Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM

Form 10-Q

(Mark One)

(Mark One)[X] 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007.

or

[ ] For the quarterly period ended June 30, 2008.
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to

For the transition period from                              to                             

Commission file number001-33493


GREENLIGHT CAPITAL RE, LTD.
(Exact Name of Registrant as Specified in Its Charter)
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.)
802 WEST BAY ROAD
THE GRAND PAVILION
PO BOX 31110
GRAND CAYMAN

CAYMAN ISLANDS
KY1-1205

(Address of Principal Executive Offices)
KY1-1205
(Zip Code)

(345) 745-4573
(Registrant’s Telephone Number, Including Area Code)
(345) 943-4573

(Registrant’s Telephone Number, Including Area Code)
Not Applicable


(Former Name, Former Address and Former Fiscal year,Year, if Changed Since Last Report)

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 þ[ ]     No o[X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of ‘‘“large accelerated filer,” “accelerated filer” and large accelerated filer’’“smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]            Accelerated filer [ ]            Non-accelerated filer [X]

Large accelerated filer o
Accelerated filer oNon-accelerated filer þSmaller reporting company o
                 (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).

Yes o[ ]     No þ[X]


Class A Ordinary Shares, $.10 par value29,847,78730,010,636
(Class)(Outstanding as of August 13, 2007)6, 2008)




GREENLIGHT CAPITAL RE, LTD.


TABLE OF CONTENTS


  Page
Item 1.Financial Statements
 
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Item 5.EX-3.1: AMENDED AND RESTATED MEMORANDUMOther Information26
Item 6.EX-31.1: CERTIFICATIONExhibits26
SIGNATURESEX-31.2: CERTIFICATION
EX-31.1 (Section 302 CEO Certification)EX-32.1: CERTIFICATION
EX-31.2 (Section 302 CFO Certification)
EX-32.1 (Section 906 CEO Certification)
EX-32.2 (Section 906 CFO Certification)EX-32.2: CERTIFICATION


2


Table of Contents

PART I — FINANCIAL INFORMATION

Item 1:    FINANCIAL STATEMENTS

Item 1.FINANCIAL STATEMENTS
GREENLIGHT CAPITAL RE, LTD.
June 30, 20072008 and December 31, 2006
2007
(expressedExpressed in thousands of U.S. dollars, except per share and share amounts)


         
  June 30,
    
  2008
  December 31,
 
  (Unaudited)  2007 
 
Assets
Investments in securities        
Debt securities, trading, at fair value $6,328  $1,520 
Equity investments, trading, at fair value  588,604   570,440 
Other investments, at fair value  11,013   18,576 
         
Total investments in securities  605,945   590,536 
Cash and cash equivalents  97,523   64,192 
Restricted cash and cash equivalents  441,747   371,607 
Financial contracts receivable, at fair value  4,620   222 
Reinsurance balances receivable  69,654   43,856 
Loss and loss adjustment expense recoverables  7,680   6,721 
Deferred acquisition costs  15,251   7,302 
Unearned premiums ceded  15,595   8,744 
Other assets  2,006   965 
         
Total assets
 $1,260,021  $1,094,145 
         
 
Liabilities and Shareholders’ Equity
Liabilities
        
Securities sold, not yet purchased, at fair value $409,218  $332,706 
Financial contracts payable, at fair value  1,643   17,746 
Loss and loss adjustment expense reserves  57,367   42,377 
Unearned premium reserves  95,289   59,298 
Reinsurance balances payable  33,172   19,140 
Funds withheld  9,180   7,542 
Other liabilities  4,983   2,869 
Performance compensation payable to related party  6,145   6,885 
Minority interest in joint venture  7,270    
         
Total liabilities
  624,267   488,563 
         
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 30,010,636, (2007: 29,847,787); Class B: par value $0.10; authorized, 25,000,000; issued and outstanding, 6,254,949 (2007: 6,254,949))  3,627   3,610 
Additional paid-in capital  478,228   476,861 
Retained earnings  153,899   125,111 
         
Total shareholders’ equity
  635,754   605,582 
         
Total liabilities and shareholders’ equity
 $1,260,021  $1,094,145 
         
 June 30,
2007
(unaudited)
December 31,
2006
(audited)
Assets  
Investments in securities  
Fixed maturities, trading at fair value$2,163$
Equity investments, trading at fair value501,175238,799
Other investments, at estimated fair value3,6654,723
Total investments in securities507,003243,522
Cash and cash equivalents85,18282,704
Restricted cash and cash equivalents303,270154,720
Financial contracts receivable, at fair value1,151
Investment income receivable2,551454
Reinsurance balances receivable61,05719,622
Loss and loss adjustment expense recoverables5,269
Deferred acquisition costs15,27516,282
Unearned premiums ceded20,854
Other assets1,2001,304
Total assets$1,002,812$518,608
Liabilities and shareholders’ equity  
Liabilities  
Securities sold, not yet purchased, at fair value$241,317$124,044
Dividends payable on securities sold, not yet purchased696354
Financial contracts payable, at fair value27,5798,640
Loss and loss adjustment expense reserves28,6284,977
Unearned premium reserves97,75847,546
Reinsurance balances payable22,5214,236
Funds withheld2,753
Accounts payable and accrued expenses2,6982,020
Performance and management fees payable to related party1,34914,624
Total liabilities425,299206,441
Shareholders’ equity  
Preferred share capital (par value $0.10; authorized, 50,000,000; none issued)
Ordinary share capital (Class A: par value $0.10; authorized, 100,000,000; issued and outstanding, 29,847,787 (2006: 16,507,228); Class B: par value $0.10; authorized, 25,000,000; issued and outstanding, 6,254,949 (2006: 5,050,000))3,6102,156
Additional paid-in capital475,686219,972
Retained earnings98,21790,039
Total shareholders’ equity577,513312,167
Total liabilities and shareholders’ equity$1,002,812$518,608

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


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Table of Contents

GREENLIGHT CAPITAL RE, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


For the three and six months ended June 30, 20072008 and 2006
2007
(expressedExpressed in thousands of U.S. dollars, except per share and share amounts)


                 
  Three Months Ended
  Six Months Ended
 
  June 30,  June 30, 
  2008  2007  2008  2007 
 
Revenues
                
Gross premiums written $25,360  $65,445  $96,126  $103,509 
Gross premiums ceded  (5,615)  (14,534)  (14,887)  (28,277)
                 
Net premiums written  19,745   50,911   81,239   75,232 
Change in net unearned premium reserves  4,937   (25,939)  (29,065)  (29,339)
                 
Net premiums earned  24,682   24,972   52,174   45,893 
Net investment income  31,025   19,924   25,263   5,543 
                 
Total revenues  55,707   44,896   77,437   51,436 
                 
Expenses
                
Loss and loss adjustment expenses incurred, net  9,337   11,138   21,461   20,126 
Acquisition costs  9,228   9,515   19,157   17,227 
General and administrative expenses  3,210   2,926   7,670   5,905 
                 
Total expenses  21,775   23,579   48,288   43,258 
                 
Net income before minority interest  33,932   21,317   29,149   8,178 
Minority interest in income of joint venture  (394)     (361)   
                 
Net income
 $33,538  $21,317  $28,788  $8,178 
                 
Earnings per share
                
Basic $0.93  $0.78  $0.80  $0.33 
Diluted  0.92   0.76   0.79   0.33 
Weighted average number of ordinary shares used in the determination of
                
Basic  35,981,386   27,472,993   35,981,349   24,515,973 
Diluted  36,652,441   27,980,421   36,644,456   24,895,878 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2007200620072006
Revenues    
Gross premiums written$65,445$11,662$103,509$11,662
Gross premiums ceded(14,534(28,277
Net premiums written50,91111,66275,23211,662
Change in net unearned premium reserves(25,939(9,249(29,339(9,249
Net premiums earned24,9722,41345,8932,413
Net investment income19,9247,1925,54324,387
Interest income on related party promissory note receivable272562
Total revenues44,8969,87751,43627,362
Expenses    
Loss and loss adjustment expenses incurred11,13820,126
Acquisition costs9,5151,09317,2271,143
General and administrative expenses2,9262,2215,9054,186
Total expenses23,5793,31443,2585,329
Net income$21,317$6,563$8,178$22,033
Earnings per share    
Basic$0.78$0.31$0.33$1.03
Diluted0.760.310.331.03
Weighted average number of Ordinary Shares used in the determination of    
Basic27,472,99321,346,66624,515,97321,290,186
Diluted27,980,42121,445,64224,895,87821,370,858

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


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Table of Contents

GREENLIGHT CAPITAL RE, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)


For the six months ended June 30, 20072008 and 2006
2007
(expressedExpressed in thousands of U.S. dollars, except per share and share amounts)


         
  Six Months
  Six Months
 
  Ended June 30,
  Ended June 30,
 
  2008  2007 
 
Ordinary share capital
        
Balance — beginning of period $3,610  $2,156 
Issue of Class A ordinary share capital  17   1,191 
Issue of Class B ordinary share capital     263 
         
Balance — end of period $3,627  $3,610 
         
Additional paid-in capital
        
Balance — beginning of period $476,861  $219,972 
Issue of Class A ordinary share capital  9   207,094 
Issue of Class B ordinary share capital     49,737 
IPO expenses     (2,629)
Stock options and awards expense  1,358   1,512 
         
Balance — end of period $478,228  $475,686 
         
Retained earnings
        
Balance — beginning of period $125,111  $90,039 
Net income  28,788   8,178 
         
Balance — end of period $153,899  $98,217 
         
Total shareholders’ equity
 $635,754  $577,513 
         
    Related
party
promissory
note
receivable
  
 Ordinary Shares issuedAdditional
paid-in
capital
 Total
Shareholders’
Equity
 Number
of shares
Share
capital
Retained
earnings
Balance at December 31, 200521,231,666$2,123$212,871$(16,212$33,040$231,822
Issue of Class A Ordinary Share capital161,398161,9761,992
Options and awards expense1,4861,486
Principal repayments received2,2952,295
Net income22,03322,033
Balance at June 30, 200621,393,064$2,139$216,333$(13,917$55,073$259,628
Balance at December 31, 200621,557,228$2,156$219,972$$90,039$312,167
Issue of Class A Ordinary Share capital11,913,9291,191207,094208,285
Issue of Class B Ordinary Share capital2,631,57926349,73750,000
Options and awards expense1,5121,512
IPO expenses(2,629(2,629
Net income8,1788,178
Balance at June 30, 200736,102,736$3,610$475,686$$98,217$577,513

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


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Table of Contents

GREENLIGHT CAPITAL RE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


For the six months ended June 30, 20072008 and 2006
2007
(expressedExpressed in thousands of U.S. dollars, except per share and share amounts)


         
  Six Months
  Six Months
 
  Ended June 30,
  Ended June 30,
 
  2008  2007 
 
Cash provided by (used in)
        
Operating activities
        
Net income $28,788  $8,178 
Adjustments to reconcile net income to net cash provided by (used in) operating activities        
Net change in unrealized losses (gains) on securities and financial contracts  40,177   (5,091)
Net realized gains on securities and financial contracts  (86,679)  (14,185)
Foreign exchange loss on restricted cash and cash equivalents  14,437   70 
Minority interest in income of joint venture  361    
Stock options and awards expense  1,375   1,512 
Depreciation  20   20 
Purchases of securities     (391,404)
Sales of securities     264,472 
Change in
        
Restricted cash and cash equivalents     (148,620)
Financial contracts receivable, at fair value     (1,151)
Reinsurance balances receivable  (25,798)  (41,435)
Loss and loss adjustment expense recoverables  (959)  (5,269)
Deferred acquisition costs  (7,949)  1,007 
Unearned premiums ceded  (6,851)  (20,854)
Other assets  (1,061)  (2,013)
Financial contracts payable, at fair value     18,939 
Loss and loss adjustment expense reserves  14,990   23,651 
Unearned premium reserves  35,991   50,212 
Reinsurance balances payable  14,032   18,285 
Funds withheld  1,638   2,753 
Other liabilities  2,114   1,020 
Performance compensation payable to related party  (740)  (13,275)
         
Net cash provided by (used in) operating activities  23,886   (253,178)
         
Investing activities
        
Purchases of securities and financial contracts  (575,339)   
Sales of securities and financial contracts  662,443    
Restricted cash and cash equivalents  (84,577)   
Minority interest in joint venture  6,909    
         
Net cash provided by investing activities  9,436    
         
Financing activities
        
Net proceeds from share issue     255,656 
Net proceeds from exercise of stock options  9    
         
Net cash provided by financing activities  9   255,656 
         
Net increase in cash and cash equivalents
  33,331   2,478 
Cash and cash equivalents at beginning of the period  64,192   82,704 
         
Cash and cash equivalents at end of the period
 $97,523  $85,182 
         
Supplementary information
        
Interest paid in cash $6,909  $153 
Interest received in cash  6,906   1,328 
 20072006
Cash provided by (used in)
Operating activities
  
Net income$8,178$22,033
Adjustments to reconcile net income to net cash used in
operating activities
  
Net change in unrealized gains on securities(5,091(13,972
Net realized gains on securities(14,591(15,163
Stock options and stock awards expense1,5121,486
Depreciation2038
Purchase of securities(390,998(109,106
Proceeds on sale of securities264,47297,546
Change in  
Restricted cash and cash equivalents(148,5503,540
Financial contracts receivable, at fair value(1,151(1,295
Investment income receivable(2,097179
Reinsurance balances receivable(41,435(1,825
Loss and loss adjustment expense recoverables(5,269
Deferred acquisition costs1,007(729
Unearned premiums ceded(20,854
Other assets84221
Dividends payable on securities sold, not yet purchased342146
Financial contracts payable, at fair value18,93977
Loss and loss adjustment expense reserves23,651
Unearned premium reserves50,2129,249
Reinsurance balances payable18,285998
Funds withheld2,753
Accounts payable and accrued expenses678(40
Performance and management fees payable to related party(13,275(214
Net cash used in operating activities(253,178(6,831
Investing activity  
Purchase of fixed assets(200
Net cash used in investing activities(200
Financing activities  
Net proceeds from share issue255,6561,992
Collection of related party promissory note receivable2,295
Net change in interest receivable on related party promissory
note receivable
(434
Net cash provided by financing activities255,6563,853
Net increase (decrease) in cash and cash equivalents2,478(3,178
Cash and cash equivalents at beginning of the period82,7047,218
Cash and cash equivalents at end of the period$85,182$4,040
Supplementary information:  
Interest paid in cash$153$972
Interest received in cash     1,3283,144

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


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Table of Contents

GREENLIGHT CAPITAL RE, LTD.
June 30, 20072008 and 2006
(expressed in thousands of U.S. dollars, except per share and share amounts)

2007
1.  GENERAL

Greenlight Capital Re, Ltd. (the ‘‘Company’’(“GLRE”) was incorporated as an exempted company under the Companies Law of the Cayman Islands on July 13, 2004. The Company incorporated aGLRE’s wholly owned subsidiary, Greenlight Reinsurance, Ltd. (the ‘‘Subsidiary’’“Subsidiary”), to provideprovides global specialty property and casualty reinsurance. The Subsidiary has an unrestricted Class ‘‘B’’“B” insurance license under Section 4(2) of the Cayman Islands Insurance Law. The Subsidiary commenced underwriting in April 2006.

In August 2004, GLRE raised gross proceeds of $212.2 million from private placements of Class A and Class B ordinary shares. In May 2007, GLRE raised proceeds of $208.3 million, net of underwriting fees, in an initial public offering of Class A ordinary shares as well as an additional $50.0 million from a private placement of Class B ordinary shares.

The Class A ordinary shares of GLRE are listed on Nasdaq Global Select Market under the symbol “GLRE.”
As used herein, the “Company” refers collectively to GLRE and the Subsidiary.
These unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (‘‘(“U.S. GAAP’’GAAP”) and in accordance with the instructions toForm 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2006.2007. In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all the normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented.

The results for the six months ended June 30, 20072008 are not necessarily indicative of the results to be expected for the full year.

2.  Significant accounting policiesSIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The condensed consolidated financial statements include the accounts of GLRE and the consolidated financial statements of the Subsidiary. All significant intercompany transactions and balances have been eliminated on consolidation. These condensed consolidated financial statements also include the accounts of the joint venture created between the Company and DME Advisors, LP (“DME”) effective January 1, 2008. Please refer to Note 6 for more details relating to the joint venture. DME’s share of interest in the joint venture is recorded as a minority interest.
Use of Estimates

The preparation of 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 consolidated financial statements and the reported amounts of income and expenses during the period. Actual results could differ from these estimates.
Restricted Cash and Cash Equivalents
The Company is required to maintain cash in segregated accounts with prime brokers and swap counterparties. The amount of restricted cash held by prime brokers is used to support the liability created from securities sold, not yet purchased, as well as net cash from foreign currency transactions. Cash held for the benefit of swap counterparties is used to collateralize the current value of any amounts that may be due to the counterparty under the swap contract.


7


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Loss and Loss Adjustment Expense Reserves and Recoverables
The Company establishes reserves for contracts based on estimates of the ultimate cost of all losses including losses incurred but not reported. These estimated ultimate reserves are based on reports received from ceding companies, historical experience as well as the Company’s own actuarial estimates. These estimates are reviewed periodically and adjusted when deemed necessary. Since reserves are based on estimates, the final settlement of losses may vary from the reserves established and any adjustments to the estimates, which may be material, are recorded in the period they are determined.
Loss and loss adjustment expense recoverables include the amounts due from retrocessionaires for paid and unpaid loss and loss adjustment expenses on retrocession agreements. Ceded losses incurred but not reported are estimated based on the Company’s actuarial estimates. These estimates are reviewed periodically and adjusted when deemed necessary. The Company may not be able to ultimately recover the loss and loss adjustment expense recoverable amounts due to the retrocessionaires’ inability to pay. The Company regularly evaluates the financial condition of its retrocessionaires and records provisions for uncollectible reinsurance recoverable when recovery becomes unlikely.
Financial Instruments

Investments in Securities and Securities Sold, Not Yet Purchased

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS’) No. 157, “Fair Value Measurements,” which establishes a framework for measuring fair value by creating a hierarchy of fair value measurements based on inputs used in deriving fair values and enhances disclosure requirements for fair value measurements. The adoption of SFAS No. 157 had no material impact to the Company’s results of operations or financial condition as there were no material changes in the valuation techniques used by the Company to measure fair value. The Company’s investments in bondsdebt and equitiesequity securities that are classified as ‘‘trading securities’’“trading securities” are valuedcarried at fair value. The fair values of the listed equity and debt investments are derived based on quoted prices (unadjusted) in active markets for identical assets (Level 1 inputs). The fair values of private debt securities are derived based on inputs that are observable, either directly or indirectly (Level 2 inputs), or on inputs that are unobservable (Level 3 inputs).
The Company’s “Other Investments” may include investments in private equities, limited partnerships, futures, exchange traded options and over-the-counter options (“OTC”), which are all carried at fair value. The Company maximizes the last reported sales price onuse of observable direct or indirect inputs (Level 2 inputs) when deriving the balance sheet dates as reported by a recognized exchange. Securitiesfair values for which recognized exchange quotations“Other Investments”. For limited partnerships and private equities, where observable inputs are not readily available, (e.g., private equity)the fair values are reportedderived based on unobservable inputs (Level 3 inputs) such as other investments and are valued at management’s best estimate (utilizingassumptions developed from available information, using the services of the investment advisor. Amounts invested in exchange traded and OTC call and put options are recorded as an investment advisor) of theasset or liability at inception. Subsequent to initial recognition unexpired exchange traded option contracts are recorded at fair market value based on quoted prices received fromin active markets (Level 1 inputs). For OTC options or exchange traded options where a quoted price in an active market makers when available.

Premiums and discounts on fixed income securitiesis not available, fair values are amortized into net investment income over the life of the security.

derived based upon observable inputs (Level 2 inputs) such as market maker quotes.

For securities classified as trading“trading securities,” and “Other Investments,” any realized and unrealized gains or losses are determined on the basis of the specific identification method (by reference to cost and amortized cost, as appropriate) and included in net investment income in the condensed consolidated statements of income.


Table of Contents

For

Premiums and discounts on debt securities for which exchange quotations are not readily available, any realized and unrealized gains or losses are determined on the basis of the specific identification method. Realized gains and losses are reported inamortized into net investment income inover the condensed consolidated statements of income. Unrealized gains and losses, if any, are included in accumulated other comprehensive income as a separate component of shareholders’ equity. A decline in market value of a security below cost that is deemed other than temporary is charged to earnings and results in the establishment of a new cost basislife of the security.

Dividend income and expense are recorded on the ex-dividend date.

The ex-dividend date is the date as of when the underlying security must have been traded to be eligible for the dividend declared. Interest income and interest expense are recorded on an accrual basis.


8


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investments in Options

Amounts invested in exchange traded call and put options are recorded as an asset or liability at inception. Subsequent to initial recognition, unexpired option contracts are recorded at fair market value which is based upon the last quoted prices of the call and put options. Realized and unrealized gains and losses are included in net investment income in the condensed consolidated statements of income.

Investments in Total Return Swap Agreements

Total return swap agreements, included inon the condensed consolidated balance sheets as financial contracts receivable and financial contracts payable, are derivative financial instruments entered into whereby the Company is either entitled to receive or obligated to pay the product of a notional amount multiplied by the movement in an underlying security, which the Company does not own, over a specified time frame. In addition, the Company may also be obligated to pay or receive other payments based on either interest rate, dividend payments and receipts, or foreign exchange movements during a specified period. The Company measures its rights or obligations to the counterparty based on the fair market value movements of the underlying security together with any other payments due. These contracts are carried at estimated fair value, derived based on observable inputs (Level 2 inputs) with the resultant unrealized gains and losses reflected in net investment income in the condensed consolidated statements of income. Additionally, any changes in the value of amounts received or paid on swap contracts are reported as a gain or lo ssloss in net investment income in the condensed consolidated statements of income.

Earnings Per Share

Basic earnings per share isare based on weighted average Ordinary Sharesordinary shares outstanding during the three and excludessix month periods ended June 30, 2008 and 2007 and exclude dilutive effects of stock options and unvested stock awards. Diluted earnings per share assumes the exercise of all dilutive stock options and stock awards using the treasury stock method.


                 
  Three Months Ended
  Six Months Ended
 
  June 30,  June 30, 
  2008  2007  2008  2007 
 
Weighted average shares outstanding  35,981,386   27,472,993   35,981,349   24,515,973 
Effect of dilutive service provider stock options  172,087   183,930   173,347   159,698 
Effect of dilutive employee and director options and stock awards  498,968   323,498   489,760   220,207 
                 
   36,652,441   27,980,421   36,644,456   24,895,878 
                 
Anti-dilutive stock options outstanding  50,000      50,000   233,000 
                 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2007200620072006
Weighted average Ordinary Shares outstanding27,472,99321,346,66624,515,97321,290,186
Effect of dilutive service provider stock options183,93089,040159,69870,888
Effect of dilutive employee and director options and stock awards323,4989,936220,2079,784
 27,980,42121,445,64224,895,87821,370,858

There were 233,000 and 898,000 anti-dilutive stock options outstanding as of June 30, 2007 and 2006, respectively.


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Recently IssuedAdopted Accounting Standards

In September 2006, the Financial Accounting Standards Board (‘‘FASB’’(“FASB”) issued SFAS No. 157, ‘‘Fair“Fair Value Measurements.’’ The Statement” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement applies to other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. This StatementSFAS No. 157 does not require any new fair value measurements. This Statement ismeasurements but applies whenever other standards require or permit assets or liabilities to be measured by fair value. The Company adopted SFAS No. 157 for its financial assets and financial liabilities effective for the Company beginning January 1, 2008. Management hasThe adoption of SFAS No. 157 did not completed its review of the new guidance; however, the effect of the Statement’s implementation is not expected to behave a material toimpact on the Company’s condensed consolidated financial positionstatements.
In February 2008, the FASB approved the issuance of FASB Staff Position (“FSP”)FAS 157-2. FSPFAS 157-2 defers the effective date of SFAS No. 157 until January 1, 2009 for non-financial assets and non-financial liabilities except those items recognized or results of operations.

disclosed at fair value on an annual or more frequently recurring basis.

In February 2007, the FASB issued SFAS No. 159, ‘‘The“The Fair Value Option for Financial Assets and Financial Liabilities.’’ The Statement” SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates. For items for which the fair value option has been elected, unrealized gains and losses are to be reported in earnings at each subsequent reporting date. The fair value option is irrevocable unless a new election date occurs, may be applied instrument by instrument, with a few exceptions, and applies only to entire instruments and not to portions of instruments. This StatementSFAS No. 159 provides an opportunity to mitigate volatility in reported earnings caused by


9


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
measuring related assets and liabilities differently without having to apply complex hedge accounting. The Company adopted SFAS No. 159 effective January 1, 2008. As a result, the unrealized gains and losses on the Company’s investments in private equities and limited partnerships, are now included in net investment income in the condensed consolidated statements of income, as opposed to other comprehensive income. The adoption of SFAS No. 159 did not have a material impact on the Company’s condensed consolidated financial statements except for the change in presentation of cash flows relating to investments in the condensed consolidated statement of cash flows as described below.
Additionally, SFAS No. 159 amends SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” such that cash flows relating to “trading securities” must be classified in the condensed consolidated statement of cash flows based on the nature and purpose for which the securities were acquired. Prior to adopting SFAS No. 159, the Company classified cash flows relating to investments as operating activities. The Company has determined that activities that generate investment income or loss should be classified under investing activities to reflect the underlying nature and purpose of the Company’s investing strategies. Therefore, upon adoption of SFAS No. 159, the Company has classified cash flows relating to investments in securities, restricted cash and cash equivalents, and financial contracts receivable and payable, as investing activities. Prior period comparatives have not been reclassified.
Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations.” SFAS No. 141 (Revised) is effective for acquisitions during the Companyfiscal years beginning January 1, 2008.after December 15, 2008 and early adoption is prohibited. This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The Company did not elect early adoption. Management has not completed its reviewstatement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the newfinancial statements to evaluate the nature and financial effects of the business combination. Management is reviewing this guidance; however, the effect of the Statement’sstatement’s implementation will depend upon the extent and magnitude of acquisitions, if any, after December 31, 2008.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 and early adoption is prohibited. This statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Management is reviewing this guidance; however, the effect of the statement’s implementation is not expected to be material to the Company’s results of operations or financial position.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how an entity accounts for the derivatives and hedged items, and how derivatives and hedged items affect an entity’s financial position, performance and cash flows. Management is reviewing this guidance; however, the effect of the statement’s implementation is not expected to be material to the Company’s derivative disclosures.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. generally accepted accounting principles (GAAP). SFAS No. 162 directs the GAAP hierarchy to the Company, not the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. SFAS No. 162 is effective 60 days


10

Additionally,


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to remove the GAAP hierarchy from the auditing standards. Management does not expect SFAS No. 162 to have a material effect on the Company’s results of operations or financial position.
In March 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60.” SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. Earlier application is not permitted except for disclosures about the risk-management activities of the insurance enterprise which is effective for the first interim period beginning after the issuance of SFAS No. 163. This statement requires an insurance enterprise to recognize a claim liability prior to an insured event when there is evidence that credit deterioration has occurred in an insured financial obligation. This statement also clarifies how FASB Statement No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Finally, this statement requires expanded disclosures about financial guarantee contracts focusing on the insurance enterprise’s risk-management activities in evaluating credit deterioration in its insured financial obligations. Management is reviewing this statement; however, the effect of the statement’s implementation is not expected to be material to the Company’s results of operations or financial position. Also as of June 30, 2008, the Company had no financial guarantee contracts that required expanded disclosures under this statement.
3.  FINANCIAL INSTRUMENTS
Fair Value Hierarchy
Effective January 1, 2008, the Company adopted SFAS No. 157 and SFAS No. 159. As a result, all of the Company’s “trading securities” continue to be carried at fair value, and the net unrealized gains or losses continue to be included in net investment income in the condensed consolidated statements of income. For private equity securities, the unrealized gains and losses, if any, which would have been previously recorded in other comprehensive income, are included in net investment income in the condensed consolidated statements of income in order to apply a consistent treatment for the Company’s entire investment portfolio. The change in treatment resulted in no cumulative-effect adjustment to the opening balance of retained earnings. The fair values of the private equity securities, existing at the date the Company adopted SFAS No. 159, amends SFAS No. 115, ‘‘Accountingremained unchanged from the carrying values of those securities immediately prior to electing the fair value option.
The following table presents the Company’s investments, categorized by the level of the fair value hierarchy as of June 30, 2008:
                 
  Fair Value Measurements as of June 30, 2008 
        Significant
    
        Other
  Significant
 
     Quoted Prices in
  Observable
  Unobservable
 
  Total as of
  Active Markets
  Inputs
  Inputs
 
Description
 June 30, 2008  (Level 1)  (Level 2)  (Level 3) 
  ($ in thousands) 
 
Listed equity securities $588,604  $588,604  $  $ 
Debt securities  6,328      3,261   3,067 
Private equity securities  7,963      1,700   6,263 
Options  3,050   1,215   1,835    
Financial contracts receivable/payable, net  2,977      2,977    
                 
  $608,922  $589,819  $9,773  $9,330 
                 
Listed equity securities, sold not yet purchased $(409,218) $(409,218) $  $ 
                 
  $(409,218) $(409,218) $  $ 
                 


11


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the reconciliation of the balances for Certain Investmentsall investments measured at fair value using significant unobservable inputs (Level 3):
                         
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 
  Three Months Ended June 30, 2008  Six Months Ended June 30, 2008 
     Private
        Private
    
  Debt
  Equity
     Debt
  Equity
    
  Securities  Securities  Total  Securities  Securities  Total 
  ($ in thousands) 
 
Beginning balance $865  $10,943  $11,808  $865  $8,115  $8,980 
Purchases, sales, issuance, and settlements  2,204   804   3,008   2,204   3,565   5,769 
Total gains or losses (realized & unrealized) included in earnings  (2)  (279)  (281)  (2)  (212)  (214)
Transfers in and/or out of Level 3     (5,205)  (5,205)     (5,205)  (5,205)
                         
Ending balance $3,067  $6,263  $9,330  $3,067  $6,263  $9,330 
                         
Transfers from Level 3 represent the fair value of private equity securities of an entity that were transferred to Level 1 when the entity’s shares were publicly listed during the second quarter of fiscal 2008, resulting in Debt and Equity Securities,’’ such that cash flows relating to trading securities must be classified in the Condensed Consolidated Statement of Cash Flowsfair value being based on the nature and purpose for which the securities were acquired. Currently, the Company classifies cash flows from trading securities as operating activities. While the Company’s management has not completed its review of SFAS No. 159, the Company anticipates that cash flows relating to trading securities may be classified as investing activities rather than operating activities beginning January 1, 2008.

3. REINSURANCE

The Company utilizes retrocession agreements to reduce the risk of loss on business assumed. The Company currently hasquoted price in place coverages that provide for recovery of a portion of certain loss and loss expenses incurred on certain contracts. Loss and loss adjustment expense recoverables from the reinsurers are recorded as assets. an active market.

For the three and six months ended June 30, 2007 loss2008, change in unrealized losses of $0.3 million and loss adjustment expenses incurred$0.2 million respectively, on securities still held at the reporting date, and valued using unobservable inputs, are included as net investment income in the condensed consolidated statements of lossincome. There were no realized gains or losses for the three and loss expenses recovered and recoverable of $5.9 million (2006: $0). Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company regularly evaluates the financial condition of its reinsurers. Atsix months ended June 30, 2007 the Company has loss recoverables of $1.5 million (2006: $0) with a reinsurer rated ‘‘A (excellent)’’ by A.M. Best Company. Additionally, the Company ha s loss recoverables of $3.8 million (2006: $0) with two unrated reinsurers. At June 30, 2007 the Company retains funds and other collateral from the unrated reinsurers for amounts in excess of the loss recoverable asset. The Company did not purchase any retrocessional coverage in 2006.

4. 2008, relating to securities valued using unobservable inputs.
Financial Instruments

Other Investments

Other investmentsInvestments” include bonds andoptions as well as private equities for which fair value isquoted prices in active markets are not readily determined as well as options.available. Options are derivative financial instruments that give the buyer, in exchange for a premium payment, the right, but not the obligation, to either purchase from (call option) or sell to (put option) the writer, a specified underlying security at a specified price on or before a specified


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date. The Company enters into exchange traded option contracts to meet certain investment objectives. For these exchange traded option contracts, the exchange acts as the counterparty to specific transactions and therefore bears the risk of delivery to and from counterparties of specific positions.

At For OTC options the dealer acts as the counterparty and therefore the Company is exposed to credit risk to the extent the dealer is unable to meet its obligations. As of June 30, 2007,2008, the Company did not hold any OTC options.

As of June 30, 2008, the following securities were included in other investments are“Other Investments”:
                 
     Unrealized
  Unrealized
  Fair Market
 
  Cost  Gains  Losses  Value 
  ($ in thousands) 
 
Private equity securities $9,565  $  $(1,602) $7,963 
Put options  2,477   594   (21)  3,050 
                 
  $12,042  $594  $(1,623) $11,013 
                 


12


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2007, the following securities:


 CostUnrealized
gains/(losses)
Fair market
value
Equities – unlisted$3,042$(28$3,014
Call options341310651
 $3,383$282$3,665

At December 31, 2006,securities were included in other investments are the following securities:


“Other Investments”:
                 
     Unrealized
  Unrealized
  Fair Market
 
  Cost  Gains  Losses  Value 
  ($ in thousands) 
 
Private equity securities $10,932  $150  $(247) $10,835 
Call options  1,943   776   (1,409)  1,310 
Put options  2,821   3,266   (1,182)  4,905 
Futures     1,526      1,526 
                 
  $15,696  $5,718  $(2,838) $18,576 
                 
 CostUnrealized
gains/(losses)
Fair market
value
Equities – unlisted$4,032$(28$4,004
Call options367352719
Put options123(123
 $4,522$201$4,723

During the six months ended June 30, 2007, and 2006, other-than-temporary impairment losses on unlistedprivate equities of $323 and $808 respectively,$0.3 million were reported and included in net realized gains on securities within net investment income, in the condensed consolidated statements of income.

5.    Share capital

4.  RETROCESSION
The Company utilizes retrocession agreements to reduce the risk of loss on business assumed. At June 30, 2008, the Company had in place coverages that provide for recovery of a portion of loss and loss expenses incurred on certain contracts. Loss and loss adjustment expense recoverables from the retrocessionaires are recorded as assets. For the six months ended June 30, 2008, loss and loss adjustment expenses incurred are net of loss and loss expenses recovered and recoverable of $5.4 million (2007: $5.9 million). Retrocession contracts do not relieve the Company from its obligations to policyholders. Failure of retrocessionaires to honor their obligations could result in losses to the Company. The Company regularly evaluates the financial condition of its retrocessionaires. At June 30, 2008, the Company had loss and loss adjustment expense recoverables of $0 (2007: $1.3 million) with a retrocessionaire rated “A (excellent)” by A.M. Best Company. In addition, included in the reinsurance balances receivable on the balance sheet as of June 30, 2008 were $1.5 million (2007: $1.3 million) in losses reimbursable from a retrocessionaire rated “A (excellent)” by A.M. Best Company. Additionally, at June 30, 2008, the Company had loss and loss adjustment expense recoverables of $7.7 million (2007: $5.4 million) with two unrated retrocessionaires. At June 30, 2008, the Company retained funds and other collateral from the unrated retrocessionaires for amounts in excess of the loss recoverable asset, and the Company has recorded no provision for uncollectible losses recoverable.
5.  SHARE CAPITAL
On January 10, 2007, 1,426,630 Class B ordinary shares were transferred from Greenlight Capital Investors, LLC (“GCI”) to its underlying owners and automatically converted into an equal number of Class A ordinary shares on a one-for-one basis, upon transfer. The remaining Class B ordinary shares were transferred from GCI to David Einhorn, the Chairman of the Company’s Board of Directors and a principal shareholder of the Company, and remained as Class B ordinary shares.
On May 30, 2007, the Company completed the sale of 11,787,500 Class A Ordinary Sharesordinary shares at $19.00 per share in an initial public offering. Included in the 11,787,500 shares sold were 1,537,500 shares purchased by the underwriters to cover over-allotments. Concurrently, 2,631,579 Class B Ordinary Sharesordinary shares were sold at $19.00 per share as part of a private placement. The net proceeds to the Company of the initial public offering and private placement were approximately $255.7 million after the deduction of underwriting fees and other offering expenses.

Additionally, during

During the six months ended June 30, 2007, 108,1602008, 141,465 (2007: 108,160) restricted shares of Class A Ordinary Sharesordinary shares were issued to employees as part ofpursuant 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. Each of these restricted shares will vest on March 15, 2010,24, 2011, subject to the grantee’s continued service with the Company.


13


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the six months ended June 30, 2008, 660 stock options were exercised which had a weighted average exercise price of $13.85. For any options exercised, the Company issues new Class A ordinary shares from the shares authorized for issuance as part of the Company’s stock incentive plan. The intrinsic value of options exercised during the six months ended June 30, 2008, was $6,067. During the six months ended June 30, 2007, no stock options were exercised.
During the six months ended June 30, 2008, the Company also issued to certain directors 13,26420,724 (2007: 13,264) restricted shares of Class A Ordinary Sharesordinary shares as part of the directors’ remuneration. Each of these restricted shares issued to the directors contain similar restrictions to those issued to employees and these shares will vest on the earlier of the first anniversary of the sharesshare issuance or the Company’s next annual general meeting, subject to the grantee’s continued service with the Company. Additionally, t he Company
The following table is a summary of voting ordinary shares issued 5,005 Class A Ordinary Shares representing the vesting of directors’ stock awards granted in 2004.

The Company recognizes compensation expense on a straight line basis over the vesting period using the fair value of the shares awarded, at the time of the grant. Fair value for 102,160 shares of restricted stock which were issued prior to the initial public offering, was determined based on the mid-point of anticipated book value multiples for the Company’s initial public offering relative to the Company’s diluted book value per share as of the grant date. Fair value for 19,264 shares of restricted stock which were issued on May 24, 2007, was determined based on the initial public offering price of $19.00 per share.

The common shares of Company are listed on Nasdaq Global Select Market under the symbol ‘‘GLRE’’.


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On January 10, 2007, 1,426,630 Class B Ordinary Shares were transferred from Greenlight Capital Investors, LLC (‘‘GCI’’) to its underlying owners and automatically converted into an equal number of Class A Ordinary Shares on a one-for-one basis, upon transfer. The remaining Class B Ordinary Shares were transferred from GCI to Mr. David Einhorn and remained as Class B Ordinary Shares.

outstanding:
                 
  June 30, 2008  June 30, 2007 
  Class A  Class B  Class A  Class B 
 
Balance — beginning of period  29,847,787   6,254,949   16,507,228   5,050,000 
Issue of ordinary shares  162,849      11,913,929   2,631,579 
Transfer from Class B to Class A        1,426,630   (1,426,630)
                 
Balance — end of period  30,010,636   6,254,949   29,847,787   6,254,949 
                 
6.  Related party transactionsRELATED PARTY TRANSACTIONS

Director Stock Awards

During the year ended December 31, 2004, certain directors received a stock award of 5,000 Class A Ordinary Shares, vesting equally over three years. The directors each paid five hundred dollars to acquire the right to the stock award.

During the six months ended June 30, 2007, 5,005 (2006: 0) shares vested and were issued to the directors and as a result, $1 (2006: $0) has been expensed and added to shareholders’ equity.

Director Fees

Effective May 1, 2007 the four independent directors’ compensation was changed to include an annual retainer fee plus restricted stock rather than a retainer fee and per meeting fees which was previously in effect. The directors have the option of receiving the annual retainer in cash or restricted shares. During the six months ended June 30, 2007, director fees of $80 (2006: $30) were incurred. The amount was split among the four independent directors.

Investment Advisory Agreement

The Company has entered intowas party to an Investment Advisory Agreement (the ‘‘Investment Agreement’’“Investment Agreement”) with DME Advisors, L.P. (‘‘DME’’).until December 31, 2007. DME is a related party and an affiliate of David Einhorn, the Chairman of the Company’s Board of Directors (the “Board”) and a principal shareholderthe beneficial owner of all of the Company.

issued and outstanding Class B ordinary shares. Effective January 1, 2008, the Company terminated the Investment Agreement and entered into an agreement (the “Advisory Agreement”) wherein the Company and DME agreed to create a joint venture for the purposes of managing certain jointly held assets. Pursuant to this agreement, there were no changes to the monthly management fee or performance compensation contained in the Investment Agreement.

Pursuant to the InvestmentAdvisory Agreement, a performance feecompensation equal to 20% of the net income of the Company’s share of the account managed by DME is payable,allocated, subject to a loss carry forward provision, to DME.DME’s account. Included in net investment feesincome for both the three months ended June 30, 2007 is a performance fee of $1.3 million (2006: $1.8 million), and for the six months ended June 30, 20072008 is a performance compensation expense of $6.1 million (2007: $1.3 million (2006: $6.1 million). At June 30, 20072008 and December 31, 2006, $1.32007, $6.1 million and $14.6$6.9 million, respectively, remained payable.

Additionally, pursuant to the InvestmentAdvisory Agreement, a monthly management fee equal to 0.125% (1.5% on an annual basis) of the Company’s share of the account managed by DME is paid to DME. Included in the net investment feesincome for the three months ended June 30, 20072008 are management fees of $2.4$2.7 million (2006: $1.1(2007: $1.7 million), and. Included in net investment income for the six months ended June 30, 2007 $3.72008, are management fees of $5.1 million (2006: $1.9(2007: $3.0 million). The management fees were fully paid as of June 30, 20072008, and December 31, 2006.2007.
Service Agreement
In February 2007, the Company entered into a service agreement with DME, pursuant to which DME will provide investor relations services to the Company for compensation of $5,000 per month (plus expenses). The agreement had an initial term of one year, and continues for sequential one year periods until terminated by the Company or DME. Either party may terminate the agreement for any reason with 30 days prior written notice to the other party.


14

Other Transactions


Included in the condensed consolidated statements of income is interest income of $0 (2006: $0.6 million,) relating to a related party promissory note issued by GCI in exchange for Class B Ordinary Shares. During fiscal 2006 this promissory note was fully repaid by GCI, including both principal and interest.

GREENLIGHT CAPITAL RE, LTD.
Table of ContentsNOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7.  Commitments and contingenciesCOMMITMENTS AND CONTINGENCIES

Letters of Credit
At June 30, 2008, the Company had one letter of credit agreement for a total facility of $400 million of which the Company had issued $116.8 million (December 31, 2007: $76.5 million) letters of credit. In addition, a $25.0 million letter of credit agreement with another bank was terminated on June 6, 2008; although, letters of credit of $23.9 million issued under the agreement prior to June 6, 2008, remain outstanding until their respective expiration dates. At June 30, 2008, total investments and cash equivalents with a fair market value of $225.1 million (December 31, 2007: $148.9 million) have been pledged as security against the letters of credit issued. Each of the credit facilities requires that the Company comply with covenants, including restrictions on the Company’s ability to place a lien or charge on the pledged assets, and restricts issuance of any debt without the consent of the letter of credit provider. The Company was in compliance with all the covenants of each of its letter of credit facilities as of June 30, 2008.
Operating Lease

Effective September 1, 2005, the Company entered into a five-year non-cancelable lease agreement to rent office space. The total rent expense charged for the six months ended June 30, 2008, was $46,589 (2007: $44,370).
Specialist Service Agreement
Effective September 1, 2007, was $44 (2006: $42).

the Company entered into a service agreement with a specialist whereby the specialist service provider provides administration and support in developing and maintaining relationships, reviewing and recommending programs and managing risks on certain specialty lines of business. The followingservice provider does not have any authority to bind the Company to any reinsurance contracts. Under the terms of the agreement, the Company has committed to quarterly payments to the service provider. If the agreement is a schedule of futureterminated after two years, the Company is obligated to make minimum rental payments required underfor another two years, as presented in the operating lease fortable below, to ensure any bound contracts are adequately run-off by the next five years:


service provider.
YearTotal
2007$90
200895
200999
201069
2011
 $353

Private Equity

Periodically, the Company makes investments in private equity vehicles. As part of the Company’s participation in such private equity investments, the Company may make funding commitments. As of June 30, 2007,2008, the Company had commitments to invest an additional $2$26.9 million in private equity investments.

Lettersequities.

Schedule of Credit

Effective October 15, 2005, the Company signed a letterCommitments and Contingencies

As of credit agreement with a U.S. bank, for a facility of up to $200 million.

Effective June 6, 2007, the Company signed a letter of credit agreement with a Cayman Islands incorporated bank, for a facility of up to $25 million.

At June 30, 2007, letters2008, the following is a schedule of credit totaling $54.0 million (2006: $36.5 million) had been issued.future minimum payments required under the above commitments for the next five years:

                         
  2008  2009  2010  2011  2012  Total 
  ($ in thousands) 
 
Operating lease obligations $48  $99  $69  $  $  $216 
Specialist service agreement  326   576   400   150      1,452 
Private equity and limited partnerships(1)
  26,913               26,913 
                         
  $27,287  $675  $469  $150  $  $28,581 
                         
(1)Given the nature of these investments, the Company is unable to determine with any degree of accuracy when the remaining commitments will be called. Therefore, for purposes of the above table, the Company has assumed that all commitments will be paid within one year.


15

Litigation


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Litigation
In the normal course of business, the Company may become involved in various claims, litigation and legal proceedings. As of June 30, 2007,2008, the Company was not a party to any litigation or arbitration proceedings.


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8.  SEGMENT REPORTING

The Company manages its business on the basis of one operating segment, Property & Casualty Reinsurance.

The following tables provide a breakdown of the Company’s gross premiums written by line of business and by geographic area of risks insured for the periods indicated:

Gross Premiums Written by Line of Business


                                 
  Three Months Ended June 30, 2008  Three Months Ended June 30, 2007  Six Months Ended June 30, 2008  Six Months Ended June 30, 2007 
  ($ in millions) 
 
Property
                                
Commercial lines $1.6   6.3% $5.3   8.1% $6.1   6.3% $10.0   9.6%
Personal lines  (4.2)  (16.5)  15.8   24.2   (4.1)  (4.3)  30.8   29.8 
Casualty
                                
General liability  8.7   34.2   16.5   25.2   10.3   10.7   17.0   16.4 
Motor liability  12.1   47.6         36.9   38.4       
Professional liability  2.2   8.7   27.3   41.7   2.2   2.3   27.3   26.4 
Specialty
                                
Health  2.5   9.8   0.5   0.8   28.5   29.7   14.8   14.3 
Medical malpractice  (0.9)  (3.5)        6.9   7.2   3.6   3.5 
Workers’ compensation  3.4   13.4         9.3   9.7       
                                 
  $25.4   100.0% $65.4   100.0% $96.1   100.0% $103.5   100.0%
                                 
 Three Months Ended
June 30, 2007
Three Months Ended
June 30, 2006
Six Months Ended
June 30, 2007
Six Months Ended
June 30, 2006
 ($ in millions)($ in millions)($ in millions)($ in millions)
Homeowners’$15.824.2$$30.829.8$
Professional Liability27.241.627.226.3
Health0.60.914.814.3
General Liability14.522.214.514.0
Property Catastrophe5.38.19.984.310.09.79.984.3
Medical Malpractice3.73.5
Casualty Clash2.03.02.52.4
Marine1.815.71.815.7
 $65.4100.0$11.7100.0$103.5100.0$11.7100.0

Gross Premiums Written by Geographic Area of Risks Insured


                                 
     Three Months Ended June 30,
       
  Three Months Ended June 30, 2008  2007  Six Months Ended June 30, 2008  Six Months Ended June 30, 2007 
  ($ in millions) 
 
USA $21.6   85.0% $33.6   51.3% $86.2   89.7% $66.6   64.3%
Worldwide(1)
  3.0   11.8   29.2   44.6   9.1   9.5   34.2   33.0 
Europe        2.1   3.3         2.1   2.1 
Caribbean  0.8   3.2   0.5   0.8   0.8   0.8   0.6   0.6 
                                 
  $25.4   100.0% $65.4   100.0% $96.1   100.0% $103.5   100.0%
                                 
 Three Months Ended
June 30, 2007
Three Months Ended
June 30, 2006
Six Months Ended
June 30, 2007
Six Months Ended
June 30, 2006
 ($ in millions)($ in millions)($ in millions)($ in millions)
USA$33.651.3$6.354.3$66.664.3$6.354.3
Worldwide(1)29.244.634.233.0
Europe2.13.33.530.02.12.13.530.0
Caribbean0.50.80.54.30.60.60.54.3
Japan1.411.41.411.4
 $65.4100.0$11.7100.0$103.5100.0$11.7100.0
(1)
(1)‘‘Worldwide’’“Worldwide” risk comprise individual policies that insure risks on a worldwide basis.

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9.  SUBSEQUENT EVENTS
On July 9, 2008, the Company entered into a lease agreement for new office space in the Cayman Islands. Under the terms of the lease agreement, the Company is committed to annual rent payments ranging from $253,539


16


GREENLIGHT CAPITAL RE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to $311,821 for ten years starting from the earlier of December 1, 2008 or when the premises are occupied. The Company also has the option to renew the lease for a further five year term.
In addition, on August 5, 2008, the Board adopted a share repurchase plan. Under the share repurchase plan, the Board authorized the Company to purchase up to two million of its Class A ordinary shares from time to time. Class A ordinary shares may be purchased in the open market or through privately negotiated transactions. The timing of such repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The share repurchase plan, which expires on June 30, 2011, does not require the Company to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice. As of the date of this filing, no Class A ordinary shares had been repurchased pursuant to the share repurchase plan.


17


Item 2: 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to ‘‘we,’’ ‘‘our,’’ ‘‘our“we,” “us,” “our,” “our company,’’ ‘‘Greenlight” “Greenlight Re,’’ or the ‘‘the Company’’“the Company” refer to Greenlight Capital Re, Ltd. and our wholly-owned subsidiary, Greenlight Reinsurance, Ltd., unless the context dictates otherwise. References to our ‘‘Ordinary Shares’’“Ordinary Shares” refers collectively to our Class A Ordinary Shares and Class B Ordinary Shares.

The following is a discussion and analysis of our results of operations for the three and six months ended June 30, 20072008 and 20062007 and financial condition as of June 30, 20072008 and December 31, 2006.2007. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto contained in our prospectus dated May 24, 2007 filed withannual report onForm 10-K for the Securities and Exchange Commission, or SEC.

fiscal year ended December 31, 2007.

Special Note About Forward-Looking Statements

Certain statements in Management’s Discussion and Analysis (‘‘(“MD&A’’&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are ‘‘forward-looking statements’’“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words ‘‘believe,’’ ‘‘project,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘intend,’’ ‘‘strategy,’’ ‘‘plan,’’ ‘‘may,’’ ‘ ‘should,’’ ‘‘will,’’ ‘‘would,’’ ‘‘will“believe,” “project,” “predict,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “may,” “should,” “will,” “would,” “will be,’’ ‘‘will” “will continue,’’ ‘‘will” “will likely result,’’ and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled ‘‘Risk Factors’’“Risk Factors” (refer to Part II,I, Item 1A). contained in our annual report onForm 10-K for the fiscal year ended December 31, 2007. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on the forward looking statements which speak only to the dates on which they were made.

We intend to communicate certain events that we believe may have a material adverse impact on the Company’s operations or financial position, including property and casualty catastrophic events and material losses in our investment portfolio, in a timely manner through a public announcement. Other than as required by the Securities Exchange Act of 1934, as amended, we do not intend to make public announcements regarding reinsurance or investment events that we do not believe, based on management’s estimates and current information, will have a material adverse impact to the Company’s operations or financial position.

General

We are a Cayman Islands-based specialty property and casualty reinsurer with a reinsurance and investment strategy that we believe differentiates us from our competitors. Our goal is to build long-term shareholder value by selectively offering customized reinsurance solutions, in markets where capacity and alternatives are limited, thatwhich we believe will provide favorable long-term returns on equity.

We aim to complement our underwriting results with a non-traditional investment approach in order to achieve higher rates of return over the long-termlong term than reinsurance companies that employ more traditional, fixed-income investment strategies. We manage our investment portfolio according to a value-oriented philosophy, in which we take long positions in perceived undervalued securities and short positions in perceived overvalued securities.

Because we have a limited operating history, and an opportunistic underwriting philosophy, period-to-period comparisons of our underwriting results are not yet possible and may not be meaningful in the near future.meaningful. In addition, our historical investment results may not necessarily be indicative of future performance. In addition, due to the nature of our reinsurance and investment strategies, our operating results will likely fluctuate from period to period.


18


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Segments


Segments
We manage our business on the basis of one operating segment, property and casualty reinsurance, in accordance with the qualitative and quantitative criteria established by SFAS 131, ‘‘Disclosure“Disclosure about Segments of an Enterprise and Related Information.’’ Within the property and casualty reinsurance segment, we analyze our underwriting operations using two categories:

• frequency business; and
• severity business.

Frequency business is characterized by contracts containing a potentially large number of smaller losses emanating from multiple events. Clients generally buy this protection to increase their own underwriting capacity and typically select a reinsurer based upon the reinsurer’s financial strength and expertise. We expect the results of frequency business to be less volatile than those of severity business from period to period due to its greater predictability. We also expect that over time the profit margins and return on equity for our frequency business will be lower than those of our severity business.

Severity business is typically characterized by contracts with the potential for significant losses emanating from one event or multiple events. Clients generally buy this protection to remove volatility from their balance sheets and, accordingly, we expect the results of severity business to be volatile from period to period. However, over the long term, we also expect that our severity business will generate higher profit margins and return on equity than those of our frequency business.

Outlook and Trends

Historically,

Due to our increasing market recognition and a stronger capital base, we continue to expect to see an increase in frequency business written in 2008 compared to 2007 and continued diversification of business by client, line of business, broker and geography. In the second quarter of 2008, our premium estimates on certain contracts were lower than initially expected mainly due to our clients writing less exposures in a softening pricing environment. This has caused second quarter premium to decline.
At the same time, we believe there is an excess of capacity in the property and casualty market has experienced capacity shortages in certain product linesreinsurance business as a whole, mainly due to extended periodstwo consecutive years of competitivelow natural catastrophe losses. In the absence of a market changing event in 2008, we believe that this excess capacity will exert downward pricing higher than expected losses and changes in rating agency capital requirements. Overall,pressure on a number of the property and casualty market is currently experiencing a general softening of rates. However, whileproducts we expect that the property and casualty market will continuesell or wish to see adverse pricing trendssell in the near term,term. We intend to maintain our underwriting standards and discipline in the face of such potential market conditions.
Although current general market conditions in the reinsurance business may not be favorable, we continue to believe that specific sectors within the reinsurance marketplace may provide attractive opportunities. In particular, we continue to anticipate that we will see attractive opportunities during the remainder of 2008 in certain market segments will experience capacity or structural shortages. casualty and property lines, including some property catastrophe coverages, motor liability, health and medical malpractice risks, for reasons set forth in our annual report onForm 10-K for the fiscal year ended December 31, 2007.
We monitorintend to continue monitoring market conditions to be positioned to participate in future underserved or capacity-constrained markets as they arise and intend to offer products that we believe will generate favorable returns on equity over the long term. Accordingly, our underwriting results and product line concentrations in any given period will likely fluctuate and may not be indicative of our future results of operations.

Currently, we believe that market disruptions in some segments of the health markets have created some short-term opportunities, even as we are facing unfavorable general market conditions. In addition, we continue to develop business relating to the Cayman Islands’ captive market, which we believe can generate above average risk adjusted returns.

Critical Accounting Policies

Our consolidated financials statements are prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect reported and disclosed amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. We believe that the critical accounting policies set forth in our prospectus dated May 24,annual report onForm 10-K for the fiscal year ended December 31, 2007, as filed with the SEC continue to


19


describe the more significant judgments and estimates used in the preparation of our consolidated financial statements. These accounting policies pertain to revenue recognition, loss and loss adjustment expensesexpense reserves and investment valuation. Effective January 1, 2008, as a result of adopting SFAS No. 157 and SFAS No. 159 we record unrealized gains and losses, if any, on private investments in net investment income in the condensed consolidated statements of income. There was no material impact to our results of operations or financial condition as a result of this change. We did not make any material changes to our valuation techniques or models during the period.
If actual events differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies, there could be a material effect on our results of operations and financial condition.

Results of Operations

For the Three and Six Months Ended June 30, 20072008, and 2006

Our net income increased by $14.8 million for2007

For the three months ended June 30, 20072008, our net income increased by $12.2 million as compared to the same period in 20062007 mainly due to expanded underwriting operations, as well as$11.1 million higher investment income. Ourincome compared to the same period in 2007. The investment portfolio reported a net investment income of $31.0 million, a return of 4.5%, for the second quarter of 2008 as compared to net investment income of $19.9 million, a return of 6.8%, for the second quarter 2007 as comparedof 2007. The higher investment income reported in 2008 is primarily due to $7.2an increase in invested assets resulting from the net proceeds of our initial public offering in May 2007. Additionally, underwriting income increased to $6.1 million a 2.9% return, for the second quarterthree months ended June 30, 2008, from $4.3 million for the three months ended June 30, 2007. The increase in underwriting income for the three months ended June 30, 2008, was primarily due to lower loss and loss adjustment expenses, net of 2006.

loss recoveries.

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Our net income decreased by $13.9 million for

For the six months ended June 30, 20072008, our net income increased by $20.6 million as compared to the same period in 2006 primarily as the result of a decrease of $18.82007 mainly due to $19.7 million inhigher investment income compared to the same period in 2007. The investment portfolio reported a net investment income of $25.3 million, a return of 3.6%, for the period duefirst half of 2008 as compared to ana net investment loss duringincome of $5.5 million, a return of 2.3%, for the first quarterhalf of 2007 on2007. Additionally, our long equity position in New Century Financial Corp. a subprime mortgage lender that filedunderwriting income accounted for bankruptcy protection under Chapter 11approximately $3.0 million of the U.S. Bankruptcy Code on April 2, 2007. This decreaseincrease, while higher general and administrative expenses offset a portion of the increases in income duringour underwriting and investment results.
One of our primary financial goals is to increase the firstlong-term value in fully diluted book value per share. For the three months ended June 30, 2008, fully diluted book value increased by $0.89 per share, or 5.4%, to $17.29 from $16.40 at March 31, 2008. For the six months of 2007 was partially offsetended June 30, 2008, fully diluted book value increased by higher income being reported$0.72 per share, or 4.3%, to $17.29 from our underwriting operations, which commenced in April 2006.

$16.57 at December 31, 2007.

Premiums Written

Details of gross premiums written are provided below ($below:
                                 
  Three Months Ended June 30,  Six Months Ended June 30, 
  2008  2007  2008  2007 
  ($ in thousands) 
 
Frequency $20,801   82.0% $30,943   47.3% $77,646   80.8% $63,801   61.6%
Severity  4,559   18.0   34,502   52.7   18,480   19.2   39,708   38.4 
                                 
Total $25,360   100.0% $65,445   100.0% $96,126   100.0% $103,509   100.0%
                                 
We expect quarterly reporting of premiums written to be volatile as our underwriting portfolio continues to develop and due to our strategy to insure a concentrated portfolio of significant risks. Additionally, the composition of premiums written between frequency and severity business will vary from quarter to quarter depending on the specific market opportunities that we pursue. The volatility in thousands):


 Three months ended
June 30,
Six months ended
June 30,
 2007200620072006
Frequency$30,943$$63,801$
Severity34,50211,66239,70811,662
Total$65,445$11,662$103,509$11,662

The increasepremiums is reflected in the premiums written for both our frequency and severity business when comparing the three and six month periods ended June 30, 2008 to the same periods in 2007. The main contributing factor for the lower severity premiums written for the three and six month periods ended June 30, 2008 is premiums on a resultmulti-year professional liability severity contract written in the second quarter of 2007 which were recognized as written at inception in accordance with our accounting policy


20


for premium recognition. For the six months ended June 30, 2008, approximately $44.1 million, or 45.9%, of the increased underwriting operationsgross premiums written were attributed to new contracts entered into during the first half of the Company.2008. A more detailed analysis of gross premiums written by line of business can be found in Note 8 to the interim condensed consolidated financial statements.

We entered into one retrocessional contract duringcontracts amounting to $5.6 million of ceded premiums for the three months ended June 30, 2008 compared to $14.5 million of ceded premiums for same period in 2007. We have entered into a total of three retrocessionalThis decrease is attributed mainly to the following two factors.
• A frequency contract was renewed during the three month period ended June 30, 2008 which had $5.9 million lower ceded premiums than the original contract entered into during the three months ended June 30, 2007. The lower ceded premiums on this contract were due to a combination of us retaining additional risk compared to the original contract, and due to lower estimated subject premiums on the assumed contract.
• Premium adjustments were recorded on two frequency contracts during the three month period ended June 30, 2008 which accounted for approximately $3.0 million of the decrease.
For the six months ended June 30, 2007 relating2008, our premiums ceded decreased by $13.4 million, or 47.4%, mainly due to the risks assumed from two frequency reinsurance contracts. We did not purchase any retrocessional coverage in 2006.

following factors.

• A frequency contract was renewed at lower estimated subject premiums.
• A frequency contract was restructured on renewal wherein we retained certain additional risks previously ceded to a third party.
• Premium adjustments were recorded on two frequency contracts during the six month period ended June 30, 2008.
Details of net premiums written are provided below:
                                 
  Three Months Ended June 30,  Six Months Ended June, 30 
  2008  2007  2008  2007 
  ($ in thousands) 
 
Frequency $15,186   76.9% $16,409   32.2% $62,758   77.3% $35,524   47.2%
Severity  4,559   23.1   34,502   67.8   18,481   22.7   39,708   52.8 
                                 
Total $19,745   100.0% $50,911   100.0% $81,239   100.0% $75,232   100.0%
                                 
Our severity business includes contracts that contain or may contain natural peril loss exposure. As of June 30, 2007,August 1, 2008, our maximum aggregate loss exposure to any series of natural peril events was $44.2$69.5 million. For purposes of the preceding sentence, aggregate loss exposure is equal to the difference between the aggregate limits available in the contracts that contain natural peril exposure and reinstatement premiums for the same contracts. In addition, the maximum aggregate loss exposure to the portfolio can not be realized unless a natural peril event or series of events impacts more than one peak zone. We categorize peak zones as: United States, Europe, Japan and the rest of the world. Subsequent to June 30, 2007, we wrote additional business with natural peril loss exposure, which increased our maximum aggregate loss exposure to $76.7 million. The following table provides single event loss exposure and aggregate loss exposure information for the peak zones of our natural peril coverage as of the date of this filing ($ in thousands):


filing:
         
  Single Event
  Aggregate
 
Zone
 Loss  Loss 
  ($ in thousands) 
 
USA(1)
 $51,750  $69,500 
Europe  43,750   51,500 
Japan  43,750   51,500 
Rest of the world  23,750   31,500 
Maximum Aggregate  51,750   69,500 
ZoneSingle Event
Loss
Aggregate
Loss
United States(1)$49,600$65,100
Europe51,65567,675
Japan38,05554,075
Rest of World25,77141,790
Maximum Aggregate51,65576,675
(1)
(1)Includes the Caribbean


21

Table of Contents

Details of net premiums written are provided below ($ in thousands):



 Three months ended
June 30,
Six months ended
June 30,
 2007200620072006
Frequency$16,409$$35,524$
Severity34,50211,66239,70811,662
Total$50,911$11,662$75,232$11,662

Net Premiums Earned

Net premiums earned reflectsreflect the pro rata inclusion into income of net premiums written over the life of the reinsurance contracts. Details of net premiums earned are provided below ($below:
                                 
  Three Months Ended June 30,  Six Months Ended June 30, 
  2008  2007  2008  2007 
  ($ in thousands) 
 
Frequency $15,341   62.2% $20,476   82.0% $33,295   63.8% $36,417   79.4%
Severity  9,341   37.8   4,496   18.0   18,879   36.2   9,476   20.6 
                                 
Total $24,682   100.0% $24,972   100.0% $52,174   100.0% $45,893   100.0%
                                 
For the three months ended June 30, 2008, the earned premiums on the frequency business decreased $5.1 million compared to the same period in thousands):


2007. The decrease was mainly due to revised estimates of frequency premiums from certain 2008 contracts, and due to premiums returned on a 2007 personal lines contract. This decrease was offset by a $4.8 million increase in the severity business earned premiums for the same periods. The increase in severity earned premiums relates to the full three months of earned premiums for the three months ended June 30, 2008, on the multi-year professional liability contract written towards the end of the second quarter of 2007.
 Three months ended
June 30,
Six months ended
June 30,
 2007200620072006
Frequency$20,476$$36,417$
Severity4,4962,4139,4762,413
Total$24,972$2,413$45,893$2,413

For the six months ended June 30, 2008, the total earned premiums increased $6.3 million, or 13.7%. The increase in net premiums earned is attributable principally to increased grossnet premiums written and earned from the developing underwriting portfolio for both the three and six months ended June 30, 2008, as compared to the corresponding 2007 period. The increase in severity earned premiums relate to the full six months of earned premiums for the first half of fiscal 2008 on the multi-year excess of loss contract written towards the end of the second quarter of 2007.

Losses Incurred

Losses incurred include losses paid and changes in loss reserves, including reserves for losses incurred but not reported, or IBNR, net of actual and estimated loss recoverables. Details of losses incurred are provided below ($ in thousands):


below:
                                 
  Three Months Ended June 30,  Six Months Ended June 30, 
  2008  2007  2008  2007 
  ($ in thousands) 
 
Frequency $6,102   65.3% $10,594   95.1% $14,098   65.7% $19,165   95.2%
Severity  3,235   34.7   544   4.9   7,363   34.3   961   4.8 
                                 
Total $9,337   100.0% $11,138   100.0% $21,461   100.0% $20,126   100.0%
                                 
 Three months ended
June 30,
Six months ended
June 30,
 2007200620072006
Frequency$10,594$  —$19,165$  —
Severity544961
Total$11,138$$20,126$

Losses relating to frequency business were $10.6 million and $19.2 million for the three and six months ended June 30, 2007, respectively. The loss ratioratios for our frequency business was 51.7%were 42.3% and 52.6% for the six month periods ended June 30, 2008 and 2007 respectively. The lower loss ratio for frequency business for 2008 primarily reflects favorable loss development compared to the corresponding 2007 period.

We expect losses incurred on our severity business to be volatile from period to period. The loss ratios for our severity business were 39.0% and 10.1% for the six month periods ended June 30, 2008 and 2007 respectively. The increase in the loss ratio for severity business during the six month period ended June 30, 2008 is primarily due to the different composition of the severity underwriting portfolio and partially due to losses developing on a non natural peril severity contract. During the corresponding 2007 period, a majority of the severity underwriting portfolio related to natural peril and professional liability risks, while for the current six month period ended June 30, 2008, the severity contracts are diversified between medical malpractice and professional and general liability as well as natural peril risks.
During the six month period ended June 30, 2008, the aggregate development of prior period reinsurance reserves for frequency and severity businesses combined was not significant.


22


Losses incurred in the three month and six month periods ended June 30, 2008 and 2007 respectively. There were no frequency contracts writtencomprised of losses paid and thus no losses incurred during the comparable 2006 periods.

Losses incurred on our severity business are expected to be volatile from period to period. Losses incurred on the natural catastrophe exposed portion of our severity business have benefited from benign natural catastrophe experience during all periods reported. Additionally, given the seasonality of wind exposure, we expect that the first six months of a calendar year will generally report lower losses incurred on natural catastrophe business than the last six months of the year. Thechanges in loss ratio for our severity business was 12.1% and 10.1% for the three month and six month periods ended June 30, 2007, respectively. There were no losses incurred on our severity contracts during the comparable 2006 periods.

There were no significant developments of prior year reinsurance reserves during either the three month or six month periods ended June 30, 2007.

as follows:

                         
  Three Months Ended June 30, 2008  Three Months Ended June 30, 2007 
  Gross  Ceded  Net  Gross  Ceded  Net 
  ($ in thousands) 
 
Losses paid $6,456  $(2,584) $3,872  $2,394  $(651) $1,743 
Increase (decrease) in reserves  5,229   236   5,465   11,911   (2,516)  9,395 
                         
Total $11,685  $(2,348) $9,337  $14,305  $(3,167) $11,138 
                         
                         
  Six Months Ended June 30,
  Six Months Ended June 30,
 
  2008  2007 
  Gross  Ceded  Net  Gross  Ceded  Net 
  ($ in thousands) 
 
Losses paid $11,840  $(4,409) $7,431  $2,394  $(651) $1,743 
Increase (decrease) in reserves  14,988   (958)  14,030   23,652   (5,269)  18,383 
                         
Total $26,828  $(5,367) $21,461  $26,046  $(5,920) $20,126 
                         
Acquisition Costs

Acquisition costs represent the amortization of commission and brokerage expenses incurred on contracts written as well as profit commissions and other underwriting expenses which are expensed


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when incurred. Deferred acquisition costs are limited to the amount of commission and brokerage expenses that are expected to be recovered from future earned premiums and anticipated investment income. Details of acquisition costs are provided below ($ in thousands):


below:
                                 
  Three Months Ended June 30,  Six Months Ended June 30, 
  2008  2007  2008  2007 
  ($ in thousands) 
 
Frequency $8,145   88.3% $8,715   91.6% $16,538   86.3% $15,187   88.2%
Severity  1,083   11.7   800   8.4   2,619   13.7   2,040   11.8 
                                 
Total $9,228   100.0% $9,515   100.0% $19,157   100.0% $17,227   100.0%
                                 
 Three months ended
June 30,
Six months ended
June 30,
 2007200620072006
Frequency$8,715$$15,187$
Severity8001,0932,0401,143
Total$9,515$1,093$17,227$1,143

Increased acquisition costs are a direct result of the increases in premiums written. For the three and six monthsmonth period ended June 30, 2007,2008, the acquisition cost ratio for frequency business was 42.6%49.7% compared to 41.7% for the corresponding 2007 period. The increase was primarily the result of higher profit commissions accrued on a frequency contract due to favorable underwriting results. The acquisition cost ratio for severity business was 13.9% for the six month period ended June 30, 2008 compared to 21.5% for the corresponding 2007 period. The decrease in severity acquisition cost ratio is a result of (a) profit commissions paid during the first half of fiscal 2007 on a contract which was not renewed for the following year, (b) the non-renewal in 2008 of certain natural peril catastrophe severity contracts which had higher acquisition cost ratios, and 41.7%, respectively.(c) the earning of premiums on certain multi-year professional liability contracts, incepted in the later part of the second quarter of 2007, which have no acquisition costs associated with them. We expect that acquisition costs will be higher for frequency business than for severity business. TheOverall the total acquisition cost ratio for severity business was 17.8% and 21.5%decreased to 36.7% for the three and six monthsmonth period ended June 30, 2008 from 37.5% for the corresponding 2007 respectively. Acquisition costs incurred duringperiod.

General and Administrative Expenses
For the three and six monthsmonth periods ended June 30, 2006 were abnormally high as a percentage of premiums earned due to one particular contract which had a high profit commission feature. This contract was not renewed in 2007.

General2008 and Administrative Expenses

Our2007 our general and administrative expenses for the three months ended June 30, 2007 and 2006 were $2.9$3.2 million and $2.2$2.9 million, respectively. The increase inprimarily relates to salaries and benefits paid for additional staff hired subsequent to the second quarter of fiscal 2007.

For the six month period ended June 30, 2008 the general and administrative expenses increased $1.8 million, or 29.9% compared to same period in 2007. The increase primarily relates to higher employee bonuses approved by the Board of $0.7 million inDirectors during the comparablefirst quarter of 2008, relating to the 2007 fiscal year.


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For the six month periods reflectsended June 30, 2008 and 2007, the cost of expanding our underwriting operations, including hiring additional staff and other related expenses.

Our general and administrative expenses for the six months ended June 30, 2007 and 2006 were $5.9include $1.4 million and $4.2$1.5 million, respectively. The increase in general and administrative expenses of $1.7 million in the comparable periods reflects the cost of expanding our underwriting operations, including the hiring of additional staff and other related expenses. These expenses for the six months ended June 30, 2007 and 2006 both include $1.5 millionrespectively, for the expensing of the fair value of stock options and restricted stock granted to employees and directors. We expect our general and administrative expenses to increase as we incur additional expenses due to the increased reporting requirements applicable to public companies.

Net Investment Income

A summary of our net investment income is as follows ($ in thousands):


follows:
                 
  Three Months Ended
  Six Months Ended
 
  June 30,  June 30, 
  2008  2007  2008  2007 
  ($ in thousands) 
 
Realized gains and change in unrealized gains, net $36,727  $17,462  $32,065  $1,418 
Interest, dividend and other income  8,168   6,962   12,941   11,251 
Interest, dividend and other expenses  (5,099)  (1,505)  (8,501)  (2,868)
Investment advisor compensation  (8,771)  (2,995)  (11,242)  (4,258)
                 
Net investment income $31,025  $19,924  $25,263  $5,543 
                 
 Three months ended
June 30,
Six months ended
June 30,
 2007200620072006
Investment income$23,907$10,635$11,577$33,511
Investment expenses(988(658(1,776(1,159
Investment advisor fees(2,995(2,785(4,258(7,965
Net investment income$19,924$7,192$5,543$24,387

InvestmentFor the three months ended June 30, 2008, investment income, net of all fees and expenses, resulted in a 6.8% return of 4.5% on our investment portfolio for the three months ended June 30, 2007.portfolio. This compares to a 2.9%6.8% investment return reported for the three month periodcorresponding 2007 period. For the six months ended June 30, 2006.

Investment income,2008, the return on investment, net of all fees and expenses, resultedwas 3.6% compared to 2.3% for the first half of 2007.

Our investment advisor and its affiliates manage and expect to manage other client accounts besides ours, some of which have investment objectives similar to ours. To comply with Regulation FD, our investment returns are posted on our website on a monthly basis. Additionally, we also provide on our website the names of the largest disclosed long positions in a 2.3% return on our investment portfolio foras of the six months ended June 30, 2007. This compares to a 10.6% investment return reported for the six month period ended June 30, 2006. The 2007 return was adversely affected by an investment loss on a long equity position in New Century Financial Corp.

last trading day of each month.

Taxes

We are not obligated to pay any taxes in the Cayman Islands on either income or capital gains. We have been granted an exemption by the Governor In Cabinet from any taxes that may be imposed in the Cayman Islands for a period of 20 years, expiring on February 1, 2025.


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Ratio Analysis

As a result of

Due to the opportunistic and customized nature of our underwriting operations, we expect to report different loss and expense ratios in both our frequency and severity businesses from period to period. ForThe following table provides the ratios for the six monthsmonth periods ended June 30, 20072008 and 2006, the following ratios are reported:


2007:
                         
  Six Months Ended June 30, 2008  Six Months Ended June 30, 2007 
  Frequency  Severity  Total  Frequency  Severity  Total 
 
Loss ratio  42.3%  39.0%  41.1%  52.6%  10.1%  43.9%
Acquisition cost ratio  49.7%  13.9%  36.7%  41.7%  21.5%  37.5%
                         
Composite ratio  92.0%  52.9%  77.8%  94.3%  31.6%  81.4%
Internal expense ratio          14.7%          12.9%
                         
Combined ratio          92.5%          94.3%
                         
 Six Months Ended June 30, 2007Six Months Ended June 30, 2006
 FrequencySeverityTotalFrequencySeverityTotal
Loss ratio52.610.143.90.00.00
Acquisition cost ratio41.721.537.50.047.447.4
Composite ratio94.331.681.40.047.447.4
Internal expense ratio  12.9  173.5
Combined ratio  94.3  220.9

The loss ratio is calculated by dividing loss and loss adjustment expenses incurred by net premiums earned. For the six months ended June 30, 2007,2008, our frequency businessand severity businesses reported a loss ratio of 52.6%42.3%, compared to the 10.1% reported by our severity business. Favorable loss experience due to benign natural catastrophe experience during the year as well as the seasonalityand 39.0% respectively. A more diverse mix of certain wind exposures allowedlines of business in our severity business combined with losses developing on a severity contract, contributed to report a lowerthe higher loss ratio. However, weratio for our severity business during the six months ended June 30, 2008 than in the corresponding 2007 period. We expect that theour loss ratio will be volatile for our severity business and may exceed that of our frequency business in certain periods.


24


The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned. This ratio demonstrates the higher acquisition costs incurred for our frequency business than for our severity business.

The composite ratio is the ratio of underwriting losses incurred, loss adjustment expenses and acquisition costs, excluding general and administrative expenses, to net premiums earned. Similar to the loss ratio, we expect that this ratio will be more volatile for our severity business depending on loss activity in any particular period.

The internal expense ratio is the ratio of all general and administrative expenses to net premiums earned. We expect our internal expense ratio to decrease as we continue to expand our underwriting operations. The highHowever, the higher internal expense ratio of 173.5% reported for the six month period ended June 30, 2006 is2008 was mainly due to higher general and administrative expenses as a result of additional bonus expensed during the fact that underwriting operations only commenced in April 2006 and as such start up costs were high relativeperiod relating to the initial2007 underwriting year and also reflects the cost of additional staff hired subsequent to the second quarter of 2007. During the six month period ended June 30, 2008, our net earned premiums earned.

increased 13.7% while our general and administrative expenses increased 29.9% compared to the corresponding 2007 period, resulting in a higher internal expense ratio.

The combined ratio is the sum of the composite ratio and the internal expense ratio. It measures the total profitability of our underwriting operations. This ratio does not take net investment income into account. The reported combined ratio for the six month period ended June 30, 20072008 was 92.5% compared to 94.3%. for the same period in 2007. Given the nature of our opportunistic underwriting strategy, we expect that our combined ratio may be volatile from period to period.

Loss and Loss Adjustment Expense Reserves

We establish reserves for contracts based on estimates of the ultimate cost of all losses including IBNR.IBNR as well as allocated and unallocated loss expenses. These estimated ultimate reserves are based on reports received from ceding companies, historical experience and actuarial estimates. These estimates are reviewed quarterly on a contract by contract basis and adjusted when necessary.appropriate. Since reserves are based on estimates, the setting of appropriate reserves is an inherently uncertain process. Our estimates are based upon actuarial and statistical projections and on our assessment of currently available data, predictions of future developments and estimates of future trends and other factors. The final settlement of losses may vary, perhaps materially, from the reserves initially established and any adjustments to the estimates are recorded in the period in which they are determined. Under U.S. GAAP, we are not permitted to establish loss reserves, which include case reserves and IBNR, until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the reporting date are established, with no allowance for the establishment of loss reserves to account for expected future losses.

For natural catastropheperil risk exposed business, once an event has occurred whichthat may give rise to a claim, we establish loss reserves based on loss payments and case reserves reported by our clients. We


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then add to these case reserves our estimates for IBNR. To establish our IBNR loss estimates, in addition to the loss information and estimates communicated by ceding companies, we use industry information, knowledge of the business written by us and management’s judgment.

Reserves for lossesloss and loss adjustment expenses as of June 30, 20072008 and December 31, 20062007 were comprised of the following ($ in thousands):


following:
                         
  June 30, 2008  December 31, 2007 
  Case
        Case
       
  Reserves  IBNR  Total  Reserves  IBNR  Total 
  ($ In thousands) 
 
Frequency $1,055  $42,759  $43,814  $1,712  $34,477  $36,189 
Severity     13,553   13,553      6,188   6,188 
                         
Total $1,055  $56,312  $57,367  $1,712  $40,665  $42,377 
                         
 June 30, 2007December 31, 2006
 Case
Reserves
IBNRTotalCase
Reserves
IBNRTotal
Frequency$883$25,851$26,734$1,058$2,985$4,043
Severity1,8941,894934934
Total$883$27,745$28,628$1,058$3,919$4,977

The overall increase in loss reserves is almost entirely a direct resultfunction of the additional exposure written during the six months ended June 30, 2008, changes in loss reserves relating to the development of losses on certain severity contracts, and favorable loss development on certain frequency contracts mostly offsetting the increase in premiums written during the first six months of 2007. In eachreserves.


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For substantially all of the contracts written as of June 30, 2007,2008, our risk exposure is limited by the fact that the contracts have defined limits of liability. Once the loss limit for a contract has been reached, we have no further exposure to additional losses from that contract.

However, certain contracts, particularly quota share contracts which relate to first dollar exposure, may not contain aggregate limits.

Liquidity and Capital Resources

General

We are organized as a holding company with no operations of our own. As a holding company, we have minimal continuing cash needs, and most of such needs are principally related to the payment of administrative expenses. All of our operations are conducted through our sole reinsurance subsidiary, Greenlight Reinsurance, Ltd., which underwrites risks associated with our property and casualty reinsurance programs. We have minimal continuing cash needs which are principally related to the payment of administrative expenses. There are restrictions on Greenlight Reinsurance, Ltd.’s ability to pay dividends which are described in more detail below. It is our initialcurrent policy to retain earnings to support the growth of our business. We currently do not expect to pay dividends on our Ordinary Shares.

ordinary shares.

As of June 30, 2008, the financial strength of our reinsurance subsidiary was rated “A-(Excellent)” by A.M. Best Company. This rating reflects the A.M. Best Company’s opinion of our financial strength, operating performance and ability to meet obligations and it is not an evaluation directed toward the protection of investors or a recommendation to buy, sell or hold our Class A ordinary shares.
Sources and Uses of Funds

Our sources of funds primarily consist of premium receipts (net of brokerage and ceding commissions) and investment income (net of advisory compensation and investment expenses), including realized gains. We use cash from our operations to pay losses and loss adjustment expenses, profit commissions and general and administrative expenses. Substantially all of our funds, including shareholders’ capital, net of funds required for cash liquidity purposes, are invested withby our investment advisor to invest in accordance with our investment guidelines. OurAs of June 30, 2008, our investment portfolio iswas primarily comprised of publicly-traded securities which we classify as trading securities and can be liquidated to meet current and future liabilities. We believe that we have sufficientthe flexibility to liquidate theour long securities that we own in a rising market to generate sufficient liquidity. Similarly, we can generate liquidity in a declining market from our short portfolio by covering securities and by freeing up restricted cash no longer required for collateral.

For the six monthsmonth period ended June 30, 2007,2008 we generated nethad a positive cash flow of $2.5$33.3 million. We used $253.2generated $23.9 million in cash from operating activities primarily as a result of purchasing securitiesrelating to net premiums collected and retained from the proceeds of our initial public offering described below.

On May 30, 2007 we completed the sale of 11,787,500 Class A Ordinary Shares at $19.00 per share in an initial public offering. Included in the 11,787,500 shares sold by us were 1,537,500 shares purchased by the underwriters to cover over-allotments. Concurrently, 2,631,579 Class B Ordinary Shares were sold at $19.00 per share as part of a private placement. The net proceeds to the Company of the initial public offering and private placement were approximately $255.7 million after the deduction of underwriting fees and other offering expenses.

operations. As of June 30, 2007,2008, we believe we had sufficient projected cash flow from operations to meet our liquidity requirements. We expect that our operational needs for liquidity will be met by cash, or funds generated from underwriting activities or investment income. We have no current plans to issue equity


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or debt and expect to fund our operations for the foreseeable future from operating cash flow. However, we cannot provide assurances that in the future we will not issue equity or incur indebtedness to implement our business strategy, pay claims or make acquisitions.

We may also use available cash to repurchase our Class A ordinary shares from time to time. Currently the Board has authorized management to repurchase up to two million Class A ordinary shares from time to time.
Although Greenlight Capital Re, Ltd. is not subject to any significant legal prohibitions on the payment of dividends, Greenlight Reinsurance, Ltd. is subject to Cayman Islands regulatory constraints that affect its ability to pay dividends to Greenlight Capital Re, Ltd. and include a minimum net worth requirement. Currently, the statutory minimum net worth requirement for Greenlight Reinsurance, Ltd. is $120,000. In addition to Greenlight Reinsurance, Ltd. being restricted from paying a dividend if such a dividend would cause its net worth to drop to less than the required minimum, any dividend payment would have to be approved by the appropriate Cayman Islands regulatory authority prior to payment.


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Letters of Credit

Greenlight Reinsurance, Ltd. is not licensed or admitted as a reinsurer in any jurisdiction other than the Cayman Islands. Because many jurisdictions do not permit domestic insurance companies to take credit on their statutory financial statements unless appropriate measures are in place for reinsurance obtained from unlicensed or non-admitted insurers, we anticipate that all of our U.S. clients and some of ournon-U.S. clients will require us to provide collateral through funds withheld, trust arrangements, letters of credit or a combination thereof.

Greenlight Reinsurance, Ltd. has the followinga letter of credit facilitiesfacility as of June 30, 2007:

a) $200 million letter of credit facility with Citibank, N.A. with a termination date of October 11, 2008. The termination date is automatically extended for an additional year unless written notice of cancellation is delivered to the other party at least 120 days prior to the termination date. As of June 30, 2007, letters of credit totaling $54.0 million were outstanding.
b) $25 million letter of credit facility with Bank Austria Cayman Islands Ltd. with a termination date of June 6, 2008. The termination date is automatically extended for an additional year unless written notice of cancellation is delivered to the other party at least 30 days prior to the termination date. As of June 30, 2007, there were no letters of credit issued under this facility.

2008 of $400.0 million with Citibank, N.A. with a termination date of October 11, 2009. The termination date is automatically extended for an additional year unless written notice of cancellation is delivered to the other party at least 120 days prior to the termination date.

An additional $25.0 million letter of credit facility with UniCredit Bank Cayman Islands Ltd. (formerly Bank Austria Cayman Islands Ltd.) was terminated on June 6, 2008. Any letters of credit issued prior to the termination under this facility remain in effect until their respective expiry dates.
As of June 30, 2008, letters of credit totaling $140.7 million were outstanding under the above letters of credit facilities. Under boththese letter of credit facilities, we are required to provide collateral that may consist of equity securities. As of June 30, 2008, we had pledged $225.1 million of equity securities and cash equivalents as collateral for the above letter of credit facilities. The letter of credit facility agreements contain various covenants that, in part, restrict Greenlight Reinsurance, Ltd.’s ability to place a lien or charge on the pledged assets, to effect transactions with affiliates, to enter into a merger or sell certain assets and further restrict Greenlight Reinsurance, Ltd.’s ability to issue any debt without the consent of the letter of credit providers. Additionally, if an event of default exists, as defined in the credit agreements, Greenlight Reinsurance, Ltd. will be prohibited from paying dividends.

For the six month period ended June 30, 2008, the Company was in compliance with all of the covenants under each of the letter of credit facility agreements. In addition to the credit facilities described above, the Company is in the process of evaluating additional facilities.

Capital

As of June 30, 2007,2008, total shareholders’ equity was $577.5$635.8 million compared to $312.2$605.6 million at December 31, 2006.2007. This increase in total shareholders’ equity is principally due to the net income of $8.2$28.8 million reported during the six monthsmonth period ended June 30, 2007 as well as the net proceeds of $255.7 million from our initial public offering of Class A Ordinary Shares and a concurrent private offering of Class B Ordinary Shares which were both completed on May 30, 2007.

2008.

Our capital structure currently consists entirely of equity issued in two separate classes of Ordinary Shares.ordinary shares. We expect that the existing capital base and internally generated funds will be sufficient to implement our business strategy. Consequently, we do not presently anticipate that we will incur any material indebtedness in the ordinary course of our business. However, we cannot provide assurances that in the future we will not be required to raise additional equity or incur indebtedness to implement our business strategy, pay claims or make acquisitions. We did not make any significant capital expenditures during the period from inception to June 30, 2007.

2008.

Table
On August 5, 2008, the Board adopted a share repurchase plan authorizing the Company to repurchase up to two million Class A ordinary shares. Management may from time to time repurchase these shares to optimize the Company’s capital structure. Shares may be purchased in the open market or through privately negotiated transactions. The timing of Contentssuch repurchases and actual number of shares repurchased will depend on a variety of factors including price, market conditions and applicable regulatory and corporate requirements. The plan, which expires on June 30, 2011, does not require the Company to repurchase any specific number of shares and may be modified, suspended or terminated at any time without prior notice. The Company has not repurchased any shares under its share repurchase plan as of the date of this filing.


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Contractual Obligations and Commitments

The following table shows our aggregate contractual obligations by time period remaining to due date as of June 30, 2007 ($ in thousands):


2008:
                     
     Less Than
        More Than
 
  Total  1 Year  1-3 Years  3-5 Years  5 Years 
  ($ in thousands) 
 
Operating lease obligations $216  $97  $119  $  $ 
Specialist service agreement  1,452   652   800       
Private equity investments(1)
  26,913   26,913          
Loss and loss adjustment expense reserves(2)
  57,367   28,682   15,437   4,948   8,300 
                     
  $85,948  $56,344  $16,356  $4,948  $8,300 
                     
 TotalLess than
1 year
1-3 years3-5 yearsMore than
5 years
Lease obligations$353$90$194$69$
Private equity investments(1)2,0182,018
Loss and loss adjustment expense reserves(2)28,62818,8777,6938551,203
 $30,999$20,985$7,887$924$1,203
(1)
(1)We have made a commitment of $5.1 million to a private equity vehicle. As of June 30, 2007, $3.12008, we had made commitments to invest a total of $31.6 million in private investments. As of June 30, 2008, we had invested $4.7 million of this amount, has been called, and our remaining commitmentcommitments to this vehicle is $2.0these vehicles were $26.9 million. Given the nature of the private equity vehicle,these investments, we are unable to determine with any degree of accuracy when the remaining commitment will be called. Therefore, for purposes of the above table, we have assumed that all commitments will be made within one year. Under our investment guidelines, in effect as of the date hereof, no more than 10% of the assets in the investment portfolio may be held in private equity securities.
(2)The amount and timing of the cash flows associated with our reinsurance contractual liabilities will fluctuate, perhaps materially, and, therefore, are highly uncertain.

As of

On September 1, 2005, we entered into a five-year lease agreement for office premises in the Cayman Islands. The lease repayment schedule is provided above and in the accompanying condensed consolidated financial statements.

As discussed in Note 9 of the financial statements, on July 9, 2008, we signed a ten year lease agreement for new office space in the Cayman Islands with the option to renew for an additional five year term. The lease term is effective July 1, 2008, and the rental payments commence from the earlier of December 1, 2008 or when we occupy the premises. We currently do not anticipate occupying the premises prior to December 1, 2008. Under the terms of the lease agreement, our minimum annual rent payments will be $253,539 for the first three years, increasing by 3% thereafter each year to reach $311,821 by the tenth year.
Effective September 1, 2007, we entered into a service agreement with a specialist service provider whereby the specialist service provider provides administration and support in developing and maintaining relationships, reviewing and recommending programs and managing risks on certain specialty lines of business. The specialist service provider does not have any authority to bind the Company to any reinsurance contracts. Under the terms of the agreement, the Company has committed to quarterly payments to the specialist service provider. If the agreement is terminated after two years, the Company is obligated to make minimum payments for another two years to ensure any bound contracts are adequately run-off by the specialist service provider.
As described above, we have entered into twohad one letter of credit facilities. The $200facility as of June 30, 2008. This $400.0 million facility can be terminated by either party with effect from any October 11, the anniversary date, by providing written notification to the other party at least 120 days before the anniversary date. The earliest possible termination date of this agreement is October 11, 2008.2009.
On January 1, 2008, we entered into an agreement wherein the Company and DME agreed to create a joint venture for the purposes of managing certain jointly held assets. The $25 million facility can be terminatedterm of the agreement is January 1, 2008, through December 31, 2010, with automatic three-year renewals unless either we or DME terminate the agreement by either party with effect from any June 6, the anniversary date, by providing written notificationgiving 90 days notice prior to the other party at least 30 days beforeend of the anniversary date. The earliest possible termination date ofthree year term. Pursuant to this agreement, is June 6, 2008.we pay a monthly management fee of 0.125% on our share of the assets managed by DME and performance compensation of 20% on the net income of our share of assets managed by DME subject to a loss carryforward provision.


28

Effective January 1,


In February 2007, we entered into a new advisoryservice agreement with DME Advisors, L.P. that grantspursuant to which DME Advisors, L.P. an exclusive rightwill provide investor relations services to manage our investment portfolio in accordance with the investment guidelines as approved by the Boardus for compensation of Directors.$5,000 per month (plus expenses). The agreement expires on December 31, 2009,had an initial term of one year, and will be renewedcontinue for successive three-yearsequential one year periods unless either weuntil terminated by us or DME Advisors, L.P. gives 90 days notice of its desire toDME. Either party may terminate the agreement. The fees underagreement for any reason with 30 days prior written notice to the new advisory agreement are the same as the prior agreement we had with DME Advisors, L.P.

other party.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities, other than those derivatives in our investment portfolio that are disclosed in the condensed consolidated financial statements, which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.


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Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We believe we are principally exposed to five types of market risk:

•    equity price risk;

•    foreign currency risk;

•    interest rate risk;

•    credit risk; and

•    effects of inflation.

• equity price risk;
• foreign currency risk;
• interest rate risk;
• credit risk; and
• effects of inflation.
EQUITY PRICE RISK.  As of June 30, 2007,2008, our investment portfolio consisted primarily of long and short equity securities, along with certain equity-based derivative instruments, the carrying values of which are primarily based on quoted market prices. Generally, market prices of common equity securities are subject to fluctuation, which could cause the amount to be realized upon the closing of the position to differ significantly from the current reported value. This risk is partly mitigated by the presence of both long and short equity securities. As of June 30, 2007,2008, a 10% decline in the price of each of these listed equity securities and equity-based derivative instruments would result in a $30.7$21.4 million, or 4.9%3.0%, decline in the fair value of the total investment portfolio.

Computations of the prospective effects of hypothetical equity price changes are based on numerous assumptions, including the maintenance of the existing level and composition of investment securities and should not be relied on as indicative of future results.
FOREIGN CURRENCY RISK.  Certain of our reinsurance contracts provide that ultimate losses may be payable in foreign currencies depending on the country of original loss. Foreign currency exchange rate risk exists to the extent that there is an increase in the exchange rate of the foreign currency in which losses are ultimately owed. As of June 30, 2007, there are2008, we have no known or estimated losses payable in foreign currencies.

While we do not seek to specifically match our liabilities under reinsurance policies that are payable in foreign currencies with investments denominated in such currencies, we continually monitor our exposure to potential foreign currency losses and will consider the use of forward foreign currency exchange contracts in an effort to hedge against adverse foreign currency movements.

Through investments in securities denominated in foreign currencies, we are exposed to foreign (non-U.S.) currency risk. Foreign currency exchange rate risk is the potential for loss in the U.S. dollar value of investments due to a decline in the exchange rate of the foreign currency in which the investments are denominated. As of June 30, 2007,2008, our totalgross exposure to foreign denominated securities was approximately $235.8 million, or 37.7%,$209.0 million. However, as of June 30, 2008, the majority of our investment portfolio including cash and cash equivalents.currency exposure resulting from these foreign denominated securities was hedged, leading to a net exposure to foreign currencies of $24.6 million. As of June 30, 2007,2008, a 5% increase10% decrease in the value of the


29


United States dollar against select foreign currencies would result in an $11.8a $2.5 million, or 1.9%0.3%, decline in the value of the investment portfolio. A summary of our total net exposure to foreign denominated securitiescurrencies as of June 30, 20072008 is as follows ($follows:
     
  US$ Equivalent
 
Original Currency
 Fair Value 
  ($ in thousands) 
 
European Union euro $(32,506)
British pounds  (20,969)
South Korean won  7,165 
Hong Kong dollar  8,569 
Japanese yen  9,124 
Other  3,974 
     
  $(24,643)
     
Computations of the prospective effects of hypothetical currency price changes are based on numerous assumptions, including the maintenance of the existing level and composition of investment in thousands):


securities denominated in foreign currencies and related hedges, and should not be relied on as indicative of future results.
Original CurrencyUS$ Equivalent
Fair Value
EUR204,167
GBP27,185
Other4,483
235,835

INTEREST RATE RISK.  Our investment portfolio has historically held a very small portion of fixed-income securities, which we classify as trading securities“trading securities” but may in the future include significant exposure to corporate debt securities, including debt securities of distressed companies. The primary market risk exposure for any fixed-income security is interest rate risk. As interest rates rise, the market value of our fixed-income portfolio falls, and the converse is also true. Additionally, some of our equity investments may also be credit sensitive and their value may fluctuate with changes in interest rates.


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CREDIT RISK.  We are exposed to credit risk primarily from the possibility that counterparties may default on their obligations to us. The amount of the maximum exposure to credit risk is indicated by the carrying value of our financial assets. In addition, we hold the securities of our investment portfolio with several prime brokers and have credit risk from the possibility that one or more of them may default on their obligations to us. Other than our investment in derivative contracts and corporate debt, if any, and the fact that our investments are held by prime brokers on our behalf, we have no significant concentrations of credit risk.

EFFECTS OF INFLATION.    The potential exists for the development of inflationary pressures in a local economy to increase the ultimate losses which are paid on certain reinsurance contracts. The effects of inflation are considered in pricing and in estimating reserves for loss and loss adjustment expenses. However, we can not be certain of the precise effects of inflation on our results until claims are ultimately paid.  We do not believe that inflation has had or will have a material effect on our combined results of operations, except insofar as inflation may affect interest rates.

rates and the values of the assets in our investment portfolio.
Item 4. 4T.CONTROLS AND PROCEDURES

Our management, with the participation of theour Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered under this quarterly report. Based on that evaluation, theour Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that material information relating to us and our consolidated subsidiary required to be disclosed in our reports filed with or submitted to the SEC, under the Securities Act of 1934, as amended, is made known to such officers by others within these entities, particularly during the period this quarterly report was prepared, in order to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting during the threesix months ended June 30, 20072008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Under the rules of the SEC as currently in effect, compliance with the internal control reporting requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002 is delayed for newly public companies, such as Greenlight Capital Re, Ltd. We plan to be in full compliance with these internal control reporting requirements by the required compliance dates in order to provide the required certifications for our December 31, 2008 regulatory filings.


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Table of Contents

PART II — OTHER INFORMATION

Item 1.    Legal Proceedings

Item 1.Legal Proceedings
We are not party to any pending or threatened material litigation and are not currently aware of any pending or threatened litigation. We may become involved in various claims and legal proceedings in the normal course of business, as a reinsurer or insurer.

Item 1A.  Risk Factors

Factors that could cause our actual results to differ materially from those in this report are any of the risks described in Item 1A “Risk Factors” included in our prospectus dated May 24,Annual Report onForm 10-K for the fiscal year ended December 31, 2007, as filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

As of August 13, 2007,6, 2008, there have been no material changes to the risk factors disclosed in Item 1A “Risk Factors” included in our prospectus dated May 24,Annual Report onForm 10-K for the fiscal year ended December 31, 2007, as filed with the SEC, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2.    

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Submission of Matters to a Vote of Security Holders
Annual General Meeting of Equity Securities and UseShareholders.  The Company held its 2008 Annual General Meeting of Proceeds

On May 23, 2007, the SEC declared effectiveShareholders on July 10, 2008. Pursuant to the Company’s Registration StatementThird Amended and Restated Articles of Association, each Class A ordinary share is entitled to one vote per share and each Class B ordinary share is entitled to ten votes per share; provided, however, that the total voting power of the issued and outstanding Class B ordinary shares shall not exceed 9.5% of the total voting power of all issued and outstanding ordinary shares. Since, on Form S-1, as amended (Registration No. 333-139993), filed in connectionthe record date of the 2008 Annual Meeting of Shareholders, the total voting power of the issued and outstanding Class B ordinary shares exceeded 9.5% of the total voting power, the voting power of the Class B ordinary shares was reduced with the initial public offering of its common shares, par value $0.01 per share. Under this Registration Statementexcess being allocated to the Company registered 11,787,500 Class A Ordinary Shares, including 1,537,500ordinary shares subject to the over-allotment option it granted to the underwriters. On May 30, 2007, the Company completed the offering at an initial offering price per share of $19.00 for total proceeds of approximately $224.0 million. The managing underwriters for the initial public offering were Lehman Brothers, UBS Investment Bank, Citi, Dowling & Partners Securities and Fox-Pitt, Kelton.

The Company completed a private placement of 2,631,579 Class B Ordinary Shares at $19.00 per share as part of a private placement simultaneouslyin accordance with the consummation of the initial public offering for total proceeds of $50.0 million. The Class B Ordinary Shares were purchased by David Einhorn, ChairmanArticle 53 of the Company’s BoardThird Amended and Restated Articles of Directors. This concurrent private placement was deemed to be exempt from registration underAssociation.

The following tables summarize the Securities Act in reliance on Section 4 (2)voting results after adjustment of the Securities Act as a transaction not involving a public offering.

The aggregate proceeds of the initial public offering (including the sale of the 1,537,500 Class A Ordinary Shares sold pursuant to the underwriters’ over-allotment option) and concurrent private placement were approximately $274.0 million. Net proceeds to the Company, after deducting underwriting discounts of approximately $15.7 million and other offering expenses of approximately $2.6 million were approximately $255.7 million.

On May 24, 2007, the Company issued to certain directors, 13,264 restricted shares of Class A Ordinary Shares as part of the directors’ remuneration. These restricted shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of the director and transferability. Each of these restricted shares will vestvoting power. For more information on the earlier of the first anniversary of the shares issuance orfollowing proposals, see the Company’s next annual general meeting.definitive proxy statement dated June 6, 2008.

(1) The issuefollowing persons were elected Directors of these shares was deemed exempt from registration underGreenlight Capital Re, Ltd. by shareholders to serve for the Securities Act in reliance on Rule 701 under the Securities Act.

Additionally, on May 24, 2007, 6,000 restricted shares of Class A Ordinary Shares were issued to an employeeterm expiring at the commencementAnnual General Meeting of his employment. These shares contain similar restrictions to those issued to the directors and these shares will vest on March 15, 2010, subject to the grantee’s continued service with the Company. The issue of these shares was deemed exempt from registration under the Securities ActShareholders in reliance on Rule 701 under the Securities Act.2009.

                         
Director
 Class A For  Class A Against  Class A Abstain  Class B For  Class B Against  Class B Abstain 
 
Alan Brooks  62,919,747   75,688   4,706   8,793,149   0   0 
David Einhorn  62,919,747   75,688   4,706   8,793,149   0   0 
Leonard Goldberg  62,919,747   75,688   4,706   8,793,149   0   0 
Ian Isaacs  62,919,747   75,688   4,706   8,793,149   0   0 
Frank Lackner  62,919,747   75,688   4,706   8,793,149   0   0 
Bryan Murphy  62,919,747   75,688   4,706   8,793,149   0   0 
Joseph Platt  62,919,747   75,688   4,706   8,793,149   0   0 


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Item 3.    Defaults Upon Senior Securities


None.


Table of Contents

Item 4.    Submission of Matters to a Vote of Security Holders

On April 16, 2007, the Company held its annual general meeting.

(2) The following proposalspersons were approvedelected Directors of Greenlight Reinsurance, Ltd. by shareholders to serve for the term expiring at the meeting:

1. The following six incumbent directors were re-elected:

Annual General Meeting of Shareholders in 2009
          ��              
Director
 Class A For  Class A Against  Class A Abstain  Class B For  Class B Against  Class B Abstain 
 
Alan Brooks  62,899,583   77,360   23,198   8,793,149   0   0 
David Einhorn  62,899,583   77,360   23,198   8,793,149   0   0 
Leonard Goldberg  62,899,583   77,360   23,198   8,793,149   0   0 
Ian Isaacs  62,899,583   77,360   23,198   8,793,149   0   0 
Frank Lackner  62,899,583   77,360   23,198   8,793,149   0   0 
Bryan Murphy  62,899,583   77,360   23,198   8,793,149   0   0 
Joseph Platt  62,899,583   77,360   23,198   8,793,149   0   0 
Alan BrooksDavid Einhorn
Len GoldbergFrank Lackner
Joseph PlattJerome Simon
(3) The shareholders approved the amendment to Article 11 of Greenlight Capital Re, Ltd.’s Third Amended and Restated Articles of Association by Special Resolution.
         
  Class A  Class B 
 
For  53,628,006   8,793,149 
Against  7,960,427   0 
Abstain  1,411,708   0 
(4) The shareholders ratified the appointment of BDO Seidman, LLP to serve as the independent auditors of Greenlight Capital Re, Ltd. for 2008.
         
  Class A  Class B 
 
For  62,902,754   8,793,149 
Against  82,159   0 
Abstain  15,229   0 
(5) The shareholders ratified the appointment of BDO Seidman, LLP to serve as the independent auditors of Greenlight Reinsurance, Ltd. for 2008.
         
  Class A  Class B 
 
For  62,886,338   8,793,149 
Against  98,574   0 
Abstain  15,229   0 
2.
Item 5.The Company was authorized to elect the above six directors to serve on the Board of Greenlight Reinsurance, Ltd.Other Information
None.


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3.
Item 6.BDO Seidman, LLP was re-appointed as the Company’s independent auditor for the fiscal year ending December 31, 2007Exhibits
4.The Company was authorized to re-appoint BDO Seidman, LLP to act as independent auditor for Greenlight Reinsurance, Ltd.
     
 3.1 Third Amended and Restated Memorandum and Articles of Association, as revised by special resolution on July 10, 2008
 31.1 Certification of the Chief Executive Officer filed hereunder pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 31.2 Certification of the Chief Financial Officer filed hereunder pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 32.1 Certification of the Chief Executive Officer filed hereunder pursuant to Section 906 of the Sarbanes Oxley Act of 2002
 32.2 Certification of the Chief Financial Officer filed hereunder pursuant to Section 906 of the Sarbanes Oxley Act of 2002

At the meeting, 16,727,876 votes were cast, representing 69% of the eligible voting shares. 16,227,876 votes were cast in favor of each of the above four proposals and 500,000 votes abstained from voting on each of the four proposals. There were no votes voting against the proposals.
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Item 5.    Other Information


None.

Item 6.    Exhibits


10.1Letter of Credit Agreement dated June 6, 2007 between Greenlight Reinsurance, Ltd. and Bank Austria Cayman Islands Ltd. (incorporated by reference to the Company’s Form 8-K filed on June 7, 2007)
31.1Certification of the Chief Executive Officer filed hereunder pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2Certification of the Chief Financial Officer filed hereunder pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1Certification of the Chief Executive Officer filed hereunder pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2Certification of the Chief Financial Officer filed hereunder pursuant to Section 906 of the Sarbanes Oxley Act of 2002
SIGNATURES

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


GREENLIGHT CAPITAL RE, LTD.
(Registrant)
/s/  Leonard Goldberg
Name:     Leonard Goldberg
 GREENLIGHT CAPITAL RE, LTD.
(Registrant)
/s/ Leonard Goldberg
Name:Leonard Goldberg
Title:Chief Executive Officer
Date:August 13, 2007
/s/ Tim Courtis
Name:Tim Courtis
Title:Chief Financial Officer
Date:August 13, 2007
Date: August 6, 2008



/s/  Tim Courtis
Name:     Tim Courtis
Title: Chief Financial Officer
Date: August 6, 2008