Greenlight Re Provides Accurate Information in Response to Erroneous Research Report
May 30 2018 - 9:20AM
Greenlight Capital Re, Ltd. (NASDAQ:GLRE) (the “Company” or
“Greenlight Re”), a specialist property and casualty reinsurance
company headquartered in the Cayman Islands, today addressed
inaccurate statements in a report published by Sunesis Capital (the
“Report”).
BackgroundOn Monday, May 28,
2018, Sunesis Capital, a San Francisco based fund published the
Report, which alleges, among other things, that Greenlight Re
should be classified as a passive foreign investment company
(“PFIC”), and this classification would be deemed as “lights out”
for Greenlight Re. The Company believes that this allegation and
assessment of the Company, its business and strategy is
fundamentally flawed.
While the Company, the Board of Directors, and
management always support active dialogue with existing and
potential shareholders, it believes that the creation of any
investment thesis relies on accurate facts and honest analysis. The
Report is deficient in these regards.
On December 22, 2017, H.R. 1, commonly referred
to as “the Tax Cuts and Jobs Act”, was signed into law. H.R. 1
provides a bright-line test that a non-U.S. insurance company will
receive the benefit, for PFIC purposes, of being engaged in the
active conduct of an insurance business, if its applicable
insurance liabilities constitute more than 25% of its total assets.
Factual Clarification of Report
Inaccuracies The Report illustrates Sunesis Capital’s
confusion regarding Greenlight Re’s value creation strategy and
drivers, and mischaracterizes the Company’s underwriting,
investment and disclosure practices:
- The Report questions whether the
Company “should be classified as a PFIC”. As Greenlight Re has
stated publicly in its annual report on Form 10-K for the period
ended December 31, 2017, management believes Greenlight Re should
not be classified as a PFIC. Under the existing rules prior to the
Tax Cuts and Jobs Act, Greenlight Re annually conducted an
assessment and determined that in 2017 and in prior years it should
not be deemed a PFIC. The Company’s reinsurance activities and risk
profile do not support the PFIC designation, but the law change has
put more emphasis on balance sheet arithmetic than a qualitative
assessment. Greenlight Re intends not to be treated as a PFIC and
is in the process of restructuring its activities to ensure that it
meets the bright-line applicable insurance liabilities test.
Greenlight Re will not need “to increase insurance liabilities in a
market that has terrible pricing” or deviate from its underwriting
discipline.
- Greenlight Re is not a small
reinsurance business “stapled onto billions of dollars of hedge
fund capital”. Rather, the Company, established in 2004, is a
standalone global property and casualty reinsurer regulated in the
Cayman Islands and Ireland with 37 employees. Greenlight Re is not
invested in the Greenlight Capital investment funds, but rather has
a separately managed account subject to its own investment
guidelines as overseen by its Board of Directors.
- Contrary to the allegations in the
Report, Greenlight Re has not “increased investment risk due to
poor recent performance”. As described in the Company’s 2018 first
quarter earnings call, the Company has lowered gross exposure in
recent periods. As of March 31, 2018, the investment portfolio was
93% gross long by 65% short, compared to 101% long and 67% short as
of December 31, 2017.
- The Company utilizes brokerage
services that are common practice throughout the reinsurance
industry. The reinsurance brokerage services industry is dominated
by a small number of large companies and it is common for a
reinsurer to have significant concentration.
- While the Company does not believe
that other clients of Greenlight Re’s investment advisor or of its
affiliates are relevant to the Company or to its investors, we note
that Greenlight Capital has advised that as of March 31, 2018: --
Greenlight Capital’s funds that employ a similar investment
strategy to Greenlight Re have similar fee arrangements, and --
Greenlight Re comprises 18% of Greenlight Capital’s total assets
under management, not 42% as erroneously calculated in the
Report.
For these reasons and others, Greenlight Re
strongly disagrees with the allegations contained in the Report.
Further, and more importantly, the Company remains committed and
focused on its goal to generate long-term value for its
shareholders.
Management CommentarySimon
Burton, CEO of Greenlight Re, stated, “We have always operated in a
transparent manner with our shareholders, policyholders, and the
general public. Greenlight Re flatly denies the claims in the
Report that the Company is ‘Defrauding Policyholders’ and that it
is ‘Circumventing dividend restrictions from operating
subsidiaries’. These inflammatory statements are false and
misleading. The Report provides no substantive facts or analysis to
support them whatsoever”.
Forward-Looking
Statements This news release contains
forward-looking statements within the meaning of the U.S. federal
securities laws. We intend these forward-looking statements to be
covered by the safe harbor provisions for forward-looking
statements in the U.S. Federal securities laws. These statements
involve risks and uncertainties that could cause actual results to
differ materially from those contained in forward-looking
statements made on behalf of the Company. These risks and
uncertainties include the impact of general economic conditions and
conditions affecting the insurance and reinsurance industry, the
adequacy of our reserves, our ability to assess underwriting risk,
trends in rates for property and casualty insurance and
reinsurance, competition, investment market fluctuations, trends in
insured and paid losses, catastrophes, regulatory and legal
uncertainties and other factors described in our annual report on
Form 10-K filed with the Securities Exchange Commission. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
About Greenlight Capital Re,
Ltd. Established in 2004, Greenlight Re
(www.greenlightre.ky) is a NASDAQ listed company with
specialist property and casualty reinsurance companies based in the
Cayman Islands and Ireland. Greenlight Re provides risk management
products and services to the insurance, reinsurance and other risk
marketplaces. The Company focuses on delivering risk solutions to
clients and brokers by whom Greenlight Re's expertise, analytics
and customer service offerings are demanded. With an emphasis on
deriving superior returns from both sides of the balance sheet,
Greenlight Re manages its assets according to a value-oriented
equity-focused strategy that supports the goal of long-term growth
in book value per share.
Contact:Investor
Relations:Adam PriorThe Equity Group Inc.(212)
836-9606IR@greenlightre.ky
Public Relations/Media:Mairi MallonRein4ce+44
(0)203 786 1160mairi.mallon@rein4ce.co.uk
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