GREENLIGHT REINSURANCE, LTD.
A-
GREENLIGHT REINSURANCE IRELAND, DESIGNATED ACTIVITY COMPANY
A-
Printed January 10, 2017
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Page 1 of 10
Operating Company Non-Life
Ultimate Parent: Greenlight Capital Re, Ltd.
GREENLIGHT REINSURANCE, LTD.
65 Market Street, Jasmine Court, Camana Bay, Grand Cayman KY1-1205,
Cayman Islands
Mailing Address: P.O. Box 31110, Camana Bay, Grand Cayman
KY1-1205, Cayman Islands
Web: www.greenlightre.ky
Tel.: 345-943-4573
Fax: 345-745-4576
AMB#: 076873
AIIN#: AA-3770280
subjecting its capitalization to concurrent adverse stress test events. The
company’s robust risk-adjusted capitalization withstands substantial amounts
of strain when subjected to these various stress scenarios.
Positive rating actions may result from improvements in Greenlight Re’s
underwriting results, continued lack of catastrophe losses and positive
investment performance.
Negative rating actions may result from continued adverse development,
continued negative investment results, significant loss of surplus and/or poor
underwriting performance.
FIVE YEAR RATING HISTORY
Ultimate Parent#: 055430
BEST’S CREDIT RATING
Best’s Financial Strength Rating: ABest’s Financial Size Category: XI
Outlook: Stable
RATING RATIONALE
Rating Rationale: The ratings of Greenlight Reinsurance, Ltd. (Greenlight
Re), are based on its strong risk-adjusted capitalization and experienced
management team. The ratings also consider the company’s business profile
and strategy as it seeks to aggressively manage risks on both sides of the
balance sheet.
The rating actions reflect Greenlight Re’s less favorable underwriting
results in recent years, which have fallen short of A.M. Best’s long-term
expectations. While the company has taken actions to remediate the
problematic contracts, it is showing an underwriting loss that underperforms
most peers on its five-year trend through 2015. While A.M. Best
acknowledges that the underwriting process and controls have since been
strengthened, the current market environment will continue to present
challenges and will ultimately test the sufficiency of the current underwriting
rigor and enterprise risk management. Investment losses in 2015 did not help
the company’s overall earnings profile; however, A.M. Best anticipated a
certain level of volatility with regard to the investment portfolio.
At the current rating level, A.M. Best can be slightly more accepting of
variability in operating results, though, A.M. Best is looking for operating
results, that over the long term, generate solid profit from both underwriting
and investment activities. Greenlight Re faces increasing challenges in writing
profitable business in a market with excess capacity and further competition
from new reinsurance companies with a similar alternative investment
strategy. While Greenlight Re’s capital footprint entails 100% common equity
with no use of debt, A.M. Best recognizes the asset risk represented by its
equity-based investment portfolio. Mitigating this concern is the inherent
partially hedged nature of the investment portfolio, and the experience and
strong, long-term track record of the investment manager. More than 80% of
the invested assets are in highly liquid investments, and generally no position
can be greater than 20% of invested assets. A.M. Best’s rating approach
involves assessing Greenlight Re’s risk correlations across the enterprise by
Printed January 10, 2017
Best’s
FSR
AA
A
Date
11/03/16
10/23/15
10/30/14
Date
10/17/13
10/09/12
Best’s
FSR
A
A
RATING UNIT MEMBERS
Greenlight Reinsurance, Ltd.
(AMB# 076873):
AMB#
091169
BEST’S
FSR
A-
COMPANY
Greenlight Re Ireland, DAC
BUSINESS PROFILE
Greenlight Reinsurance, Ltd. (Greenlight Re) is headquartered and
domiciled in the Cayman Islands. Greenlight Re is a global specialist property
and casualty reinsurer established in 2004 and is wholly owned by Greenlight
Capital Re, Ltd. (NASDAQ: GLRE). Greenlight Capital Re, Ltd. has two
other wholly owned subsidiaries, Greenlight Reinsurance Ireland, DAC
(“GRIL”) and Verdant Holding Company, Ltd. (“Verdant”). GRIL is based in
Dublin, Ireland and was established in September 2010 to provide multi-line
property and casualty reinsurance capacity to the European broker market and
offer service to clients in Europe. Verdant is a Delaware corporation which
was established to facilitate strategic alliances that Greenlight Re may seek to
form with insurance companies and general agents in the U.S. Greenlight Re
writes a combination of property, casualty and specialty reinsurance
distributed primarily through the broker market. The mix of business between
the property, casualty and specialty segments will vary based on overall
market conditions. The company writes worldwide with concentrations of
cedants in the United States, the United Kingdom, Europe and Bermuda. In
2008 the Cayman Islands Monetary Authority granted approval for Greenlight
Re to engage in long term business, but to date Greenlight Re has not offered
or written any long term products.
A portion of the company’s portfolio is exposed to natural perils. Natural
peril-exposed business is underwritten and modeled utilizing conventional
methods. For internal risk management purposes, the company monitors
accumulations by geographic zone based on potential loss scenarios, which
are at least as conservative as those employed in the rating process. The
purpose is to prevent, to the greatest extent possible, erosion of capital in the
event of a major covered catastrophe. In addition to the standard underwriting
risk/reward footprint of most global reinsurers, Greenlight Re has an
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alternative investment strategy with a partially hedged equity portfolio that is
the vast majority of unencumbered assets. The equity portfolio primarily
consists of publicly traded securities with a long and short philosophy that
produces a partial hedge on market performance and asset value. This strategy
has been employed by the asset manager in a separate, though similarly
structured multi-billion dollar value portfolio for over fifteen years.
RISK MANAGEMENT
Greenlight Re has an enterprise risk management culture starting from the
top down. Greenlight Re’s small staff compared to other reinsurers aids the
flow of communication. A transaction is handled by an underwriter and an
actuary who evaluate the specifics of the deal. Each new deal is presented to
the senior staff who evaluates the transaction. The CEO and CUO must both
agree that each deal meets the firms underwriting guidelines. Greenlight Re
aims to act as the lead underwriter in deals since the lead typically has greater
influence in pricing terms and conditions. Greenlight Re also has a “cradle to
grave” philosophy where the same underwriter also services the contract.
Each account is reviewed on a quarterly basis and a meeting is held annually
with clients. Greenlight Re uses an in-house developed simulation model for
pricing. Greenlight has recently implemented some underwriting changes,
however the market remains challenging and the sufficiency of the changes in
the scope of enterprise risk management remains untested.
The investment piece of Greenlight Re is also very intertwined in the risk
management culture. Greenlight Re has weekly calls with DME Advisors to
discuss their overall underwriting and investment strategy. This is detailed
quarterly at the Board level. On the investment side multiple, stable prime
brokers are used to reduce counterparty risk.
Investment Risk Management: Greenlight Re follows investment guidelines
that are adopted by the Board of Directors. The guidelines state that at least
80% of invested assets must be held in quality investments. This includes debt
or equity securities of publicly traded companies, government securities of
developed countries, cash and cash equivalents as well as gold. Private equity
securities cannot be more than 10% of the investment portfolio. No single
investment can be more than 20% of the portfolio, with the exception of cash,
cash equivalents and U.S. government obligations. Liquidity of the portfolio is
dictated by the expectation of the liabilities and the portfolio is reviewed with
the investment advisor on a periodic basis.
The portfolio that has been put in place is highly liquid, actively managed
and is fluid based upon various investment opportunities.
OPERATING PERFORMANCE
Operating Results: Greenlight Re’s operating results have had variability in
recent years. The company has reported adverse development on prior year
claims. Furthermore, investment returns have been varied and 2015 was a
particularly challenging year for the company. Generally, investment income
has been positive and A.M. Best understands that investments results may
have more volatility given the investment strategy. This volatility is captured
and accounted for in A.M. Best’s risk-adjusted capital model (BCAR).
Greenlight Re still has a high geographic concentration of business coming
from the U.S. Return on equity metrics are at the lower end of established peers
on a 5-year basis.
Printed January 10, 2017
Underwriting Results: Geographically Greenlight Re writes approximately
72% of its gross premiums in the U.S. with Europe constituting less than 5%,
followed by the rest of the world. Greenlight Re’s underwriting results have
been varied over the recent 5-year period and adverse loss reserve
development has impacted results. On the whole, Greenlight Re’s
underwriting results have underperformed most peers on a 5-year basis. In
2016, Greenlight Re entered into a novation to remove a specific book of
business and provided excess of loss coverage to a run-off specialist. While
there is still uncertainty with regards to the ultimate liability associated with
this particular book of business, the coverage to which Greenlight Re remains
liable is substantially beyond the high point of the actuarial range and allows
Greenlight Re to refocus on its current book of business and prospective
strategic opportunities.
Investment Results: Greenlight Re’s investment portfolio, although reporting
positive returns through year-end 2014, was trending lower from 2009 to 2011.
In 2014 the investment portfolio returned a gain of roughly 9% compared to an
almost 20% return in 2013 net of all fees and expenses. The large gain in 2013
was mostly a result of an increase in market value of the company’s
investments. In 2014 the income was mostly attributable to large realized
gains partly offset by unrealized losses.
In 2015 the portfolio returned a sizeable loss of approximately 20%. The
large loss was due to a decrease in market value of the investment portfolio.
Given the overall investment environment Greenlight Re’s investment advisor,
DME Advisors, has been in a defensive investing position. Greenlight Re’s
investment portfolio is considered a “trading portfolio” and therefore under
U.S. GAAP, realized as well as unrealized gains and losses are included, and
represent the biggest drivers of net investment income. Also included in net
investment income is the change in market value of exchange-traded call and
put options.
While the investment portfolio has some volatility, this volatility has been
contemplated and various stress tests are performed in A.M. Best’s
risk-adjusted capital model.
BALANCE SHEET STRENGTH
Capitalization: Greenlight Re was initially capitalized with $212 million, and
it added approximately $256 million in 2007 through an IPO and related
private placement. The company has also generated capital through retained
earnings and surplus has grown since inception, but it is below its year-end
2014 value. Underwriting leverage measures are minimal and A.M. Best
expects these measures to remain moderate.
Greenlight Re has no debt and a liquid investment portfolio; however, the
concentration of investments in equity security positions represents a
significant risk to the company’s capitalization. Nevertheless, its risk-adjusted
capitalization is excellent and withstands significant potential asset value
impairments when stress tested. In addition, the portfolio is partially hedged
with a long and short investment strategy. Though variable asset values are
expected, extreme volatility and capital loss are not.
Greenlight Re’s risk adjusted capitalization remains robust even with the
introduction of heavy stress-test scenarios that simultaneously compromise
asset values and underwriting results.
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Loss Reserves: Greenlight Re has reported some adverse reserve
development in recent years. The majority of the 2014 development was
related to a general liability contract and a commercial auto multi-line contract
whose clients reported additional open claims activity; both contracts are
currently in run-off.
In 2015, Greenlight Re experienced unfavorable development in certain
frequency business relating to Florida home-owners contracts as a result of the
deterioration of sinkhole claims and the increase in the practice of
“assignment of benefits” in the state of Florida.
Liquidity: As it first began to assume business in 2006, Greenlight Re’s
liabilities from underwriting activities are still relatively modest. The
company’s investment portfolio, composed essentially of publicly traded
equity securities, is highly liquid. As most of Greenlight Re’s invested assets
are trading securities, the sale and purchase of these assets are reported as
operating cash flows.
Investments: Greenlight Re’s investment portfolio is managed by DME
Advisors which is controlled by David Einhorn who is also Chairman of the
Board of Directors and the president of Greenlight Capital, Inc. The
investment strategy used is a value-oriented strategy that identifies
undervalued and overvalued securities by analyzing companies’ available
financial data. The portfolio is somewhat naturally hedged with both long and
short positions. DME Advisors goal is to achieve higher rates of return while
minimizing the risk of capital losses.
The investment guidelines are adopted by the Board of Directors. At least
80% of the invested assets will be held in publicly traded debt or equity,
governments, cash, cash equivalents and gold. Other than cash and U.S.
government obligations, no single investment can be more than 20% of the
portfolio.
Liquidity is reviewed on a periodic basis to ensure that Greenlight Re will
be able to meet any of its liabilities as they come due. The investment portfolio
does hold a physical position in gold as well as futures contracts for gold.
Although this produces no income it has contributed to unrealized gains in the
investment portfolio in prior years.
Summarized Accounts as of December 31, 2015
Data reflected within all tables of this report has been compiled from the
consolidated financial statements of this company (Source: Company
Financial Statement).
An independent audit of the company’s affairs through December 31, 2015,
was conducted by BDO Cayman Ltd.
ASSETS
Cash and equivalents
Long term fixed maturity investments
Equity investments
Other investments
Invested assets
Receivables
Reinsurance recoverable
Deferred policy acquisition cost
Other assets
Total assets
12/31/2015
% of total
50.1
12/31/2014
USD(000)
1,306,804
39,087
905,994
119,083
1.5
33.7
4.4
49,212
1,266,175
115,591
1,064,164
39.6
1,430,978
214,760
3,333
54,187
6,453
8.0
0.1
2.0
0.2
176,993
11,523
28,943
6,958
2,688,775
100.0
2,962,199
12/31/2015
USD(000)
273,686
184,533
12/31/2015
% of total
10.2
6.9
12/31/2014
USD(000)
236,865
103,098
458,219
17.0
339,963
LIABILITIES & SURPLUS
Property / Casualty reserves
Unearned premium reserves
Total policy reserves
Other liabilities
1,341,551
49.9
1,421,802
Total liabilities
1,799,770
66.9
1,761,765
Paid-in capital
Retained earnings
Other equity
472,379
317,102
99,524
17.6
11.8
3.7
472,379
631,586
96,469
Total equity
889,005
33.1
1,200,434
2,688,775
100.0
2,962,199
Total liabilities & equity
Printed January 10, 2017
12/31/2015
USD(000)
1,345,878
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STATEMENT OF INCOME
STATEMENT OF CHANGES IN EQUITY
12/31/2015
USD(000)
414,795
12/31/2014
USD(000)
252,339
414,795
252,339
7,146
12,654
407,649
239,685
83,301
-47,269
Net premiums earned
324,348
286,954
Net investment income
Net realized gains/(losses)
Net unrealized gains/(losses)
Non-operating revenue
-34,981
18,502
-265,401
…
-57,018
362,430
-187,753
2,746
Total revenue
42,468
407,359
Benefits & reserves
Operating expenses
259,596
114,801
181,086
108,337
374,397
289,423
-331,929
117,936
Reins assumed
Gross premiums written
Reins ceded
Net premiums written
12/31/2015
USD(000)
472,379
12/31/2014
USD(000)
472,379
472,379
472,379
96,469
3,055
103,221
-6,752
99,524
96,469
Retained earnings, beginning balance
Retained earnings, net income
Retained earnings, common dividends
631,586
-309,484
5,000
518,300
113,286
…
Retained earnings, ending balance
317,102
631,586
Total shareholder equity
889,005
1,200,434
Paid-in capital - Beg bal
Paid-in capital - End bal
Other equity, beg. bal.
Other equity, misc.
Other equity, end. bal.
Change in unearned premiums
STATEMENT OF CASH FLOWS
Total benefits & expenses
Earnings before interest & taxes (EBIT)
Pre-tax income/(loss) from continuing
operations
-331,929
117,936
-331,929
117,936
22,445
-4,650
Net income/(loss) from continuing operations
-309,484
113,286
Net income/(loss)
-309,484
113,286
12/31/2015
USD(000)
12/31/2014
USD(000)
Net cash provided/(used) in operating activities
-99,396
-113,170
Net cash provided/(used) in investment activities
203,795
121,157
Net cash provided/(used) in financing activities
-5,000
…
99,399
7,987
9,890
1,903
109,289
9,890
Total increase (decrease) in cash
Net income/(loss) before minority interest
Cash, beginning balance
Minority interest
Printed January 10, 2017
Cash, ending balance
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PREMIUMS BY LINE OF BUSINESS
12/31/2015
USD(000)
25,860
12/31/2015
% of total
6.2
25,860
6.2
158,582
27,562
572
99,591
7,744
1,661
15,972
57,022
7,596
12,633
38.2
6.6
0.1
24.0
1.9
0.4
3.9
13.8
1.8
3.1
GPW-Total non-life
388,935
93.8
249,252
GPW-Total business
414,795
100.0
252,339
GPW-Health
GPW-Total life
GPW-Automobile
GPW-Automobile - physical damage
GPW-Aviation
GPW-Liability
GPW-Marine
GPW-Other classes
GPW-Property - commercial
GPW-Property - personal
GPW-Surety
GPW-Workers’ compensation
12/31/2014
USD(000)
3,087
Class D insurer license under Section 4(3)(d) of the Cayman Islands Insurance
Law, 2010. Greenlight Re bound its first coverage during the second quarter of
2006.
MANAGEMENT
Officers: Chief Executive Officer, Bart Hedges; Chief Financial Officer, Tim
3,087 Courtis; Chief Underwriting Officer, Brendan Barry.
Directors: Alan Brooks, David Einhorn (Chairman), Leonard Goldberg, Bart
103,080 Hedges, Ian Isaacs, Frank Lackner, Bryan Murphy, Joseph Platt.
19,615
336
38,488
4,257
1,705
11,319
64,479
5,247
726
REINSURANCE
In general, Greenlight Re retains 100% of all premiums and losses it
reinsures. However, retrocession may be used to manage accumulations, as
well as on a transaction-by-transaction basis. During 2015 the company
purchased an industry loss warrant to reduce its net exposure to catastrophe
events. In 2016, the company novated a specific book of business that was
problematic for the company to a run-off specialist. In those cases where
retrocession is purchased, the company closely monitors counterparty credit
risk.
BALANCE SHEET ITEMS
PREMIUMS - GEOGRAPHIC
12/31/2015
USD(000)
467
12/31/2015
% of total
0.1
12/31/2014
USD(000)
83
GPW-Total Asia
467
0.1
83
GPW-Other Europe
8,863
2.1
19,029
8,863
2.1
19,029
300,304
72.4
203,805
300,304
72.4
203,805
GPW-Other Asia
GPW-Total Europe
GPW-United States
GPW-Total North America
GPW-Other World-Wide
GPW-Total World-Wide
105,161
25.4
29,422
414,795
100.0
252,339
HISTORY
Greenlight Re was incorporated as an exempted company under the
Companies Law of the Cayman Islands on July 13, 2004. The company is a
wholly owned subsidiary of Greenlight Capital Re, Ltd. Greenlight Re holds a
Printed January 10, 2017
Invested assets
Total assets
Total liabilities
Total equity
Total capital
USD
(000)
2015
1,064,164
2,688,775
1,799,770
889,005
889,005
USD
(000)
2014
1,430,978
2,962,199
1,761,765
1,200,434
1,200,434
USD
(000)
2013
1,393,679
3,056,151
1,962,251
1,093,900
1,093,900
USD
(000)
2012
1,177,928
2,672,443
1,822,647
849,796
849,796
USD
(000)
2011
1,030,146
2,306,890
1,472,609
834,281
834,281
USD
(000)
2012
385,764
410,408
-53,135
64,444
15,317
USD
(000)
2011
365,266
318,396
-34,404
132,807
10,337
INCOME STATEMENT ITEMS
Gross premiums written
Net premiums written
Net investment income
Net realized gains/(losses)
Net income/(loss)
USD
(000)
2015
414,795
407,649
-34,981
18,502
-309,484
USD
(000)
2014
252,339
239,685
-57,018
362,430
113,286
USD
(000)
2013
464,127
462,793
-92,366
167,060
229,813
LIQUIDITY RATIOS (%)
Total investments to total reserves
Liquid assets to total liabilities
Total investments to total liabilities
Bonds to total reserves
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2015
526.0
127.3
133.9
8.5
2014
805.3
148.8
155.4
14.5
2013
596.1
133.6
139.1
0.9
2012
474.3
124.4
131.7
0.4
2011
458.5
129.0
137.7
2.4
Page 6 of 10
PROFITABILITY RATIOS (%)
2015
80.0
34.4
114.5
-10.8
-11.0
-95.4
-29.6
Loss ratio
Expense ratio
Combined ratio
Investment income ratio
Return on assets
Return on revenues
Return on equity
2014
63.1
37.8
100.9
-19.9
3.8
39.5
9.9
2013
60.1
34.7
94.7
-19.5
8.0
48.5
23.7
2012
79.4
33.3
112.7
-12.3
0.6
3.6
1.8
2011
63.1
39.6
102.6
-9.6
0.5
2.9
1.3
2012
48.3
45.8
2011
38.2
43.3
LEVERAGE & DEBT RATIOS (%)
Net premiums written to equity
Cash and equivalents to total assets
——
2015
45.9
50.1
2014
20.0
44.1
♦
——
2013
42.3
43.7
Operating Company Non-Life
Ultimate Parent: Greenlight Capital Re, Ltd.
GREENLIGHT REINSURANCE IRELAND,
DESIGNATED ACTIVITY COMPANY
La Touche House, IFSC, Ground Floor, Dublin 1, Ireland
AMB#: 091169
Ultimate Parent#: 055430
BEST’S CREDIT RATING
Best’s Financial Strength Rating: ABest’s Financial Size Category: XI
ratings also consider the company’s business profile and strategy as it seeks to
aggressively manage risks on both sides of the balance sheet.
The rating actions reflect Greenlight Re’s less favorable underwriting
results in recent years, which have fallen short of A.M. Best’s long-term
expectations. While the company has taken actions to remediate the
problematic contracts, it is showing an underwriting loss that underperforms
most peers on its five-year trend through 2015. While A.M. Best
acknowledges that the underwriting process and controls have since been
strengthened, the current market environment will continue to present
challenges and will ultimately test the sufficiency of the current underwriting
rigor and enterprise risk management. Investment losses in 2015 did not help
the company’s overall earnings profile; however, A.M. Best anticipated a
certain level of volatility with regard to the investment portfolio.
At the current rating level, A.M. Best can be slightly more accepting of
variability in operating results, though, A.M. Best is looking for operating
results, that over the long term, generate solid profit from both underwriting
and investment activities. Greenlight Re faces increasing challenges in writing
profitable business in a market with excess capacity and further competition
from new reinsurance companies with a similar alternative investment
strategy. While Greenlight Re’s capital footprint entails 100% common equity
with no use of debt, A.M. Best recognizes the asset risk represented by its
equity-based investment portfolio. Mitigating this concern is the inherent
partially hedged nature of the investment portfolio, and the experience and
strong, long-term track record of the investment manager. More than 80% of
the invested assets are in highly liquid investments, and generally no position
can be greater than 20% of invested assets. A.M. Best’s rating approach
involves assessing Greenlight Re’s risk correlations across the enterprise by
subjecting its capitalization to concurrent adverse stress test events. The
company’s robust risk-adjusted capitalization withstands substantial amounts
of strain when subjected to these various stress scenarios.
Positive rating actions may result from improvements in Greenlight Re’s
underwriting results, continued lack of catastrophe losses and positive
investment performance.
Negative rating actions may result from continued adverse development,
continued negative investment results, significant loss of surplus and/or poor
underwriting performance.
Outlook: Stable
RATING RATIONALE
Rating Rationale: The ratings of Greenlight Reinsurance, Ltd. (Greenlight
Re), have been extended to Greenlight Reinsurance Ireland, Designated
Activity Company (“GRIL”), as Greenlight Re provides explicit support in the
form of aggregate stop-loss and quota-share contracts.
FIVE YEAR RATING HISTORY
Date
11/03/16
10/23/15
10/30/14
Best’s
FSR
AA
A
Date
10/17/13
10/09/12
Best’s
FSR
AA-
BUSINESS PROFILE
Greenlight Reinsurance Ireland, Designated Activity Company writes a
combination of global property, casualty and specialty reinsurance distributed
The following text is derived from A.M. Best’s Credit Report on Greenlight primarily through the broker market. The mix of business between the
property, casualty and specialty segments will vary based on overall market
Reinsurance, Ltd. (AMB# 076873).
conditions. The company writes worldwide with concentrations of cedants in
The ratings of Greenlight Reinsurance, Ltd. (Greenlight Re), are based on the United States, the United Kingdom, and Europe.
its strong risk-adjusted capitalization and experienced management team. The
Printed January 10, 2017
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Page 7 of 10
In addition to the standard underwriting risk/reward footprint of most global
reinsurers, GRIL has introduced an additional investment risk/reward
architecture with a partially hedged equity portfolio that is the vast majority of
unencumbered assets. The equity portfolio consists of publicly traded
securities with a long and short philosophy that produces a partial hedge on
market performance and asset value. This strategy has been employed by the
asset manager in a separate though similarly structured multi-billion dollar
value portfolio for the last fifteen years.
The following text is derived from A.M. Best’s Credit Report on Greenlight
Reinsurance, Ltd. (AMB# 076873).
Greenlight Reinsurance, Ltd. (Greenlight Re) is headquartered and
domiciled in the Cayman Islands. Greenlight Re is a global specialist property
and casualty reinsurer established in 2004 and is wholly owned by Greenlight
Capital Re, Ltd. (NASDAQ: GLRE). Greenlight Capital Re, Ltd. has two
other wholly owned subsidiaries, Greenlight Reinsurance Ireland, DAC
(“GRIL”) and Verdant Holding Company, Ltd. (“Verdant”). GRIL is based in
Dublin, Ireland and was established in September 2010 to provide multi-line
property and casualty reinsurance capacity to the European broker market and
offer service to clients in Europe. Verdant is a Delaware corporation which
was established to facilitate strategic alliances that Greenlight Re may seek to
form with insurance companies and general agents in the U.S. Greenlight Re
writes a combination of property, casualty and specialty reinsurance
distributed primarily through the broker market. The mix of business between
the property, casualty and specialty segments will vary based on overall
market conditions. The company writes worldwide with concentrations of
cedants in the United States, the United Kingdom, Europe and Bermuda. In
2008 the Cayman Islands Monetary Authority granted approval for Greenlight
Re to engage in long term business, but to date Greenlight Re has not offered
or written any long term products.
A portion of the company’s portfolio is exposed to natural perils. Natural
peril-exposed business is underwritten and modeled utilizing conventional
methods. For internal risk management purposes, the company monitors
accumulations by geographic zone based on potential loss scenarios, which
are at least as conservative as those employed in the rating process. The
purpose is to prevent, to the greatest extent possible, erosion of capital in the
event of a major covered catastrophe. In addition to the standard underwriting
risk/reward footprint of most global reinsurers, Greenlight Re has an
alternative investment strategy with a partially hedged equity portfolio that is
the vast majority of unencumbered assets. The equity portfolio primarily
consists of publicly traded securities with a long and short philosophy that
produces a partial hedge on market performance and asset value. This strategy
has been employed by the asset manager in a separate, though similarly
structured multi-billion dollar value portfolio for over fifteen years.
flow of communication. A transaction is handled by an underwriter and an
actuary who evaluate the specifics of the deal. Each new deal is presented to
the senior staff who evaluates the transaction. The CEO and CUO must both
agree that each deal meets the firms underwriting guidelines. Greenlight Re
aims to act as the lead underwriter in deals since the lead typically has greater
influence in pricing terms and conditions. Greenlight Re also has a “cradle to
grave” philosophy where the same underwriter also services the contract.
Each account is reviewed on a quarterly basis and a meeting is held annually
with clients. Greenlight Re uses an in-house developed simulation model for
pricing. Greenlight has recently implemented some underwriting changes,
however the market remains challenging and the sufficiency of the changes in
the scope of enterprise risk management remains untested.
The investment piece of Greenlight Re is also very intertwined in the risk
management culture. Greenlight Re has weekly calls with DME Advisors to
discuss their overall underwriting and investment strategy. This is detailed
quarterly at the Board level. On the investment side multiple, stable prime
brokers are used to reduce counterparty risk.
Investment Risk Management: Greenlight Re follows investment guidelines
that are adopted by the Board of Directors. The guidelines state that at least
80% of invested assets must be held in quality investments. This includes debt
or equity securities of publicly traded companies, government securities of
developed countries, cash and cash equivalents as well as gold. Private equity
securities cannot be more than 10% of the investment portfolio. No single
investment can be more than 20% of the portfolio, with the exception of cash,
cash equivalents and U.S. government obligations. Liquidity of the portfolio is
dictated by the expectation of the liabilities and the portfolio is reviewed with
the investment advisor on a periodic basis.
The portfolio that has been put in place is highly liquid, actively managed
and is fluid based upon various investment opportunities.
OPERATING PERFORMANCE
The following text is derived from A.M. Best’s Credit Report on Greenlight
Reinsurance, Ltd. (AMB# 076873).
Operating Results: Greenlight Re’s operating results have had variability in
recent years. The company has reported adverse development on prior year
claims. Furthermore, investment returns have been varied and 2015 was a
particularly challenging year for the company. Generally, investment income
has been positive and A.M. Best understands that investments results may
have more volatility given the investment strategy. This volatility is captured
and accounted for in A.M. Best’s risk-adjusted capital model (BCAR).
Greenlight Re still has a high geographic concentration of business coming
from the U.S. Return on equity metrics are at the lower end of established peers
on a 5-year basis.
Underwriting Results: Geographically Greenlight Re writes approximately
72% of its gross premiums in the U.S. with Europe constituting less than 5%,
RISK MANAGEMENT
followed by the rest of the world. Greenlight Re’s underwriting results have
The following text is derived from A.M. Best’s Credit Report on Greenlight been varied over the recent 5-year period and adverse loss reserve
Reinsurance, Ltd. (AMB# 076873).
development has impacted results. On the whole, Greenlight Re’s
underwriting results have underperformed most peers on a 5-year basis. In
Greenlight Re has an enterprise risk management culture starting from the 2016, Greenlight Re entered into a novation to remove a specific book of
top down. Greenlight Re’s small staff compared to other reinsurers aids the business and provided excess of loss coverage to a run-off specialist. While
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Page 8 of 10
there is still uncertainty with regards to the ultimate liability associated with
this particular book of business, the coverage to which Greenlight Re remains
liable is substantially beyond the high point of the actuarial range and allows
Greenlight Re to refocus on its current book of business and prospective
strategic opportunities.
Investment Results: Greenlight Re’s investment portfolio, although reporting
positive returns through year-end 2014, was trending lower from 2009 to 2011.
In 2014 the investment portfolio returned a gain of roughly 9% compared to an
almost 20% return in 2013 net of all fees and expenses. The large gain in 2013
was mostly a result of an increase in market value of the company’s
investments. In 2014 the income was mostly attributable to large realized
gains partly offset by unrealized losses.
In 2015 the portfolio returned a sizeable loss of approximately 20%. The
large loss was due to a decrease in market value of the investment portfolio.
Given the overall investment environment Greenlight Re’s investment advisor,
DME Advisors, has been in a defensive investing position. Greenlight Re’s
investment portfolio is considered a “trading portfolio” and therefore under
U.S. GAAP, realized as well as unrealized gains and losses are included, and
represent the biggest drivers of net investment income. Also included in net
investment income is the change in market value of exchange-traded call and
put options.
While the investment portfolio has some volatility, this volatility has been
contemplated and various stress tests are performed in A.M. Best’s
risk-adjusted capital model.
BALANCE SHEET STRENGTH
The following text is derived from A.M. Best’s Credit Report on Greenlight
Reinsurance, Ltd. (AMB# 076873).
Capitalization: Greenlight Re was initially capitalized with $212 million, and
it added approximately $256 million in 2007 through an IPO and related
private placement. The company has also generated capital through retained
earnings and surplus has grown since inception, but it is below its year-end
2014 value. Underwriting leverage measures are minimal and A.M. Best
expects these measures to remain moderate.
Greenlight Re has no debt and a liquid investment portfolio; however, the
concentration of investments in equity security positions represents a
significant risk to the company’s capitalization. Nevertheless, its risk-adjusted
capitalization is excellent and withstands significant potential asset value
impairments when stress tested. In addition, the portfolio is partially hedged
with a long and short investment strategy. Though variable asset values are
expected, extreme volatility and capital loss are not.
Greenlight Re’s risk adjusted capitalization remains robust even with the
introduction of heavy stress-test scenarios that simultaneously compromise
asset values and underwriting results.
In 2015, Greenlight Re experienced unfavorable development in certain
frequency business relating to Florida home-owners contracts as a result of the
deterioration of sinkhole claims and the increase in the practice of
“assignment of benefits” in the state of Florida.
The following text is derived from A.M. Best’s Credit Report on Greenlight
Reinsurance, Ltd. (AMB# 076873).
Liquidity: As it first began to assume business in 2006, Greenlight Re’s
liabilities from underwriting activities are still relatively modest. The
company’s investment portfolio, composed essentially of publicly traded
equity securities, is highly liquid. As most of Greenlight Re’s invested assets
are trading securities, the sale and purchase of these assets are reported as
operating cash flows.
The following text is derived from A.M. Best’s Credit Report on Greenlight
Reinsurance, Ltd. (AMB# 076873).
Investments: Greenlight Re’s investment portfolio is managed by DME
Advisors which is controlled by David Einhorn who is also Chairman of the
Board of Directors and the president of Greenlight Capital, Inc. The
investment strategy used is a value-oriented strategy that identifies
undervalued and overvalued securities by analyzing companies’ available
financial data. The portfolio is somewhat naturally hedged with both long and
short positions. DME Advisors goal is to achieve higher rates of return while
minimizing the risk of capital losses.
The investment guidelines are adopted by the Board of Directors. At least
80% of the invested assets will be held in publicly traded debt or equity,
governments, cash, cash equivalents and gold. Other than cash and U.S.
government obligations, no single investment can be more than 20% of the
portfolio.
Liquidity is reviewed on a periodic basis to ensure that Greenlight Re will
be able to meet any of its liabilities as they come due. The investment portfolio
does hold a physical position in gold as well as futures contracts for gold.
Although this produces no income it has contributed to unrealized gains in the
investment portfolio in prior years.
MANAGEMENT
Officers: Chief Executive Officer, Bart Hedges; Chief Financial Officer, Tim
Courtis; Chief Underwriting Officer, Brendan Barry; General Manager,
Patrick O’Brien.
Directors: Philip Harkin (Independent Non-Executive Director), Bart Hedges
(Executive Director), Frank Lackner (Independent Non-Executive Director),
Loss Reserves: Greenlight Re has reported some adverse reserve Brendan Tuohy (Independent Non-Executive Director).
development in recent years. The majority of the 2014 development was
REINSURANCE
related to a general liability contract and a commercial auto multi-line contract
Currently GRIL has a 80% quota share on non-U.S. business to Greenlight
whose clients reported additional open claims activity; both contracts are Reinsurance, Ltd. Additionally, Greenlight Reinsurance, Ltd. provides an
currently in run-off.
aggregate stop-loss protection to GRIL.
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Page 9 of 10
The following text is derived from A.M. Best’s Credit Report on Greenlight
Reinsurance, Ltd. (AMB# 076873).
In general, Greenlight Re retains 100% of all premiums and losses it
reinsures. However, retrocession may be used to manage accumulations, as
well as on a transaction-by-transaction basis. During 2015 the company
purchased an industry loss warrant to reduce its net exposure to catastrophe
events. In 2016, the company novated a specific book of business that was
problematic for the company to a run-off specialist. In those cases where
retrocession is purchased, the company closely monitors counterparty credit
risk.
Why is this Best’s® Rating Report important to you?
The A.M. Best Company is the oldest, most experienced rating agency in contract or any other financial obligation issued by an insurer, nor does
the world and has been reporting on the financial condition of insurance it address the suitability of any particular policy or contract for a
companies since 1899.
specific purpose or purchaser.
A Best's Financial Strength Rating (FSR) is an independent opinion of
an insurer's financial strength and ability to meet its ongoing insurance
policy and contract obligations. An FSR is not assigned to specific
insurance policies or contracts and does not address any other risk,
including, but not limited to, an insurer's claims-payment policies or
procedures; the ability of the insurer to dispute or deny claims payment on
grounds of misrepresentation or fraud; or any specific liability
contractually borne by the policy or contract holder. An FSR is not a
recommendation to purchase, hold or terminate any insurance policy,
The company information appearing in this pamphlet is an extract
from the complete AMB Credit Report. You may obtain the complete
report by contacting Customer Service at +1(908)439-2200 or
[email protected]. Please reference the company's
identification number (AMB#) listed on this rating report.
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No part of this report may be reproduced, distributed, or stored in a database or retrieval system, or transmitted in any form or by any means without the prior
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