SILP | 28,696 | 54,844 |
| Net investment income | 37,367 | 14,139 |
| Total investment income | 66,063 | 68,983 |
| Corporate expenses | 23,653 | 17,793 |
| Foreign exchange (gains) losses | (11,566) | 5,988 |
| Other (income) expense, net | (6,306) | 5,789 |
| Interest expense | 5,344 | 4,201 |
| Income tax expense (benefit) | 100 | (816) |
| Net income | $86,830 | $25,342 |
| Earnings per share: | ||
| Basic | $2.55 | $0.75 |
| Diluted | $2.50 | $0.73 |
| Underwriting ratios: | ||
| Loss ratio - current year | 59.8% | 67.4% |
| Loss ratio - prior year | 1.9% | —% |
| Loss ratio | 61.7% | 67.4% |
| Acquisition cost ratio | 29.0% | 30.5% |
| Composite ratio | 90.7% | 97.9% |
| Underwriting expense ratio | 3.8% | 4.4% |
| Combined ratio | 94.5% | 102.3% |
1 The net financial impacts associated with changes in the estimate of losses incurred in prior years, which incorporate earned reinstatement premiums assumed and ceded, adjustments to assumed and ceded acquisition costs, and deposit interest expense, were a loss of $15.7 million in 2023 (2022: $12.2 million).
2 Net underwriting income (loss) is a non-GAAP financial measure. See “Key Financial Measures and Non-GAAP Measures” above for discussion and reconciliation of non-GAAP financial measures.
The following provides further details on the significant variances for the year ended December 31, 2023, compared to 2022.
Overview
For the year ended December 31, 2023, fully diluted book value per share increased by $2.41, or 16.8%, to $16.74 per share and basic book value per share increased by $2.42, or 16.8%, to $16.87 per share since December 31, 2022 driven by strong underwriting performance.
For the year ended December 31, 2023, our net income increased by $61.5 million to $86.8 million, driven mainly by the following:
Underwriting income: Increased by $42.7 million to $32.0 million, primarily driven by combined ratio improving 7.8 percentage points mainly due to lower CAT losses and favorable pricing in 2023, partially offset by an increase in adverse loss development from prior years. For further information on CAT losses and prior year loss development, refer to Note 7 -Lossand Loss Adjust ment Expense Rese rves of the consolidated financial statements.
Investment income: Declined by $2.9 million to $66.1 million. While we benefited from the rising U.S. interest rates on our cash and short-term investment holdings, this was offset by a decline in SILP’s net income. SILP generated a net return of 9.4% in 2023, compared to 25.3% in 2022.
Foreign exchange gains: Increased by $17.6 million driven mainly by the strengthening of the U.S. dollar over the pound sterling.
Other income: Increased by $12.1 million driven primarily by an increase in investment income on funds withheld by third party Lloyd’s syndicates. The Lloyd’s syndicates invest a portion of these funds in fixed-maturity securities and investment funds. We record our share of the investment income and fair value adjustments on these securities when the syndicates report them to us, generally on a quarter in arrears.
Corporate expenses: Increased by $5.9 million primarily driven by $4.3 million of severance relating to the separation agreement entered with our former CEO. For further details, see “Separation Agreement with CEO” in Note 15 -“Related Party Tran sactions” in the consolidated financial statements.
Underwriting Results by Segment
For our Property and Casualty Reinsurance segment, we analyze it based on three lines of business: “property,” “casualty,” and “other.”
Gross Premiums Written
Details of gross premiums written are provided in the following table:
| 2023 · 2022 | ||||
|---|---|---|---|---|
| Property | $113,291 | 17.8% | $85,323 | 15.2% |
| Casualty | 351,037 | 55.1 | 325,103 | 57.7 |
| Other | 172,482 | 27.1 | 152,745 | 27.1 |
| Total | $636,810 | 100.0% | $563,171 | 100.0% |
As a result of our underwriting philosophy, the total premiums we write and the mix of premiums between property, casualty, and other business, may vary significantly from period to period depending on the market opportunities we identify.
Our gross premiums written increased by $73.6 million, or 13.1%, compared to the same period in 2022. The following table provides a further analysis of this overall increase:
| Gross Premiums Written | |||
|---|---|---|---|
| Year ended December 31, 2023 | |||
| Increase (decrease) ($ in millions) | % change | Explanation | |
| Property | $28.0 | 32.8% | The increase was driven from growth in our Commercial class, mainly due to new quota share treaties bound in mid-2022 and new Innovations contracts via Syndicate 3456 in 2023. This resulted in a change in business mix for Property, predominantly with Commercial and Personal which accounted for 46% and 54%, respectively, of total Property, compared to 17% and 80%, respectively, for the same period in 2022. |
| Casualty | $25.9 | 8.0% | The increase was driven mainly from growth in General Liability, Professional Liability, and Motor Liability from new contracts and premiums written from quota share treaties bound in 2022. This growth was partially offset by a reduction in the Workers’ Compensation class, where we have significantly reduced our appetite for quota share treaties beginning in 2022, coupled with a premium decrease in the Multi-line class.As a result, the business mix within our Casualty line of business has shifted between General Liability and Multi-line classes, accounting for 27% and 62% of total Casualty, respectively, compared to 19% and 69%, respectively, in same period in 2022. |
| Other | $19.7 | 12.9% | The increase was driven mainly by new contracts within our Marine class and Other Specialty class, primarily in energy, aviation and cyber risk. This was partially offset by a reduction in premiums from our Financial class, predominantly due to lower merger and acquisition activity in 2023 impacting premium from transactional liability programs, partially offset by new premiums from credit and surety contracts.As a result, the change in business mix was follows: Other Specialty, Financial, and Marine represented 45%, 33%, and 18%, respectively, compared to 36%, 44%, and 15%, respectively, for the same period in 2022. |
Premiums Ceded
For the year ended December 31, 2023, ceded premiums were $42.8 million, or 6.7% of gross premiums written, compared to $33.4 million, or 5.9% of gross premiums written, for the year ended December 31, 2022. The increase was mainly due to purchasing an aviation quota share retrocession coverage, as well as an additional $10.0 million excess of loss coverage to manage our exposure to marine and energy.
Net Premiums Written
Details of net premiums written are provided in the following table:
| 2023 · 2022 | ||||
|---|---|---|---|---|
| Property | $94,651 | 15.9% | $67,680 | 12.8% |
| Casualty | 337,111 | 56.7 | 315,935 | 59.6 |
| Other | 162,286 | 27.3 | 146,127 | 27.6 |
| Total | $594,048 | 100.0% | $529,742 | 100.0% |
Our net premiums written increased by $64.3 million, or 12.1%, compared to the year ended December 31, 2022. The movement in net premiums written resulted from the changes in gross premiums written and ceded during the periods.
Net Premiums Earned
Details of net premiums earned are provided in the following table:
| 2023 · 2022 | ||||
|---|---|---|---|---|
| Property | $86,539 | 14.8% | $52,397 | 11.2% |
| Casualty | 331,196 | 56.8 | 289,820 | 61.7 |
| Other | 165,412 | 28.4 | 127,260 | 27.1 |
| Total | $583,147 | 100.0% | $469,477 | 100.0% |
Net premiums earned increased by $113.7 million or 24.2%, compared to the prior year. The change in net premiums earned is primarily a function of the amount and timing of net premiums written during the current and prior periods, coupled with the mix of business written in the form of excess of loss versus proportional contracts.
Loss and LAE Incurred, Net
The components of the loss ratio were as follows:
| 2023 | 2022 | Increase / (decrease) in loss ratio points | |
|---|---|---|---|
| Current accident year loss ratio | 59.8% | 67.4% | (7.6) |
| Prior year reserve development ratio | 1.9% | —% | 1.9 |
| Loss ratio | 61.7% | 67.4% | (5.7) |
Current accident year loss ratio improved by 7.6 points for the year ended December 31, 2023, compared to the same period in 2022 primarily due to 3.6 points in lower CAT losses, coupled with favorable pricing and change in business mix in 2023.
For the year ended December 31, 2023, prior year adverse loss development was 1.9%, compared to a negligible amount in 2022. Refer to Note 7 Loss and Loss Adjustment Expense Reserves to the consolidated financial statements for further details on prior year loss developments.
The following table provides a breakdown of net losses incurred by lines of business:
| 2023 · 2022 | ||||
|---|---|---|---|---|
| Property | $62,266 | 17.3% | $40,885 | 12.9% |
| Casualty | 225,314 | 62.6 | 205,641 | 65.0 |
| Other | 72,424 | 20.1 | 69,959 | 22.1 |
| Total | $360,004 | 100.0% | $316,485 | 100.0% |
The loss ratios by lines of business were as follows:
| 2023 | 2022 | Increase / (decrease) in loss ratio points | |
|---|---|---|---|
| Property | 72.0% | 78.0% | (6.0)% |
| Casualty | 68.0 | 71.0 | (3.0) |
| Other | 43.8 | 55.0 | (11.2) |
| Total | 61.7% | 67.4% | (5.7)% |
The following provides further details on the change in 2023 vs. 2022:
| Increase (decrease) ($ in millions) | Increase / (decrease) in loss ratio points | Explanation | |
|---|---|---|---|
| Property | $21.4 | (6.0)% | The increase in losses incurred is primarily due to 65.2% increase in net premiums earned, and to a lesser degree due to a higher dollar amount of current year CAT losses.However, our loss ratio improved mainly due to a decrease of 4.7 loss ratio points from current CAT losses, in part due to higher premiums earned. In 2023, the U.S. severe storms losses and other CAT events contributed 19.3 loss ratio points to the Property loss ratio. During the comparable period in 2022, CAT losses from Hurricane Ian, Typhoons Nanmadol and Hinnamnor, and Tennessee wildfires contributed 24.0 percentage points to the Property loss ratio. Additionally, the Property loss ratio benefited by 2.1 percentage points due to an increase in favorable prior year CAT loss development for various underwriting years (2017 to 2022). |
| Casualty | $19.7 | (3.0)% | The increase in losses incurred was primarily driven by the 14.3% increase in net premiums earned, coupled with an increase of $19.7 million or 5.5 loss ratio points in prior year loss development predominantly driven by attritional losses relating to motor, general liability, multiline, workers’ compensation and professional liability programs. However, our Casualty business benefited by 5.1 loss ratio points from lower current year CAT losses, compared to 2022 when the Multi-line class was adversely impacted by Hurricane Ian. Further, the overall decrease in loss ratio was also driven by the change in business mix. We significantly grew General Liability and Multi-line classes at much lower loss ratios than the Workers’ Compensation class. |
| Other | $2.5 | (11.2)% | Despite the 30.0% increase in net premiums earned, driven from growth in our Marine and Other Specialty classes, we had only a marginal increase in losses incurred for Other, primarily due to 8.2 loss ratio point improvement from prior year favorable loss development, and to a lesser extent, from lower CAT losses. The prior year favorable loss development was predominantly from the following classes of business: Mortgage, Transactional Liability, and Whole Account Marine and Energy. |
See “Critical Accounting Estimates, Loss and Loss Adjustment Expense Reserves” in this MD&A and “Note 7. Loss and Loss Adjustment Expense Reserves ” to the consolidated financial statements for additional discussion of our reserving techniques and prior year development of net claims and claim expenses.
Acquisition Costs, Net
Our total acquisition costs increased by 18.0% to $168.9 million, compared to 2022, mainly due to growth in net premiums earned, offset partially by lower broker commissions from excess of loss contracts compared to proportional treaties. For the year ended December 31, 2023, net profit commission expense of $14.8 million, (2022: $16.0 million) was included in our total acquisition costs.
The acquisition cost ratios by line of business were as follows:
| 2023 | 2022 | Increase / (decrease) | |
|---|---|---|---|
| Property | 18.7% | 22.2% | (3.5)% |
| Casualty | 30.5 | 29.0 | 1.5 |
| Other | 31.3 | 37.4 | (6.1) |
| Total | 29.0% | 30.5% | (1.5)% |
The following provides further details on the change in 2023 vs. 2022:
| Increase / (decrease) in acquisition cost ratio points | Explanation | |
|---|---|---|
| Property | (3.5)% | The decrease was due primarily to the higher proportion of excess of loss contracts that have a lower ceding commission rate than proportional treaties. Based on net premiums earned for Property, excess of loss contracts accounted for 10% compared to 6% in 2022. |
| Casualty | 1.5% | The marginal increase was due primarily to changes in our business mix, particularly with an increase in net premiums earned from General Liability, Professional Liability and Multi-line (including FAL) classes, which have higher ceding commission rates than the Workers’ Compensation business. |
| Other | (6.1)% | The decrease was driven primarily by change in business mix, coupled with a higher proportion of excess of loss contracts than proportional treaties. Based on net premiums earned for Other, excess of loss contracts accounted for 23% compared to 18% in 2022. |
Ratio Analysis
The following table provides our underwriting ratios by line of business:
| Year ended December 31 · Year ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||||
| Property | Casualty | Other | Total | Property | Casualty | Other | Total | |
| Loss ratio | 72.0% | 68.0% | 43.8% | 61.7% | 78.0% | 71.0% | 55.0% | 67.4% |
| Acquisition cost ratio | 18.7 | 30.5 | 31.3 | 29.0 | 22.2 | 29.0 | 37.4 | 30.5 |
| Composite ratio | 90.7% | 98.5% | 75.1% | 90.7% | 100.2% | 100.0% | 92.4% | 97.9% |
| Underwriting expense ratio | 3.8 | 4.4 | ||||||
| Combined ratio | 94.5% | 102.3% | ||||||
Our underwriting expense ratio decreased by 0.6 points, compared to the same period in 2022, mainly due to 0.8 point reduction from lower interest expense on deposit-accounted contracts based on revised expectations of ultimate cash flows in 2023.
G&A Expenses
The breakdown of our G&A expenses between under underwriting and corporate functions was as follows:
| Year ended December 31 | ||
|---|---|---|
| 2023 | 2022 | |
| Underwriting expenses | $19,587 | $13,813 |
| Corporate expenses | 23,653 | 17,793 |
| Total G&A expenses | $43,240 | $31,606 |
G&A expenses increased by $11.6 million, or 36.8%, compared to the prior year. The increase was driven by:
Underwriting expenses: Increased by $5.8 million, or 41.8%, mainly due to scaling up as we added to our talent pool, which contributed to the growth in gross premiums written in 2023. Increase in allowance for credit losses relating to certain reinsurance balances receivable and loss recoverable also accounted for the increase in underwriting expenses. The increase was partially offset by lower legal and other professional fees. See above “Ratio Analysis” for a discussion on our underwriting expense ratio.
Corporate expenses: Increased by $5.9 million or 32.9%, driven mainly by $6.4 million of severance related costs compared to $1.1 million in the prior year. The 2023 severance costs included a $1.5 million non-cash charge relating to the accelerated vesting of the former CEO’s restricted shares as well as the modified grant relating to his unvested performance-based restricted shares. The remaining increase was mainly due to an increase in personnel costs, including an increase in accrued incentive compensation costs in light of the Company’s performance in 2023. The incentive compensation cost for 2022 was nil due to the net underwriting loss. This increase in corporate expenses was partially offset by lower D&O insurance expense.
Total Investment Income
Total investment income incorporates (i) changes in the net asset value of our investment in SILP, (ii) interest income earned on cash and cash equivalents, including the restricted funds pledged as collateral to our clients, and (iii) gains (or losses) and interest on our portfolio of Innovations investments. We expect our total investment income, including any change in the net asset value of our investment in SILP, to fluctuate from period to period.
A summary of our total investment income is as follows:
| 2023 | 2022 | |
|---|---|---|
| Interest and dividend income, net of withholding taxes and other expenses | $35,629 | $4,466 |
| Net realized and unrealized gains on other investments (see Note 4) | 1,738 | 9,673 |
| Net investment-related income | $37,367 | $14,139 |
| Share of SILP's net income (see Note 3) | 28,696 | 54,844 |
| Total investment income | $66,063 | $68,983 |
Net investment-related income
Our net investment-related income increased by $23.2 million or 164.3% compared to 2022 mainly due to rising U.S. interest rates, which resulted in an increase in interest income from our cash and cash equivalent (including restricted cash), partially offset by lower average outstanding balance in 2023. The U.S. Federal Reserve hiked its benchmark rate 11 times for a total of 5.25 percentage points since March 2022. Our Innovations-related investments had less gains in 2023 in part due to less favorable pricing conditions from completed financing rounds by some of our Innovation investees compared to 2022.
Share of SILP’s Net Income
Our share of SILP’s net income decreased by $26.1 million in 2023 compared to 2022. For the year ended December 31, 2023, SILP reported a net investment return of 9.4%, compared to 25.3% for 2022. The following table provides a breakdown of the gross and net investment returns:
| Year ended December 31 | ||
|---|---|---|
| 2023 | 2022 | |
| Long portfolio gains (losses) | 32.1% | —% |
| Short portfolio gains (losses) | (22.1) | 26.1 |
| Macro gains (losses) | 3.7 | 3.8 |
| Other income and expenses 1 | (3.2) | (1.8) |
| Gross investment return | 10.5% | 28.1% |
| Net investment return 1 | 9.4% | 25.3% |
1“Other income and expenses” excludes performance compensation but includes management fees. “Net investment return” incorporates both of these amounts. For further information about management fees and performance compensation, refer to Note 15 “Related Party Transactions” of the consolidated financial statements.
The most significant contributors to SILP’s net investment return for the year ended December 31, 2023 were long positions in Green Brick Partners Inc., CONSOL Energy Inc., and a S&P 500 / U.S. interest rate derivative position. For the same period, the most significant detractors were three single-name short positions.
Each month, we post on our website (www.greenlightre.com) the returns from our investment in SILP.
Interest Expense
Our interest expense for the year ended December 31, 2023 increased by $1.1 million to $5.3 million compared to 2022. The increase was driven primarily by the increase in borrowing cost for new Term Loans, which were partially used to repay the outstanding Convertible Notes (see Note 9 “Debt and Credit Facilities” to the consolidated financial statements). The interest expense for the year ended December 31, 2023 included $0.6 million of unrealized loss on the interest rate swaps used to partially hedge the Term Loans.
Income Taxes
For the year ended December 31, 2023, we incurred net income tax expense of $0.1 million, net of a $2.3 million reversal of deferred tax asset provision based on management’s conclusion that it was more likely than not that the Company will fully realize the deferred tax asset. For the year ended December 31, 2022, we had a net income tax recovery of $0.8 million primarily due to a tax refund relating to Verdant. For further information, see Note 14 “Income Taxes” to the consolidated financial statements.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.