UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





(Mark
One)




x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended June 30, 2009




or




o
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the transition period from       to





Commission file number
001-33493





GREENLIGHT
CAPITAL RE, LTD.


(Exact
Name of Registrant as Specified in Its Charter)







CAYMAN
      ISLANDS
                N/A(State
      or Other Jurisdiction of Incorporation or Organization)
                (I.R.S.
      Employer Identification No.)THE
      GRAND PAVILION
                  802
      WEST BAY ROAD
                  P.O.
      BOX 31110
                  GRAND
      CAYMAN
                  CAYMAN
      ISLANDS
                KY1-1205(Address
      of Principal Executive Offices)
                (Zip
      Code)





(345)
943-4573


(Registrant’s
Telephone Number, Including Area Code)




Not
Applicable


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






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 x  No o


Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files).




Yes o  No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check
one):




Large
accelerated filer o Accelerated filer x


Non-accelerated
filer o(Do not
check if a smaller reporting
company)           
Smaller reporting company o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes o  No x




Class
      A Ordinary Shares, $0.10 par value
            30,021,393Class
      B Ordinary Shares, $0.10 par value
            6,254,949(Class)
            (Outstanding
      as of July 31, 2009)















GREENLIGHT CAPITAL RE, LTD.




TABLE
OF CONTENTS




PagePART
      I — FINANCIAL INFORMATIONItem
      1.
              Financial
      StatementsCondensed Consolidated
      Balance Sheets as of June 30, 2009 (unaudited) and December 31,
      2008
              
              
              3Condensed
      Consolidated Statements of Income for theThree andSixMonths
      Ended June 30, 2009 and 2008 (unaudited)
              
              
              4Condensed
      Consolidated Statements of Shareholders' Equity for theSixMonths
      Ended June 30, 2009 and 2008 (unaudited)
              
              
              5Condensed Consolidated
      Statements of Cash Flows for theSixMonths
      Ended June 30, 2009 and 2008 (unaudited)
              
              
              6Notes to
      the Condensed Consolidated Financial Statements
      (unaudited)
              
              
              7Item
      2.
              Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations
              
              
              21Item
      3.
              Quantitative and
      Qualitative Disclosures about Market
      Risk
              
              
              32Item
      4.
              Controls and
      Procedures
              
              
              33PART
      II — OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              
              
              34Item
      1A.
              Risk
      Factors
              
              
              34Item
      2.
              Unregistered
      Sales of Equity Securities and Use of
      Proceeds
              
              
              34Item
      3.
              Defaults
      Upon Senior
      Securities
              
              
              34Item
      4.
              Submission
      of Matters to a Vote of Security
      Holders
              
              
              34Item
      5.
              Other
      Information
              
              
              35Item
      6.
              Exhibits
              
              
              35SIGNATURES
              
              
              36










2
 Link to table of
contents










PART
I — FINANCIAL INFORMATION


Item 1. FINANCIAL STATEMENTS




GREENLIGHT
CAPITAL RE, LTD.


CONDENSED CONSOLIDATED BALANCE SHEETS




June
30, 2009 and December 31, 2008


(expressed
in thousands of U.S. dollars, except per share and share amounts)




June
      30,
                                                                    2009
                                                                    (unaudited)
                                                                  
                                                                  
                                                                  December
      31,
                                                                    2008AssetsInvestments
      in securitiesDebt
      instruments, trading, at fair value
                                                                  
                                                                  $
                                                                  134,347
                                                                  
                                                                  
                                                                  $
                                                                  70,214Equity
      securities, trading, at fair value
                                                                  
                                                                  
                                                                  401,139
                                                                  
                                                                  
                                                                  
                                                                  409,329Other
      investments, at fair value
                                                                  
                                                                  
                                                                  60,144
                                                                  
                                                                  
                                                                  
                                                                  14,423Total
      investments in securities
                                                                  
                                                                  
                                                                  595,630
                                                                  
                                                                  
                                                                  
                                                                  493,966Cash
      and cash equivalents
                                                                  
                                                                  
                                                                  133,472
                                                                  
                                                                  
                                                                  
                                                                  94,144Restricted
      cash and cash equivalents
                                                                  
                                                                  
                                                                  387,172
                                                                  
                                                                  
                                                                  
                                                                  248,330Financial
      contracts receivable, at fair value
                                                                  
                                                                  
                                                                  19,156
                                                                  
                                                                  
                                                                  
                                                                  21,419Reinsurance
      balances receivable
                                                                  
                                                                  
                                                                  105,727
                                                                  
                                                                  
                                                                  
                                                                  59,573Loss
      and loss adjustment expense recoverables
                                                                  
                                                                  
                                                                  6,880
                                                                  
                                                                  
                                                                  
                                                                  11,662Deferred
      acquisition costs, net
                                                                  
                                                                  
                                                                  34,117
                                                                  
                                                                  
                                                                  
                                                                  17,629Unearned
      premiums ceded
                                                                  
                                                                  
                                                                  9,813
                                                                  
                                                                  
                                                                  
                                                                  7,367Notes
      receivable
                                                                  
                                                                  
                                                                  16,952
                                                                  
                                                                  
                                                                  
                                                                  1,769Other
      assets
                                                                  
                                                                  
                                                                  3,797
                                                                  
                                                                  
                                                                  
                                                                  2,146Total
      assets
                                                                  
                                                                  $
                                                                  1,312,716
                                                                  
                                                                  
                                                                  $
                                                                  958,005Liabilities
      and shareholders’ equityLiabilitiesSecurities
      sold, not yet purchased, at fair value
                                                                  
                                                                  $
                                                                  369,293
                                                                  
                                                                  
                                                                  $
                                                                  234,301Financial
      contracts payable, at fair value
                                                                  
                                                                  
                                                                  12,966
                                                                  
                                                                  
                                                                  
                                                                  17,140Loss
      and loss adjustment expense reserves
                                                                  
                                                                  
                                                                  115,534
                                                                  
                                                                  
                                                                  
                                                                  81,425Unearned
      premium reserves
                                                                  
                                                                  
                                                                  129,920
                                                                  
                                                                  
                                                                  
                                                                  88,926Reinsurance
      balances payable
                                                                  
                                                                  
                                                                  45,097
                                                                  
                                                                  
                                                                  
                                                                  34,963Funds
      withheld
                                                                  
                                                                  
                                                                  2,936
                                                                  
                                                                  
                                                                  
                                                                  3,581Other
      liabilities
                                                                  
                                                                  
                                                                  9,726
                                                                  
                                                                  
                                                                  
                                                                  6,229Performance
      compensation payable to related party
                                                                  
                                                                  
                                                                  12,698
                                                                  
                                                                  
                                                                  
                                                                  —Total
      liabilities
                                                                  
                                                                  
                                                                  698,170
                                                                  
                                                                  
                                                                  
                                                                  466,565Shareholders’
      equityPreferred
      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, 30,021,393 (2008: 29,781,736); Class B: par value $0.10;
      authorized, 25,000,000; issued and outstanding, 6,254,949 (2008:
      6,254,949))
                                                                  
                                                                  
                                                                  3,628
                                                                  
                                                                  
                                                                  
                                                                  3,604Additional
      paid-in capital
                                                                  
                                                                  
                                                                  479,311
                                                                  
                                                                  
                                                                  
                                                                  477,571Non-controlling
      interest in joint venture
                                                                  
                                                                  
                                                                  7,395
                                                                  
                                                                  
                                                                  
                                                                  6,058Retained
      earnings
                                                                  
                                                                  
                                                                  124,212
                                                                  
                                                                  
                                                                  
                                                                  4,207Total
      shareholders’ equity
                                                                  
                                                                  
                                                                  614,546
                                                                  
                                                                  
                                                                  
                                                                  491,440Total
      liabilities and shareholders’ equity
                                                                  
                                                                  $
                                                                  1,312,716
                                                                  
                                                                  
                                                                  $
                                                                  958,005










The
accompanying Notes to the Condensed Consolidated Financial Statements are an
 integral part of the Condensed Consolidated Financial
Statements.
 3
 Link to table of
contents










GREENLIGHT
CAPITAL RE, LTD.


CONDENSED CONSOLIDATED STATEMENTS OF
INCOME


(UNAUDITED)




For
the three and six months ended June 30, 2009 and 2008


(expressed
in thousands of U.S. dollars, except per share and share
amounts)




Three
      months ended June 30,
                                                                                                                                                    
                                                                                                                                                    Six
      months ended June 30,2009
                                                                                                                                                    
                                                                                                                                                    2008
                                                                                                                                                    
                                                                                                                                                    2009
                                                                                                                                                    
                                                                                                                                                    2008RevenuesGross
      premiums written
                                                                                                                                                    $
                                                                                                                                                    70,047
                                                                                                                                                    $
                                                                                                                                                    25,360
                                                                                                                                                    $
                                                                                                                                                    141,918
                                                                                                                                                    $
                                                                                                                                                    96,126Gross
      premiums ceded
                                                                                                                                                    
                                                                                                                                                    (6,611
                                                                                                                                                    )
                                                                                                                                                    (5,615
                                                                                                                                                    )
                                                                                                                                                    (7,831
                                                                                                                                                    )
                                                                                                                                                    (14,887
                                                                                                                                                    )Net
      premiums written
                                                                                                                                                    
                                                                                                                                                    63,436
                                                                                                                                                    
                                                                                                                                                    19,745
                                                                                                                                                    
                                                                                                                                                    134,087
                                                                                                                                                    
                                                                                                                                                    81,239Change
      in net unearned premium reserves
                                                                                                                                                    
                                                                                                                                                    (14,089
                                                                                                                                                    )
                                                                                                                                                    4,937
                                                                                                                                                    
                                                                                                                                                    (38,547
                                                                                                                                                    )
                                                                                                                                                    (29,065
                                                                                                                                                    )Net
      premiums earned
                                                                                                                                                    
                                                                                                                                                    49,347
                                                                                                                                                    
                                                                                                                                                    24,682
                                                                                                                                                    
                                                                                                                                                    95,540
                                                                                                                                                    
                                                                                                                                                    52,174Net
      investment income
                                                                                                                                                    
                                                                                                                                                    88,323
                                                                                                                                                    
                                                                                                                                                    31,025
                                                                                                                                                    
                                                                                                                                                    116,040
                                                                                                                                                    
                                                                                                                                                    25,263Other
      income (expense)
                                                                                                                                                    
                                                                                                                                                    (70
                                                                                                                                                    )
                                                                                                                                                    —
                                                                                                                                                    
                                                                                                                                                    2,054
                                                                                                                                                    
                                                                                                                                                    —Total
      revenues
                                                                                                                                                    
                                                                                                                                                    137,600
                                                                                                                                                    
                                                                                                                                                    55,707
                                                                                                                                                    
                                                                                                                                                    213,634
                                                                                                                                                    
                                                                                                                                                    77,437ExpensesLoss
      and loss adjustment expenses incurred, net
                                                                                                                                                    
                                                                                                                                                    23,547
                                                                                                                                                    
                                                                                                                                                    9,337
                                                                                                                                                    
                                                                                                                                                    53,743
                                                                                                                                                    
                                                                                                                                                    21,461Acquisition
      costs, net
                                                                                                                                                    
                                                                                                                                                    15,578
                                                                                                                                                    
                                                                                                                                                    9,228
                                                                                                                                                    
                                                                                                                                                    28,823
                                                                                                                                                    
                                                                                                                                                    19,157General
      and administrative expenses
                                                                                                                                                    
                                                                                                                                                    5,330
                                                                                                                                                    
                                                                                                                                                    3,210
                                                                                                                                                    
                                                                                                                                                    9,708
                                                                                                                                                    
                                                                                                                                                    7,670Total
      expenses
                                                                                                                                                    
                                                                                                                                                    44,455
                                                                                                                                                    
                                                                                                                                                    21,775
                                                                                                                                                    
                                                                                                                                                    92,274
                                                                                                                                                    
                                                                                                                                                    48,288Net
      income before non-controlling interest and corporate income tax
      expense
                                                                                                                                                    
                                                                                                                                                    93,145
                                                                                                                                                    
                                                                                                                                                    33,932
                                                                                                                                                    
                                                                                                                                                    121,360
                                                                                                                                                    
                                                                                                                                                    29,149Non-controlling
      interest in income of joint venture
                                                                                                                                                    
                                                                                                                                                    (1,006
                                                                                                                                                    )
                                                                                                                                                    (394
                                                                                                                                                    )
                                                                                                                                                    (1,337
                                                                                                                                                    )
                                                                                                                                                    (361
                                                                                                                                                    )Net
      income before corporate income tax expense
                                                                                                                                                    
                                                                                                                                                    92,139
                                                                                                                                                    
                                                                                                                                                    33,538
                                                                                                                                                    
                                                                                                                                                    120,023
                                                                                                                                                    
                                                                                                                                                    28,788Corporate
      income tax benefit (expense)
                                                                                                                                                    
                                                                                                                                                    57
                                                                                                                                                    
                                                                                                                                                    —
                                                                                                                                                    
                                                                                                                                                    (18
                                                                                                                                                    )
                                                                                                                                                    —Net
      income
                                                                                                                                                    $
                                                                                                                                                    92,196
                                                                                                                                                    $
                                                                                                                                                    33,538
                                                                                                                                                    $
                                                                                                                                                    120,005
                                                                                                                                                    $
                                                                                                                                                    28,788Earnings
      per shareBasic
                                                                                                                                                    $
                                                                                                                                                    2.54
                                                                                                                                                    $
                                                                                                                                                    0.93
                                                                                                                                                    $
                                                                                                                                                    3.32
                                                                                                                                                    $
                                                                                                                                                    0.80Diluted
                                                                                                                                                    $
                                                                                                                                                    2.51
                                                                                                                                                    $
                                                                                                                                                    0.91
                                                                                                                                                    $
                                                                                                                                                    3.29
                                                                                                                                                    $
                                                                                                                                                    0.78Weighted
      average number of ordinary shares used in the determination
      ofBasic
                                                                                                                                                    
                                                                                                                                                    36,252,925
                                                                                                                                                    
                                                                                                                                                    36,249,979
                                                                                                                                                    
                                                                                                                                                    36,160,160
                                                                                                                                                    
                                                                                                                                                    36,181,761Diluted
                                                                                                                                                    
                                                                                                                                                    36,689,711
                                                                                                                                                    
                                                                                                                                                    36,841,029
                                                                                                                                                    
                                                                                                                                                    36,503,890
                                                                                                                                                    
                                                                                                                                                    36,771,949






The
accompanying Notes to the Condensed Consolidated Financial Statements are an
 integral part of the Condensed Consolidated Financial
Statements.
 4
 Link to table of
contents










GREENLIGHT
CAPITAL RE, LTD.


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY (UNAUDITED)




For
the six months ended June 30, 2009 and 2008


(expressed
in thousands of U.S. dollars)







Six
      months ended June 30, 2009
                                          
                                          
                                          Six
      months ended June 30, 2008Ordinary
      share capitalBalance
      – beginning of period
                                          
                                          $
                                          3,604
                                          
                                          
                                          $
                                          3,610Issue
      of Class A ordinary share capital, net of
forfeitures
                                          
                                          
                                          24
                                          
                                          
                                          
                                          17Balance
      – end of period
                                          
                                          $
                                          3,628
                                          
                                          
                                          $
                                          3,627Additional
      paid-in capitalBalance
      – beginning of period
                                          
                                          $
                                          477,571
                                          
                                          
                                          $
                                          476,861Issue
      of Class A ordinary share capital
                                          
                                          
                                          221
                                          
                                          
                                          
                                          9Share-based
      compensation expense, net of forfeitures
                                          
                                          
                                          1,519
                                          
                                          
                                          
                                          1,358Balance
      – end of period
                                          
                                          $
                                          479,311
                                          
                                          
                                          $
                                          478,228Non-controlling
      interestBalance
      – beginning of period
                                          
                                          $
                                          6,058
                                          
                                          
                                          $
                                          —Non-controlling
      interest contribution in joint venture
                                          
                                          
                                          —
                                          
                                          
                                          
                                          6,909Non-controlling
      interest in income of joint venture
                                          
                                          
                                          1,337
                                          
                                          
                                          
                                          361Balance
      – end of period
                                          
                                          $
                                          7,395
                                          
                                          
                                          $
                                          7,270Retained
      earningsBalance
      – beginning of period
                                          
                                          $
                                          4,207
                                          
                                          
                                          $
                                          125,111Net
      income
                                          
                                          
                                          120,005
                                          
                                          
                                          
                                          28,788Balance
      – end of period
                                          
                                          $
                                          124,212
                                          
                                          
                                          $
                                          153,899Total
      shareholders’ equity
                                          
                                          $
                                          614,546
                                          
                                          
                                          $
                                          643,024





The
accompanying Notes to the Condensed Consolidated Financial Statements are an
 integral part of the Condensed Consolidated Financial
Statements.
 5
 Link to table of
contents










GREENLIGHT
CAPITAL RE, LTD.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)




For
the six months ended June 30, 2009 and 2008


(expressed
in thousands of U.S. dollars)




2009
                                                      
                                                      
                                                      2008Cash
      provided by (used in)
                                                        Operating
      activitiesNet
      income
                                                      
                                                      $
                                                      120,005
                                                      
                                                      
                                                      $
                                                      28,788Adjustments to
      reconcile net income to net cash provided by operating
      activitiesNet
      change in unrealized gains and losses on securities and financial
      contracts
                                                      
                                                      
                                                      (112,668
                                                      )
                                                      
                                                      
                                                      40,177Net
      realized gains on securities and financial contracts
                                                      
                                                      
                                                      (18,272
                                                      )
                                                      
                                                      
                                                      (86,679
                                                      )Foreign
      exchange loss on restricted cash and cash
equivalents
                                                      
                                                      
                                                      (258
                                                      )
                                                      
                                                      
                                                      14,437Non-controlling
      interest in income of joint venture
                                                      
                                                      
                                                      1,337
                                                      
                                                      
                                                      
                                                      361Share-based
      compensation expense
                                                      
                                                      
                                                      1,543
                                                      
                                                      
                                                      
                                                      1,375Depreciation
      expense
                                                      
                                                      
                                                      20
                                                      
                                                      
                                                      
                                                      20Net change
      inReinsurance
      balances receivable
                                                      
                                                      
                                                      (46,154
                                                      )
                                                      
                                                      
                                                      (25,798
                                                      )Loss and loss
      adjustment expense recoverables
                                                      
                                                      
                                                      4,782
                                                      
                                                      
                                                      
                                                      (959
                                                      )Deferred
      acquisition costs, net
                                                      
                                                      
                                                      (16,488
                                                      )
                                                      
                                                      
                                                      (7,949
                                                      )Unearned premiums
      ceded
                                                      
                                                      
                                                      (2,446
                                                      )
                                                      
                                                      
                                                      (6,851
                                                      )Other
      assets
                                                      
                                                      
                                                      (1,671
                                                      )
                                                      
                                                      
                                                      (1,061
                                                      )Loss and loss
      adjustment expense reserves
                                                      
                                                      
                                                      34,109
                                                      
                                                      
                                                      
                                                      14,990Unearned premium
      reserves
                                                      
                                                      
                                                      40,994
                                                      
                                                      
                                                      
                                                      35,991Reinsurance
      balances payable
                                                      
                                                      
                                                      10,134
                                                      
                                                      
                                                      
                                                      14,032Funds
      withheld
                                                      
                                                      
                                                      (645
                                                      )
                                                      
                                                      
                                                      1,638Other
      liabilities
                                                      
                                                      
                                                      3,497
                                                      
                                                      
                                                      
                                                      2,114Performance
      compensation payable to related party
                                                      
                                                      
                                                      12,698
                                                      
                                                      
                                                      
                                                      (740
                                                      )Net
      cash provided by operating activities
                                                      
                                                      $
                                                      30,517
                                                      
                                                      
                                                      $
                                                      23,886Investing
      activitiesPurchases of
      securities and financial contracts
                                                      
                                                      
                                                      (618,825
                                                      )
                                                      
                                                      
                                                      (575,339
                                                      )Sales of
      securities and financial contracts
                                                      
                                                      
                                                      781,182
                                                      
                                                      
                                                      
                                                      662,443Change in
      restricted cash and cash equivalents, net
                                                      
                                                      
                                                      (138,584
                                                      )
                                                      
                                                      
                                                      (84,577
                                                      )Change
      in notes receivable, net
                                                      
                                                      
                                                      (15,183
                                                      )
                                                      
                                                      
                                                      —Non-controlling
      interest in joint venture
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      6,909Net cash provided by
      investing activities
                                                      
                                                      $
                                                      8,590
                                                      
                                                      
                                                      $
                                                      9,436Financing
      activitiesNet proceeds from
      exercise of stock options
                                                      
                                                      
                                                      221
                                                      
                                                      
                                                      
                                                      9Net cash provided by
      financing activities
                                                      
                                                      $
                                                      221
                                                      
                                                      
                                                      $
                                                      9Net
      increase in cash and cash equivalents
                                                      
                                                      
                                                      39,328
                                                      
                                                      
                                                      
                                                      33,331Cash and cash
      equivalents at beginning of the period
                                                      
                                                      
                                                      94,144
                                                      
                                                      
                                                      
                                                      64,192Cash
      and cash equivalents at end of the period
                                                      
                                                      
                                                      133,472
                                                      
                                                      
                                                      $
                                                      97,523Supplementary
      informationInterest paid in
      cash
                                                      
                                                      $
                                                      2,610
                                                      
                                                      
                                                      $
                                                      6,909Interest received
      in cash
                                                      
                                                      
                                                      3,548
                                                      
                                                      
                                                      
                                                      6,906Income tax paid in
      cash
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —







The
accompanying Notes to the Condensed Consolidated Financial Statements are an
 integral part of the Condensed Consolidated Financial
Statements.
 6
 Link to table of
contents




GREENLIGHT
CAPITAL RE, LTD.


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(UNAUDITED)




June
30, 2009 and 2008




1.
            GENERAL




Greenlight
Capital Re, Ltd. ("GLRE") was incorporated as an exempted company under the
Companies Law of the Cayman Islands on July 13, 2004. GLRE’s principal
wholly-owned subsidiary, Greenlight Reinsurance, Ltd. (the "Subsidiary"),
provides global specialty property and casualty reinsurance. The Subsidiary has
an unrestricted Class "B" insurance license under Section 4(2) of the Cayman
Islands Insurance Law. The Subsidiary commenced underwriting in April 2006.
Effective May 30, 2007, GLRE completed an initial public offering of 11,787,500
Class A ordinary shares at $19.00 per share. Concurrently, 2,631,579 Class B
ordinary shares of GLRE were sold at $19.00 per share in a private
placement offering.  On December 9, 2008, Verdant Holding Company,
Ltd. ("Verdant"), a wholly owned subsidiary of GLRE, was incorporated in the
state of Delaware principally for the purpose of making strategic investments in
a select group of property and casualty insurers and general agents in the
U.S.




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 its
subsidiaries.




These
unaudited condensed consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America
("U.S. GAAP") and in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete consolidated financial
statements. These unaudited condensed consolidated financial statements should
be read in conjunction with the Company’s audited consolidated financial
statements for the year ended December 31, 2008. In the opinion of management,
these unaudited 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, 2009 are not necessarily indicative of
the results expected for the full year.




2.
            SIGNIFICANT
      ACCOUNTING POLICIES




Basis
of Presentation




The
condensed consolidated financial statements include the accounts of GLRE and the
consolidated financial statements of all of its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.




Management
has evaluated subsequent events through August 3, 2009, the issuance date of
these financial statements.




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.
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.




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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, and
historical experience, as well as the Company's own actuarial estimates. These
estimates are reviewed periodically and adjusted when deemed necessary. Since
reserves are 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.




Notes
Receivable




Notes
receivable include promissory notes receivable from third party entities. These
notes are recorded at cost along with accrued interest, if any, which
approximates the fair value. The Company regularly reviews all notes receivable
for impairment and records provisions for uncollectible notes and interest
receivable for non-performing notes. For the six months ended June 30,
2009, the notes earned interest at annual interest rates ranging from 5% to 10%
and had maturity terms ranging from 2 years to 10 years. Included in the notes
receivable balance were accrued interest of $0.3 million at June 30, 2009
(December 31, 2008: $19,000) and all notes were considered current and
performing.




Deposit
Assets and Liabilities




The
Company accounts for reinsurance contracts in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 60, "Accounting and Reporting by
Insurance Enterprises," and SFAS No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts." In the event that a
reinsurance contract does not transfer sufficient risk, or a contract provides
retroactive reinsurance, deposit accounting is used. Any losses on such
contracts are charged to earnings immediately and recorded in the condensed
consolidated statements of income as other expense. Any gains relating to such
contracts are deferred and amortized over the estimated remaining settlement
period. All such deferred gains are included in reinsurance balances payable in
the condensed consolidated balance sheets. Amortized gains are recorded in the
condensed consolidated statements of income as other income. At June 30,
2009, included in the condensed consolidated balance sheets under reinsurance
balances receivable and reinsurance balances payable were
$2.4 million and $1.9 million of deposit assets and deposit
liabilities, respectively. For the three and six months ended June 30, 2009,
included in other income (expense) were $0.2 million and $0.2 million,
respectively, relating to losses on deposit accounted contracts, and $0.1
million and $0.2 million, respectively, relating to gains on deposit
accounted contracts. There were no deposit assets or deposit liabilities at
December 31, 2008.




Financial
Instruments




Investments
      in Securities and Securities Sold, Not Yet
  Purchased




Effective
January 1, 2008, the Company adopted 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 on 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 debt and equity securities that are classified as
"trading securities" are carried 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
most private debt instruments are derived based on inputs that are observable,
either directly or indirectly, such as market maker or broker quotes reflecting
recent transactions (Level 2 inputs), and are generally derived based on
the average of multiple market maker or broker quotes which are considered
to be binding. Where quotes are not available, debt instruments are valued using
cash flow models using assumptions and estimates that may be subjective and
non-observable (Level 3 inputs).





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contents




The
Company’s "other investments" may include investments in private equity
securities, limited partnerships, futures, commodities, exchange traded options
and over-the-counter ("OTC") options, which are all carried at fair value.
The Company maximizes the use of observable direct or indirect inputs
(Level 2 inputs) when deriving the fair values for "other investments." For
limited partnerships and private equity securities, where observable inputs are
not available, the fair values are derived based on unobservable inputs
(Level 3 inputs) such as management’s assumptions 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 asset or
liability at inception. Subsequent to initial recognition, unexpired exchange
traded option contracts are recorded at fair value based on quoted prices in
active markets (Level 1 inputs). For OTC options or exchange traded options
where a quoted price in an active market is not available, fair values
are derived based upon observable inputs (Level 2 inputs) such as
multiple market maker quotes.





For
securities classified as "trading securities," and "other investments," any
realized and unrealized gains or losses are determined on the basis of 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.





Dividend
income and expense are recorded on the ex-dividend date. The ex-dividend date is
the date by which 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.





Derivative
Financial Instruments




U.S
GAAP requires that an entity recognize all derivatives in the balance sheet
at fair value. It also requires that unrealized gains and losses resulting from
changes in fair value be included in income or comprehensive income, depending
on whether the instrument qualifies as a hedge transaction, and if so, the type
of hedge transaction. Derivative financial instrument assets are generally
included in investments in securities or financial contracts receivable.
Derivative financial instrument liabilities are generally included in financial
contracts payable. The Company's derivatives do not constitute hedges for
financial reporting purposes.




Financial
Contracts





The
Company enters into financial contracts with counterparties as part of its
investment strategy. Derivatives not designated as hedging instruments, include
total return swaps, credit default swaps, and other derivative instruments
which are recorded at their fair value with any unrealized gains and losses
included in net investment income in the condensed consolidated statements of
income. On the condensed consolidated balance sheets, financial contracts
receivable represents derivative contracts whereby the Company is entitled to
receive payments upon settlement of the contract. Financial contracts payable
represents derivative contracts whereby the Company is obligated to make
payments upon settlement of the contract.




Total
return swap agreements, included in the condensed consolidated balance sheets as
financial contracts receivable and financial contracts payable, are derivative
financial instruments 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 value movements of
the underlying security together with any other payments due. These contracts
are carried at fair value, 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 amounts
received or paid on swap contracts are reported as a gain or loss in net
investment income in the condensed consolidated statements of
income.




Financial
contracts may also include exchange traded futures or options contracts that are
based on the movement of a particular index or interest rate, and are entered
into for non-hedging purposes. Where such contracts are traded in an active
market, the Company’s obligations or rights on these contracts are recorded at
fair value measured based on the observable quoted prices of the same or similar
financial contract in an active market (Level 1) or on broker quotes which
reflect market information based on actual transactions (Level 2).




The
Company purchases and sells credit default swaps ("CDS") for the purposes of
either managing its exposure to certain investments, or for other strategic
investment purposes. A CDS is a derivative instrument that provides protection
against an investment loss due to specified credit or default events of a
reference entity. The seller of a CDS guarantees to the buyer a specified amount
if the reference entity defaults on its obligations or fails to perform. The
buyer of a CDS pays a premium over time to the seller in exchange for obtaining
this protection. The Company does not designate a CDS as a hedging
instrument. CDS trading in an active market are valued at fair value based on
broker or market maker quotes for identical instruments in an active market
(Level 2) or based on the current credit spreads on identical contracts
(Level 2) with any unrealized gains and losses reflected in net investment
income in the condensed consolidated statements of income.




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Earnings
Per Share




Basic
earnings per share are based on the weighted average number of common shares and
participating securities outstanding during the period. Diluted earnings
per share include the dilutive effect of additional potential common shares
issuable when stock options are exercised and are determined using the treasury
stock method. As discussed below under the caption, "Recently Issued
Accounting Standards," the Financial Accounting Standards Board ("FASB") Staff
Position ("FSP") EITF 03-6-1 was adopted effective January 1, 2009. FSP
EITF 03-6-1 requires that unvested stock awards which contain
non-forfeitable rights to dividends or dividend equivalents, whether paid
or unpaid (referred to as "participating securities"), be included in the number
of shares outstanding for both basic and diluted earnings per share
calculations. The Company's unvested restricted stock is considered a
participating security. All prior period earnings per share data presented
are required to be adjusted retrospectively to conform to the provisions
of FSP EITF 03-6-1. In the event of a net loss, the participating
securities are excluded from the calculation of both basic and diluted earnings
per share.




Three
      months ended
                                            June
      30,
                                          
                                          Six
      months ended
                                            June
      30,2009
                                          
                                          2008
                                          
                                          2009
                                          
                                          2008Weighted
      average shares outstanding
                                          
                                          36,252,925
                                          
                                          36,249,979
                                          
                                          36,160,160
                                          
                                          36,181,761Effect
      of dilutive service provider share-based awards
                                          
                                          135,474
                                          
                                          172,087
                                          
                                          116,400
                                          
                                          173,347Effect
      of dilutive employee and director share-based awards
                                          
                                          301,312
                                          
                                          418,963
                                          
                                          227,330
                                          
                                          416,84136,689,711
                                          
                                          36,841,029
                                          
                                          36,503,890
                                          
                                          36,771,949Anti-dilutive
      stock options outstanding
                                          
                                          130,000
                                          
                                          50,000
                                          
                                          146,001
                                          
                                          50,000




Taxation




Under
current Cayman Islands law, no corporate entity, including the Company, is
obligated to pay taxes in the Cayman Islands on either income or capital gains.
The Company has an undertaking from the Governor-in-Cabinet of the Cayman
Islands, pursuant to the provisions of the Tax Concessions Law, as amended,
that, in the event that the Cayman Islands enacts any legislation that imposes
tax on profits, income, gains or appreciations, or any tax in the nature of
estate duty or inheritance tax, such tax will not be applicable to the
Company or its operations, or to the Class A or Class B ordinary shares or
related obligations, until February 1, 2025.




Verdant is
incorporated in Delaware, and therefore is subject to taxes in accordance
with the U.S. federal rates and regulations prescribed by the Internal Revenue
Service. Verdant’s taxable income is taxed at an effective rate of 35%. Any
deferred tax asset is evaluated for recovery and a valuation allowance
is recorded when it is more likely than not that the deferred tax
asset will not be realized in the future.





Recently
Issued Accounting Standards




In June 2009, the
FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB
Statement No. 162." SFAS No. 168 establishes the FASB Accounting Standards
Codification ("Codification") as the source of authoritative accounting
principles recognized by the FASB and supersedes existing FASB, AICPA, EITF and
related literature. The Codification does not change GAAP, but instead takes the
hundreds of standards established by a variety of standard setters and
reorganizes them into roughly 90 accounting topics using a consistent structure
and a new method for citing particular content using unique numeric
identifiers. The Codification is effective for financial statements for
interim and annual reporting periods ending after September 15, 2009. The
implementation of SFAS No. 168 will have no impact on the Company’s results of
operations or financial position, but will impact all references to FASB
literature cited in the Company’s notes of the condensed consolidated financial
statements.





In June 2009, the
FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46R," which
changes the way a reporting entity determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar)
rights, should by consolidated. The determination of whether a reporting entity
is required to consolidate another entity is based on, among other things, the
other entity’s purpose and design and the reporting entity’s ability to direct
the activities of the other entity that most significantly impact the other
entity’s economic performance. SFAS No. 167 will require a reporting entity to
provide additional disclosures about its involvement with variable interest
entities and any significant changes in risk exposure due to that
involvement. SFAS No. 167 is effective for periods beginning after November
15, 2009. Management is evaluating the impact of SFAS No. 167 but does not
anticipate its adoption will have a material impact on the Company’s
results of operations or financial position.




In June 2009, the
FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets." SFAS
No. 166 revises SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," and will require more
information about transfers of financial assets, including securitization
transactions, and where entities have continuing exposure to the risks related
to transferred financial assets. SFAS No. 166 eliminates the concept of a
"qualifying special-purpose entity," changes the requirements for derecognizing
financial assets, and requires additional disclosures. SFAS No. 166 is effective
for periods beginning after November 15, 2009. Management is evaluating the
impact of SFAS No. 166 but does not anticipate its adoption will have
a material impact on the Company’s results of operations or financial
position.




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In May 2009,
the FASB issued SFAS No. 165, "Subsequent Events," which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued. SFAS No. 165 is effective for interim or annual
financial periods ending after June 15, 2009, and shall be applied
prospectively. The adoption of SFAS No. 165 did not have a material impact on
the Company’s results of operations or financial position.





In April
2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly." FSP FAS 157-4
provides further clarification of the principles established by SFAS No. 157 for
determining the fair values of assets and liabilities in inactive markets and
those transacted in distressed situations. FSP 157-4 is effective for
periods ending after June 15, 2009 with early adoption permitted for periods
ending after March 15, 2009. Retrospective application is not permitted. The
adoption of FSP 157-4 did not have a material impact on the Company’s
results of operations or financial position.




In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and
Presentation of Other-Than-Temporary Impairments." This FSP, which is limited to
debt securities, provides guidance that aims to make other-than-temporary
impairments ("OTTI") of debt securities more operational and improve the
presentation of OTTIs in the financial statements. FSP FAS 115-2 and FAS
124-2 is effective for periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The adoption of FSP
FAS 115-2 and FAS 124-2 during the quarter ended June 30, 2009, did
not have any impact on the Company’s results of operations or financial position
since its debt instruments are classified as trading and are currently carried
at fair value.




In April
2009, the FASB issued FSP 107-1 and APB 28-1, "Interim Disclosures about Fair
Value of Financial Instruments." FSP 107-1 and APB 28-1 amends FASB
Statement No. 107, "Disclosures about Fair Value of Financial Instruments," to
require an entity to provide disclosures about fair value of financial
instruments in interim financial information. FSP 107-1 and APB
28-1 is effective for periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The adoption of FSP
107-1 and APB 28-1 during the quarter ended June 30, 2009 did not have a
material impact on the Company’s disclosures since its financial instruments are
currently carried at fair value.




In June
2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities."
FSP No. EITF 03-6-1 addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings
per share ("EPS"). FSP No. EITF 03-6-1 is effective for
periods beginning after December 15, 2008, and interim periods within
those years. The implementation of this FSP did not have a material impact
to the Company's EPS calculations given that the Company has declared
no dividends since its inception and the number of unvested restricted
shares is insignificant compared to the total number of outstanding
shares. The Company does not anticipate the EPS calculations to be
materially affected in the foreseeable future as a result of adopting FSP No.
EITF 03-6-1.




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. SFAS No. 161 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. The implementation of SFAS No. 161 did not have a material impact on the
Company’s derivative disclosures.




In
February 2008, the FASB issued FSP FAS 157-2, "Effective Date of FASB
Statement No. 157." FSP FAS 157-2 deferred the effective date of SFAS No. 157
until January 1, 2009 for non-financial assets and non-financial liabilities
except those items recognized or disclosed at fair value on an annual or more
frequently recurring basis. The implementation of the deferred guidance in
SFAS No. 157 did not have a material impact on the Company’s results of
operation or financial position.




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. SFAS No. 160
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary.  Upon
adoption of SFAS No. 160, the Company's non-controlling interest in joint
venture (previously referred to as minority interest in
joint venture) was reclassified from liabilities to shareholders’
equity for all years presented. This reclassification resulted in an increase in
shareholders’ equity and a decrease in total liabilities. However,
the implementation of SFAS No. 160 did not have any impact on the
Company's results of operations or retained earnings.




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Reclassifications




Certain
prior period balances have been reclassified to conform to the
current period presentation. The reclassifications resulted in no changes
to net income or retained earnings for any of the periods
presented.




3.
            FINANCIAL
      INSTRUMENTS




Fair Value
Hierarchy




All of
the Company’s financial instruments are carried at fair value, and the net
unrealized gains or losses are included in net investment income in the
condensed consolidated statements of income.




The
following table presents the Company’s investments, categorized by the level of
the fair value hierarchy as of June 30, 2009:




Fair
      value measurements as ofJune
      30, 2009Description
                              
                              Quoted
      prices in active markets  (Level 1)
                              
                              
                              Significant
      other  observableinputs
                                (Level
      2)
                              
                              
                              Significant
                                unobservable
      inputs
                                (Level
      3)
                              
                              
                              Total($
      in thousands)Debt
      instruments
                              
                              $
                              —
                              
                              
                              $
                              127,541
                              
                              
                              $
                              6,806
                              
                              
                              $
                              134,347Listed
      equity securities
                              
                              
                              401,139
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              401,139Commodities
                              
                              
                              44,409
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              44,409Private
      equity securities
                              
                              
                              —
                              
                              
                              
                              1,606
                              
                              
                              
                              9,530
                              
                              
                              
                              11,136Put
      options
                              
                              
                              2,508
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              2,508Call
      options
                              
                              
                              —
                              
                              
                              
                              2,091
                              
                              
                              
                              —
                              
                              
                              
                              2,091Financial
      contracts receivable (payable), net
                              
                              
                              —
                              
                              
                              
                              6,190
                              
                              
                              
                              —
                              
                              
                              
                              6,190$
                              448,056
                              
                              
                              $
                              137,428
                              
                              
                              $
                              16,336
                              
                              
                              $
                              601,820Listed
      equity securities, sold not yet purchased
                              
                              $
                              (369,293
                              )
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              (369,293
                              )




The
following table presents the Company’s investments, categorized by the level of
the fair value hierarchy as at December 31, 2008:





Fair
      value measurements as of December 31, 2008Description
                              
                              Quoted
      prices inactive
      markets(Level
      1)
                              
                              
                              Significant
      other
                                observableinputs
                                (Level
      2)
                              
                              
                              Significant
                                unobservableinputs(Level
      3)
                              
                              
                              Total($
      in thousands)Debt
      instruments
                              
                              $
                              —
                              
                              
                              $
                              66,099
                              
                              
                              $
                              4,115
                              
                              
                              $
                              70,214Listed
      equity securities
                              
                              
                              409,329
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              409,329Private
      equity securities
                              
                              
                              —
                              
                              
                              
                              121
                              
                              
                              
                              11,776
                              
                              
                              
                              11,897Call
      options
                              
                              
                              2,526
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              2,526Financial
      contracts receivable (payable), net
                              
                              
                              —
                              
                              
                              
                              4,279
                              
                              
                              
                              —
                              
                              
                              
                              4,279$
                              411,855
                              
                              
                              $
                              70,499
                              
                              
                              $
                              15,891
                              
                              
                              $
                              498,245Listed
      equity securities, sold not yet purchased
                              
                              $
                              (234,301
                              )
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              (234,301
                              )






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The
following table presents the reconciliation of the balances for all investments
measured at fair value using significant unobservable inputs (Level 3) for the
three and six months ended June 30, 2009:




Fair
      value measurements using
                                                              significant
      unobservable inputs
                                                              (Level
      3)
                                                              Three
      months ended June 30, 2009
                                                            
                                                            
                                                            Fair
      value measurements using
                                                              significant
      unobservable inputs
                                                              (Level
      3)
                                                              Six
      months ended June 30, 2009Debt
                                                              instruments
                                                            
                                                            
                                                            Private
                                                              equity
                                                              securities
                                                            
                                                            
                                                            Total
                                                            
                                                            
                                                            Debt
                                                              instruments
                                                            
                                                            
                                                            Private
                                                              equity
                                                              securities
                                                            
                                                            
                                                            Total($
      in thousands)
                                                            
                                                            
                                                            ($
      in thousands)Beginning
      balance
                                                            
                                                            $
                                                            9,352
                                                            
                                                            
                                                            $
                                                            9,807
                                                            
                                                            
                                                            $
                                                            19,159
                                                            
                                                            $
                                                            4,115
                                                            
                                                            $
                                                            11,776
                                                            
                                                            $
                                                            15,891Purchases,
      sales, issuances, and settlements, net
                                                            
                                                            
                                                            20
                                                            
                                                            
                                                            
                                                            200
                                                            
                                                            
                                                            
                                                            220
                                                            
                                                            
                                                            1,751
                                                            
                                                            
                                                            118
                                                            
                                                            
                                                            1,869Total
      gains (losses) realized and unrealized included in earnings,
      net
                                                            
                                                            
                                                            638
                                                            
                                                            
                                                            
                                                            (477
                                                            )
                                                            
                                                            
                                                            161
                                                            
                                                            
                                                            (847
                                                            )
                                                            
                                                            (2,364
                                                            )
                                                            
                                                            (3,211
                                                            )Transfers
      into (out of) Level 3
                                                            
                                                            
                                                            (3,204
                                                            )
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            (3,204
                                                            )
                                                            
                                                            1,787
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            1,787Ending
      balance, June 30, 2009
                                                            
                                                            $
                                                            6,806
                                                            
                                                            
                                                            $
                                                            9,530
                                                            
                                                            
                                                            $
                                                            16,336
                                                            
                                                            $
                                                            6,806
                                                            
                                                            $
                                                            9,530
                                                            
                                                            $
                                                            16,336




The
following table presents the reconciliation of the balances for all investments
measured at fair value using significant unobservable inputs (Level 3) for
the three and six months ended June 30, 2008:




Fair
      value measurements using
                                                                                                      significant
      unobservable inputs
                                                                                                      (Level
      3)
                                                                                                      Three
      months ended June 30, 2008
                                                                                                    
                                                                                                    
                                                                                                    Fair
      value measurements using
                                                                                                      significant
      unobservable inputs
                                                                                                      (Level
      3)
                                                                                                      Six
      months ended June 30, 2008Debt
                                                                                                      instruments
                                                                                                    
                                                                                                    
                                                                                                    Private
                                                                                                      equity
                                                                                                      securities
                                                                                                    
                                                                                                    
                                                                                                    Total
                                                                                                    
                                                                                                    
                                                                                                    Debt
                                                                                                      instruments
                                                                                                    
                                                                                                    
                                                                                                    Private
                                                                                                      equity
                                                                                                      securities
                                                                                                    
                                                                                                    
                                                                                                    Total($
      in thousands)
                                                                                                    
                                                                                                    
                                                                                                    ($
      in thousands)Beginning
      balance
                                                                                                    
                                                                                                    $
                                                                                                    865
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    10,943
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    11,808
                                                                                                    
                                                                                                    $
                                                                                                    865
                                                                                                    
                                                                                                    $
                                                                                                    8,115
                                                                                                    
                                                                                                    $
                                                                                                    8,980Purchases,
      sales, issuances, and settlements, net
                                                                                                    
                                                                                                    
                                                                                                    2,204
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    804
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,008
                                                                                                    
                                                                                                    
                                                                                                    2,204
                                                                                                    
                                                                                                    
                                                                                                    3,565
                                                                                                    
                                                                                                    
                                                                                                    5,769Total
      gains (losses) realized and unrealized included in earnings,
      net
                                                                                                    
                                                                                                    
                                                                                                    (2
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (279
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (281
                                                                                                    )
                                                                                                    
                                                                                                    (2
                                                                                                    )
                                                                                                    
                                                                                                    (212
                                                                                                    )
                                                                                                    
                                                                                                    (214
                                                                                                    )Transfers
      into (out of) Level 3
                                                                                                    
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (5,205
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (5,205
                                                                                                    )
                                                                                                    
                                                                                                    —
                                                                                                    
                                                                                                    
                                                                                                    (5,205
                                                                                                    )
                                                                                                    
                                                                                                    (5,205
                                                                                                    )Ending
      balance, June 30, 2008
                                                                                                    
                                                                                                    $
                                                                                                    3,067
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    6,263
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    9,330
                                                                                                    
                                                                                                    $
                                                                                                    3,067
                                                                                                    
                                                                                                    $
                                                                                                    6,263
                                                                                                    
                                                                                                    $
                                                                                                    9,330




For the
three and six months ended June 30, 2009, transfers into Level 3 represent
the fair value on the date of transfer of debt instruments for
which multiple broker quotes were not available. The fair values of these
debt instruments were estimated using the last available transaction price,
adjusted for credit risk, expected cash flows, and other non-observable inputs.
Transfers out of Level 3 represent the fair values on the dates of transfer of
debt instruments for which multiple broker quotes became available. For the
three and six months ended June 30, 2008, the transfers out of 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 fair value being based on
the quoted price in an active market.




For the
three and six months ended June 30, 2009, realized gains of $0.3 million
(2008: $0.0) and $0.3 million (2008: $ 0.0) respectively, and change in
unrealized gains of $(0.1) million (2008: $0.3 million) and $(3.5) million
(2008: $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
income.






13
 Link to table of contents




Debt
instruments, trading





At June
30, 2009, the following investments are included in debt
instruments:





2009
                
                Cost/amortized
                  cost
                
                
                Unrealized
                  gains
                
                
                Unrealized
                  losses
                
                
                Fair
                  value($
      in thousands)Corporate
      debt – U.S.
                
                $
                84,700
                
                
                $
                41,676
                
                
                $
                (5,847)
                
                
                $
                120,529Corporate
      debt – Non U.S.
                
                
                9,593
                
                
                
                4,225
                
                
                
                —
                
                
                
                13,818Total
      debt instruments
                
                $
                94,293
                
                
                $
                45,901
                
                
                $
                (5,847)
                
                
                $
                134,347




At
December 31, 2008, the following investments are included in debt
instruments:





2008
                  
                  Cost/amortized
                    cost
                  
                  
                  Unrealized
                    gains
                  
                  
                  Unrealized
                    losses
                  
                  
                  Fair
                    value($
      in thousands)Corporate
      debt – U.S.
                  
                  $
                  74,833
                  
                  
                  $
                  1,204
                  
                  
                  $
                  (8,750
                  )
                  
                  $
                  67,287Corporate
      debt – Non U.S.
                  
                  
                  2,978
                  
                  
                  
                  109
                  
                  
                  
                  (160
                  )
                  
                  
                  2,927Total
      debt instruments
                  
                  $
                  77,811
                  
                  
                  $
                  1,313
                  
                  
                  $
                  (8,910
                  )
                  
                  $
                  70,214




The
maturity distribution for debt instruments held at June 30, 2009 is as
follows:




Cost/amortized
                cost
              
              
              Fair
                value($
      in thousands)Within
      one year
              
              $
              14,436
              
              
              $
              16,604From
      one to five years
              
              
              50,864
              
              
              
              86,866From
      five to ten years
              
              
              22,325
              
              
              
              23,842More
      than ten years
              
              
              6,668
              
              
              
              7,035$
              94,293
              
              
              $
              134,347




Investment
in Equity Securities, Trading




At June
30, 2009, the following long positions are included in investment securities,
trading:




2009
                
                Cost
                
                
                Unrealized
                  gains
                
                
                Unrealized
                  losses
                
                
                Fair
                  value($
      in thousands)Equities
      – listed
                
                $
                461,591
                
                
                $
                41,309
                
                
                $
                (116,705
                )
                
                $
                386,195Exchange
      traded funds
                
                
                7,917
                
                
                
                7,029
                
                
                
                (2
                )
                
                
                14,944$
                469,508
                
                
                $
                48,338
                
                
                $
                (116,707
                )
                
                $
                401,139




At
December 31, 2008, the following long positions are included in investment
securities, trading:




2008
                
                Cost
                
                
                Unrealized
                  gains
                
                
                Unrealized
                  losses
                
                
                Fair
                  value($
      in thousands)Equities
      – listed
                
                $
                552,941
                
                
                $
                14,822
                
                
                $
                (219,173
                )
                
                $
                348,590Exchange
      traded funds
                
                
                53,364
                
                
                
                8,092
                
                
                
                (717
                )
                
                
                60,739$
                606,305
                
                
                $
                22,914
                
                
                $
                (219,890
                )
                
                $
                409,329






14
 Link to table of contents
  Other
Investments




"Other
investments" include options, commodities, and private equity securities.
For private equity securities, quoted prices in active markets are not readily
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 option counterparty, a
specified underlying security at a specified price on or before a specified
date. The Company enters into option contracts to meet certain investment
objectives. For 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. The Company may invest in
commodities for non-hedging purposes through futures or options contracts or may
purchase the physical commodity to be held at a professional custodian
facility.




At June
30, 2009, the following securities are included in other investments:




2009
                          
                          Cost
                          
                          Unrealized
                            gains
                          
                          Unrealized
                            losses
                          
                          Fair
                            value($
      in thousands)Private
      equity securities
                          
                          $
                          16,456
                          
                          $
                          346
                          
                          $
                          (5,666
                          )
                          $
                          11,136Commodities
                          
                          
                          44,838
                          
                          
                          —
                          
                          
                          (429
                          )
                          
                          44,409Put
      options
                          
                          
                          2,162
                          
                          
                          616
                          
                          
                          (270
                          )
                          
                          2,508Call
      options
                          
                          
                          4,128
                          
                          
                          —
                          
                          
                          (2,037
                          )
                          
                          2,091$
                          67,584
                          
                          $
                          962
                          
                          $
                          (8,402
                          )
                          $
                          60,144





At
December 31, 2008, the following securities are included in other
investments:





2008
                        
                        Cost
                        
                        Unrealized
                          Gains
                        
                        Unrealized
                          losses
                        
                        Fair
                          value($
      in thousands)Private
      equity securities
                        
                        $
                        15,395
                        
                        $
                        1,236
                        
                        $
                        (4,734
                        )
                        $
                        11,897Call
      options
                        
                        
                        2,133
                        
                        
                        393
                        
                        
                        —
                        
                        
                        2,526$
                        17,528
                        
                        $
                        1,629
                        
                        $
                        (4,734
                        )
                        $
                        14,423




Investments
in Securities Sold, Not Yet Purchased





At June
30, 2009, the following securities are included in investments in
securities sold, not yet purchased:




2009
                              
                              Proceeds
                              
                              Unrealized
      gains
                              
                              Unrealized
      losses
                              
                              
                              Fair
                                value($
      in thousands)Equities
      – listed
                              $
                              418,817
                              
                              $
                              (80,474
                              )
                              $
                              28,495
                              
                              $
                              366,838Warrants
      and rights on listed equities
                              
                              —
                              
                              
                              —
                              
                              
                              825
                              
                              
                              825Exchange
      traded funds
                              
                              1,840
                              
                              
                              (221
                              )
                              
                              11
                              
                              
                              1,630$
                              420,657
                              
                              $
                              (80,695
                              )
                              $
                              29,331
                              
                              $
                              369,293





At
December 31, 2008, the following securities are included in investments in
securities sold, not yet purchased:




2008
                        
                        Proceeds
                        
                        Unrealized
      gains
                        
                        
                        Unrealized
      losses
                        
                        
                        Fair
      value($
      in thousands)Equities
      – listed
                        $
                        343,079
                        
                        $
                        (115,619
                        )
                        
                        $
                        6,841
                        
                        $
                        234,301




Financial
Contracts




As of
June 30, 2009 and December 31, 2008, the Company had entered into total return
swaps, CDS, and interest rate options contracts with various financial
institutions to meet certain investment objectives. Under the terms of each of
these financial contracts, the Company is either entitled to receive or is
obligated to make payments which are based on the product of a formula contained
within the contract that includes the change in the fair value of the underlying
or reference instrument.






15
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The fair
value of financial contracts outstanding at June 30, 2009 is as
follows:




Financial
      contracts
                                Listing
                                  currency
                                
                                Fair
                                  value
      of
                                  underlying
      instruments
                                
                                Fair
      value of net assets/
                                  (obligations)
                                  on
      financial
                                  contracts($
      in thousands)Financial contracts
      receivableInterest
      rate options
                                USD
                                $
                                1,002,161
                                
                                $
                                11,628Credit
      default swaps, purchased – Sovereign debt
                                USD
                                
                                302,699
                                
                                
                                3,725Credit
      default swaps, purchased – Corporate debt
                                USD
                                
                                44,597
                                
                                
                                2,679Total
      return swaps – Equities
                                USD
                                
                                17,248
                                
                                
                                1,124Total
      financial contracts receivable, at fair value
                                
                                
                                
                                
                                $
                                19,156Financial contracts
      payableCredit
      default swaps, purchased – Sovereign debt
                                USD
                                $
                                73,149
                                
                                $
                                (567
                                )Credit
      default swaps, purchased – Corporate debt
                                USD
                                
                                78,150
                                
                                
                                (2,656
                                )Credit
      default swaps, issued – Corporate debt
                                USD
                                
                                13,214
                                
                                
                                (9,180
                                )Total
      return swaps – Equities
                                USD
                                
                                2,668
                                
                                
                                (563
                                )Total
      financial contracts payable, at fair value
                                
                                
                                
                                
                                $
                                (12,966
                                )








The fair
value of financial contracts receivable and payable at December 31, 2008 was as
follows:




Financial
      contracts
                                        Listing
                                          currency
                                        
                                        Fair
                                          value
      of
                                          underlying
      instruments
                                        
                                        Fair
      value of net assets/
                                          (obligations)
                                          on
      financial
                                          contracts($
      in thousands)Financial contracts
      receivableInterest
      rate options
                                        USD
                                        $
                                        85,935
                                        
                                        $
                                        2,564Credit
      default swaps, purchased – Sovereign debt
                                        USD
                                        
                                        322,516
                                        
                                        
                                        12,881Credit
      default swaps, purchased – Corporate debt
                                        USD
                                        
                                        54,509
                                        
                                        
                                        5,956Total
      return swaps – Equities
                                        USD
                                        
                                        3,249
                                        
                                        
                                        18Total
      financial contracts receivable, at fair value
                                        
                                        
                                        
                                        
                                        $
                                        21,419Financial contracts
      payableCredit
      default swaps, issued – Corporate debt
                                        USD
                                        $
                                        11,089
                                        
                                        $
                                        (7,024
                                        )Total
      return swaps – Equities
                                        USD
                                        
                                        26,844
                                        
                                        
                                        (10,116
                                        )Total
      financial contracts payable, at fair value
                                        
                                        
                                        
                                        
                                        $
                                        (17,140
                                        )




As of
June 30, 2009, included in interest rate options are contracts on U.S.
and Japanese interest rates. As of
June 30, 2009, included in financial contracts payable, was a CDS issued by the
Company relating to the debt issued by another entity ("reference
entity"). The CDS has a remaining term of four years and a notional amount of
$13.9 million. Under this contract, the Company receives a premium for
guaranteeing the debt and in return will be obligated to pay the notional
amount to the counterparty if the reference entity defaults under its debt
obligations. As of June 30, 2009, the reference entity had a financial
strength rating of (B3) and a surplus notes rating of (Caa3) from
Moody’s Investors Service, Inc. Based on the ratings of the reference entity,
there appears to be a high risk of default as of June 30, 2009. The fair
value of the CDS at June 30, 2009 was $9.2 million which
was determined based on broker quotes obtained for identical or
similar contracts traded in an active market (Level 2 inputs).




During
the three and six months ended June 30, 2009 and 2008, the Company reported
gains and losses on derivatives as follows:





Derivatives
      not designated as hedging instruments
                                                                                  
                                                                                  Location
      of gains and losses on derivatives recognized in income
                                                                                  
                                                                                  Gain
      (loss) on derivatives recognized in income for the three months ended June
      30,
                                                                                  
                                                                                  
                                                                                  Gain
      (loss) on derivatives recognized in income for the six months ended June
      30,2009
                                                                                  
                                                                                  
                                                                                  2008
                                                                                  
                                                                                  
                                                                                  2009
                                                                                  
                                                                                  
                                                                                  2008($
      in thousands)
                                                                                  
                                                                                  
                                                                                  ($
      in thousands)Interest
      rate options
                                                                                  
                                                                                  Net
      investment income
                                                                                  
                                                                                  $
                                                                                  4,838
                                                                                  
                                                                                  
                                                                                  $
                                                                                  —
                                                                                  
                                                                                  $
                                                                                  5,808
                                                                                  
                                                                                  $
                                                                                  —Credit
      default swaps, purchased – Corporate debt
                                                                                  
                                                                                  Net
      investment income
                                                                                  
                                                                                  
                                                                                  (10,154
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (30
                                                                                  )
                                                                                  
                                                                                  (6,237
                                                                                  )
                                                                                  
                                                                                  145Credit
      default swaps, purchased – Sovereign debt
                                                                                  
                                                                                  Net
      investment income
                                                                                  
                                                                                  
                                                                                  (7,559
                                                                                  )
                                                                                  
                                                                                  
                                                                                  687
                                                                                  
                                                                                  
                                                                                  (9,596
                                                                                  )
                                                                                  
                                                                                  687Total
      return swaps – Equities
                                                                                  
                                                                                  Net
      investment income
                                                                                  
                                                                                  
                                                                                  12,488
                                                                                  
                                                                                  
                                                                                  
                                                                                  770
                                                                                  
                                                                                  
                                                                                  1,902
                                                                                  
                                                                                  
                                                                                  5,459Credit
      default swaps, issued – Corporate debt
                                                                                  
                                                                                  Net
      investment income
                                                                                  
                                                                                  
                                                                                  176
                                                                                  
                                                                                  
                                                                                  
                                                                                  —
                                                                                  
                                                                                  
                                                                                  (1,810
                                                                                  )
                                                                                  
                                                                                  —Total
      return swaps – Commodities
                                                                                  
                                                                                  Net
      investment income
                                                                                  
                                                                                  
                                                                                  —
                                                                                  
                                                                                  
                                                                                  
                                                                                  —
                                                                                  
                                                                                  
                                                                                  —
                                                                                  
                                                                                  
                                                                                  (7,292
                                                                                  )Options,
      warrants, and rights
                                                                                  
                                                                                  Net
      investment income
                                                                                  
                                                                                  
                                                                                  (4,525
                                                                                  )
                                                                                  
                                                                                  
                                                                                  2,019
                                                                                  
                                                                                  
                                                                                  (6,913
                                                                                  )
                                                                                  
                                                                                  (479
                                                                                  )Total
                                                                                  
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (4,736
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  3,446
                                                                                  
                                                                                  $
                                                                                  (16,846
                                                                                  )
                                                                                  $
                                                                                  (1,480
                                                                                  )






16
 Link to table of contents




The
Company generally does not enter into derivatives for risk management or hedging
purposes, and the volume of derivative activities varies from period to period
depending on potential investment opportunities. For the three and six
months ended June 30, 2009, the Company’s volume of derivative activities (based
on notional amounts) was as follows:





Three
      months ended June 30, 2009
                                              
                                              
                                              Six
      months ended June 30, 2009Derivatives
      not designated as hedging instruments
                                              
                                              Entered
                                              
                                              
                                              Exited
                                              
                                              
                                              Entered
                                              
                                              
                                              Exited($
      in thousands)
                                              
                                              
                                              ($
      in thousands)Credit
      default swaps
                                              
                                              $
                                              131,078
                                              
                                              
                                              $
                                              —
                                              
                                              $
                                              164,421
                                              
                                              $
                                              20,850Total
      return swaps
                                              
                                              
                                              —
                                              
                                              
                                              
                                              9,635
                                              
                                              
                                              —
                                              
                                              
                                              12,144Interest
      rate options
                                              
                                              
                                              875,400
                                              
                                              
                                              
                                              —
                                              
                                              
                                              903,170
                                              
                                              
                                              —Options
      – equity
                                              
                                              
                                              120,205
                                              
                                              
                                              
                                              14,426
                                              
                                              
                                              127,800
                                              
                                              
                                              22,028Rights
      – equity
                                              
                                              
                                              3,743
                                              
                                              
                                              
                                              1,599
                                              
                                              
                                              7,870
                                              
                                              
                                              4,211Total
                                              
                                              $
                                              1,130,426
                                              
                                              
                                              $
                                              25,660
                                              
                                              $
                                              1,203,261
                                              
                                              $
                                              59,233




4.
            RETROCESSION




The
Company utilizes retrocession agreements to reduce the risk of loss on business
assumed. The Company currently has coverages that provide for recovery of a
portion of loss and loss expenses incurred on certain contracts. Loss and loss
adjustment expense recoverables from retrocessionaires are recorded as assets.
For the six months ended June 30, 2009 and 2008, loss and loss adjustment
expenses incurred are net of loss and loss expenses recovered and recoverable of
$(2.5) million and $5.4 million, respectively. 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, 2009, the Company had loss recoverables of $0.5
million (December 31, 2008: $0.2 million) with a retrocessionaire rated "A+
(superior)" by A.M. Best Company. Additionally, at June 30, 2009, the Company
had loss recoverables of $6.4 million (December 31, 2008: $11.5 million) with
unrated retrocessionaires. At June 30, 2009, the Company retained funds and
other collateral, including parental guarantees, from the unrated
retrocessionaires, and the Company had recorded no provision for uncollectible
losses recoverable.




5.
 SHARE CAPITAL




The Class
A ordinary shares of the Company are listed on Nasdaq Global Select Market under
the symbol "GLRE". On July 10, 2009, the Securities and Exchange Commission
("SEC") declared effective the Company's Form S-3 registration statement
for an aggregate principal amount of $200.0 million in
securities.




During
the six months ended June 30, 2009, 198,956 (2008: 141,465) restricted
Class A ordinary shares were issued to employees pursuant to the Company’s stock
incentive plan. These shares contain certain restrictions relating to, among
other things, vesting, forfeiture in the event of termination of employment and
transferability. Each of these restricted shares will cliff vest after three
years from date of issue, subject to the grantee's continued service with the
Company.





During
the six months ended June 30, 2009, the Company also issued to certain
directors 35,875 (2008: 20,724) restricted Class A ordinary shares as part
of the directors’ remuneration. Each of these restricted shares issued to the
directors contains similar restrictions to those issued to employees and these
shares will vest on the earlier of the first anniversary of the share issuance
or the Company’s next annual general meeting, subject to the grantee’s continued
service with the Company.


The
restricted share award activities during the six months ended June 30, 2009 were
as follows:




Number
      of non-vested
                                        restricted shares
                                      
                                      
                                      Weighted average
                                        grant
      date fair valueBalance
      at December 31, 2008
                                      
                                      
                                      270,349
                                      
                                      
                                      $
                                      17.80Granted
                                      
                                      
                                      234,831
                                      
                                      
                                      
                                      15.25Vested
                                      
                                      
                                      (20,724)
                                      
                                      
                                      
                                      18.65Forfeited
                                      
                                      
                                      (12,674)
                                      
                                      
                                      
                                      18.09Balance
      at June 30, 2009
                                      
                                      
                                      471,782
                                      
                                      
                                      $
                                      16.49




During
the six months ended June 30, 2009, 17,500 (2008: 660) stock options were
exercised which had a weighted average exercise price of $12.72 (2008: $13.85)
per share.  The Company issued new Class A ordinary shares from the
shares authorized for issuance under the Company’s stock incentive
plan.   The intrinsic value of options exercised during the six months
ended June 30, 2009 was $39,900 (2008: $6,067).  At June 30, 2009,
216,897 Class A ordinary shares were available for future issuance under the
Company’s stock incentive plan.






17
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Employee
and director stock option activities during the six months ended June 30, 2009
were as follows:





Number
      of options
                                              
                                              
                                              Weighted average
                                                exercise price
                                              
                                              
                                              Weighted average
                                                grant
      date fair valueBalance
      at December 31, 2008
                                              
                                              
                                              1,258,340
                                              
                                              
                                              $
                                              13.27
                                              
                                              
                                              $
                                              6.35Granted
                                              
                                              
                                              —Exercised
                                              
                                              
                                              (17,500)
                                              
                                              
                                              
                                              12.72
                                              
                                              
                                              
                                              6.75Forfeited
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —Expired
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —Balance
      at June 30, 2009
                                              
                                              
                                              1,240,840
                                              
                                              
                                              $
                                              13.28
                                              
                                              
                                              $
                                              6.75




The
following table is a summary of voting ordinary shares issued and
outstanding:




Six
      months ended
                                              June
      30, 2009
                                            
                                            
                                            Six
      months ended
                                              June
      30, 2008Class
      A
                                            
                                            
                                            Class
      B
                                            
                                            
                                            Class
      A
                                            
                                            
                                            Class
      BBalance
      –beginning of period
                                            
                                            
                                            29,781,736
                                            
                                            
                                            
                                            6,254,949
                                            
                                            
                                            
                                            29,847,787
                                            
                                            
                                            
                                            6,254,949Issue
      of ordinary shares, net of forfeitures
                                            
                                            
                                            239,657
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            162,849
                                            
                                            
                                            
                                            —Balance
      – end of period
                                            
                                            
                                            30,021,393
                                            
                                            
                                            
                                            6,254,949
                                            
                                            
                                            
                                            30,010,636
                                            
                                            
                                            
                                            6,254,949




6.
            RELATED
      PARTY TRANSACTIONS




Investment
Advisory Agreement




The
Company was party to an Investment Advisory Agreement (the "Investment
Agreement") with DME Advisors, LP ("DME Advisors") until December 31, 2007. DME
Advisors is a related party and an affiliate of David Einhorn, Chairman of the
Company’s Board of Directors. Effective January 1, 2008, the Company terminated
the Investment Agreement and entered into an agreement (the "Advisory
Agreement") under which the Company and DME Advisors agreed to create a joint
venture for the purposes of managing certain jointly held assets. Pursuant to
this agreement, the monthly management fees or performance compensation remained
the same as those contained in the Investment Agreement.





Pursuant to the Advisory Agreement, performance compensation equal to 20%
of the net income of the Company’s share of the account managed by DME Advisors
is payable to DME Advisors, subject to a loss carry forward provision. The loss
carry forward provision allows DME Advisors to earn reduced incentive
compensation of 10% on net investment income in any year subsequent to the year
in which the investment account incurs a loss, until all the losses are recouped
and an additional amount equal to 150% of the aggregate investment loss is
earned. DME Advisors is not entitled to earn performance compensation in a year
in which the investment portfolio incurs a loss. For the year ended
December 31, 2008, the portfolio reported a net investment loss of $126.1
million and as a result no performance compensation was paid to DME Advisors. In
addition, the performance compensation for fiscal 2009 and subsequent years will
be reduced to 10% of net investment income until all the investment losses have
been recouped and an additional amount equal to 150% of the aggregate loss
is earned. For the six months ended June 30, 2009, performance compensation of
$12.7 million was recorded at the reduced rate of 10%, and remained payable as
of June 30, 2009.




Additionally,
pursuant to the Advisory Agreement, DME Advisors is entitled to
receive 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 Advisors. Included in net
investment income for the three months ended June 30, 2009 are management
fees of $2.5 million (June 30, 2008: $2.7 million). Included in net
investment income for the six months ended June 30, 2009 are management fees of
$4.8 million (June 30, 2008: $5.1 million). The management fees were fully paid
as of June 30, 2009 and December 31, 2008.




Service
Agreement




In
February 2007, the Company entered into a service agreement with DME Advisors,
pursuant to which DME Advisors will provide investor relations services to the
Company for a monthly compensation of $5,000 plus expenses. The agreement
has an initial term of one year, and will continue for subsequent one year
periods until terminated by the Company or DME Advisors. Either party may
terminate the agreement for any reason with 30 days prior written notice
to the other party.






18
 Link to table of contents




7.
            COMMITMENTS
      AND CONTINGENCIES




Operating
Lease




Effective
September 1, 2005, the Company entered into a five-year non-cancelable lease
agreement to rent office space.




On
July 9, 2008, the Company entered into an additional 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 to
$311,821.  The lease expires on June 30, 2018 and
the Company has the option to renew the lease for a further five year
term. Included in the schedule below are the minimum lease payment obligations
relating to these leases.




The total
rent expense relating to leased office spaces for the six months ended June 30,
2009 was $299,471 (2008: $46,589).




Specialist
Service Agreement




Effective
September 1, 2007, the Company entered into a service agreement with a
specialist whereby the specialist service provider provides administration and
support in developing and maintaining business relationships, reviewing and
recommending programs and managing risks relating to certain specialty lines of
business. The 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 service provider. If the agreement is
terminated after two years, the Company is obligated to make minimum payments
for another two years, as presented in the schedule below, to
ensure contracts to which the Company is bound are adequately
administered by the specialist service provider. Included in the schedule
below are the minimum payment obligations relating to this
agreement.





Private
Equity




From time
to time 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, 2009, the Company had commitments to invest
an additional $18.9 million in private equity investments.




The
following is a schedule of remaining future minimum payments required under
the above commitments for the next five years:




2009
                                                            
                                                            
                                                            2010
                                                            
                                                            
                                                            2011
                                                            
                                                            
                                                            2012
                                                            
                                                            
                                                            2013
                                                            
                                                            
                                                            Thereafter
                                                            
                                                            
                                                            Total($
      in thousands)Operating
      lease obligations
                                                            
                                                            $
                                                            189
                                                            
                                                            
                                                            $
                                                            345
                                                            
                                                            
                                                            $
                                                            276
                                                            
                                                            
                                                            $
                                                            276
                                                            
                                                            
                                                            $
                                                            276
                                                            
                                                            
                                                            $
                                                            1,243
                                                            
                                                            
                                                            $
                                                            2,605Specialist
      service agreement
                                                            
                                                            
                                                            250
                                                            
                                                            
                                                            
                                                            400
                                                            
                                                            
                                                            
                                                            150
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            800Private
      equity and limited partnerships
                                                            
                                                            
                                                            18,499
                                                            (1)
                                                            
                                                            
                                                            450
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            18,949$
                                                            18,938
                                                            
                                                            
                                                            $
                                                            1,195
                                                            
                                                            
                                                            $
                                                            426
                                                            
                                                            
                                                            $
                                                            276
                                                            
                                                            
                                                            $
                                                            276
                                                            
                                                            
                                                            $
                                                            1,243
                                                            
                                                            
                                                            $
                                                            22,354




(1)
            Given
      the nature of these investments, the Company is unable to determine with
      any degree of accuracy when these commitments will be called. Therefore,
      for purposes of the above table, the Company has assumed that all
      commitments with no fixed payment schedules will be called during
      2009.




Letters
of Credit




At June
30, 2009, the Company had a $400.0 million letter of credit facility with
Citibank N.A. This facility terminates on October 11, 2010, although 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. In addition, at June 30, 2009, the Company had a
$25.0 million letter of credit facility with Butterfield Bank (Cayman) Limited
("Butterfield Bank"). This facility terminates on June 6, 2010,
although 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. On July 21, 2009, the Company
entered into a $50.0 million letter of credit facility with Bank of America,
N.A. This facility terminates on July 20, 2010, although the termination date is
automatically extended for an additional year unless notice is
delivered to the other party at least 90 days prior to the termination
date.




At June
30, 2009, an aggregate amount of $223.1 million (December 31, 2008: $167.3
million) in letters of credit was issued under the above facilities. Under
these facilities, the Company provides collateral that may consist of
equity securities and cash equivalents. At June 30, 2009, total equity
securities and cash equivalents with a fair value of $230.3 million (December
31, 2008: $220.2 million) were pledged as security against the letters of
credit issued. Each of the facilities requires that the Company comply with
certain 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. Additionally, if an event of
default exists, as defined in the letter of credit facilities, Greenlight Re
will be prohibited from paying dividends to its parent company. The Company was
in compliance with all the covenants of each of these facilities as of June
30, 2009 and December 31, 2008.






19
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Litigation




In the
normal course of business, the Company may become involved in various claims
litigation and legal proceedings. As of June 30, 2009, the Company was not a
party to any litigation or arbitration proceedings.







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, 2009
                                                                                                          
                                                                                                          
                                                                                                          Three
      months ended
                                                                                                            June
      30, 2008
                                                                                                          
                                                                                                          Six
      months ended
                                                                                                            June
      30, 2009
                                                                                                          
                                                                                                          Six months ended
                                                                                                            June
      30, 2008($
      in thousands)
                                                                                                          
                                                                                                          
                                                                                                          ($
      in thousands)
                                                                                                          
                                                                                                          ($
      in thousands)
                                                                                                          
                                                                                                          ($
      in thousands)PropertyCommercial
      lines
                                                                                                          $
                                                                                                          3,000
                                                                                                          
                                                                                                          4.3
                                                                                                          %
                                                                                                          $
                                                                                                          1,600
                                                                                                          
                                                                                                          6.3
                                                                                                          %
                                                                                                          $
                                                                                                          22,413
                                                                                                          
                                                                                                          15.8
                                                                                                          %
                                                                                                          $
                                                                                                          6,091
                                                                                                          
                                                                                                          6.3
                                                                                                          %Personal
      lines
                                                                                                          
                                                                                                          17,671
                                                                                                          
                                                                                                          25.2
                                                                                                          
                                                                                                          
                                                                                                          (4,236
                                                                                                          )
                                                                                                          (16.7
                                                                                                          )
                                                                                                          
                                                                                                          17,682
                                                                                                          
                                                                                                          12.5
                                                                                                          
                                                                                                          
                                                                                                          (4,100
                                                                                                          )
                                                                                                          (4.3
                                                                                                          )CasualtyGeneral
      liability
                                                                                                          
                                                                                                          13,448
                                                                                                          
                                                                                                          19.2
                                                                                                          
                                                                                                          
                                                                                                          8,697
                                                                                                          
                                                                                                          34.3
                                                                                                          
                                                                                                          
                                                                                                          16,080
                                                                                                          
                                                                                                          11.3
                                                                                                          
                                                                                                          
                                                                                                          10,335
                                                                                                          
                                                                                                          10.7Motor
      liability
                                                                                                          
                                                                                                          20,293
                                                                                                          
                                                                                                          29.0
                                                                                                          
                                                                                                          
                                                                                                          12,022
                                                                                                          
                                                                                                          47.4
                                                                                                          
                                                                                                          
                                                                                                          36,980
                                                                                                          
                                                                                                          26.1
                                                                                                          
                                                                                                          
                                                                                                          36,867
                                                                                                          
                                                                                                          38.4Professional
      liability
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          2,150
                                                                                                          
                                                                                                          8.5
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          2,150
                                                                                                          
                                                                                                          2.3SpecialtyHealth
                                                                                                          
                                                                                                          8,682
                                                                                                          
                                                                                                          12.4
                                                                                                          
                                                                                                          
                                                                                                          2,611
                                                                                                          
                                                                                                          10.3
                                                                                                          
                                                                                                          
                                                                                                          26,061
                                                                                                          
                                                                                                          18.4
                                                                                                          
                                                                                                          
                                                                                                          28,574
                                                                                                          
                                                                                                          29.7Medical
      malpractice
                                                                                                          
                                                                                                          265
                                                                                                          
                                                                                                          0.4
                                                                                                          
                                                                                                          
                                                                                                          (918
                                                                                                          )
                                                                                                          (3.6
                                                                                                          )
                                                                                                          
                                                                                                          4,886
                                                                                                          
                                                                                                          3.4
                                                                                                          
                                                                                                          
                                                                                                          6,871
                                                                                                          
                                                                                                          7.2Workers’
      compensation
                                                                                                          
                                                                                                          6,688
                                                                                                          
                                                                                                          9.5
                                                                                                          
                                                                                                          
                                                                                                          3,434
                                                                                                          
                                                                                                          13.5
                                                                                                          
                                                                                                          
                                                                                                          17,816
                                                                                                          
                                                                                                          12.5
                                                                                                          
                                                                                                          
                                                                                                          9,338
                                                                                                          
                                                                                                          9.7$
                                                                                                          70,047
                                                                                                          
                                                                                                          100.0
                                                                                                          %
                                                                                                          $
                                                                                                          25,360
                                                                                                          
                                                                                                          100.0
                                                                                                          %
                                                                                                          $
                                                                                                          141,918
                                                                                                          
                                                                                                          100.0
                                                                                                          %
                                                                                                          $
                                                                                                          96,126
                                                                                                          
                                                                                                          100.0
                                                                                                          %






Gross
Premiums Written by Geographic Area of Risks Insured


Three
      months ended
                                                                                                                        June
      30, 2009
                                                                                                                      Three
      months ended
                                                                                                                        June
      30, 2008
                                                                                                                      Six
      months ended
                                                                                                                        June
      30, 2008
                                                                                                                      Six
      months ended
                                                                                                                        June
      30, 2008($
      in thousands)
                                                                                                                      ($
      in thousands)
                                                                                                                      ($
      in thousands)
                                                                                                                      ($
      in thousands)USA
                                                                                                                      $
                                                                                                                      68,547
                                                                                                                      
                                                                                                                      97.9
                                                                                                                      %
                                                                                                                      $
                                                                                                                      21,601
                                                                                                                      
                                                                                                                      85.2
                                                                                                                      %
                                                                                                                      $
                                                                                                                      119,814
                                                                                                                      
                                                                                                                      84.4
                                                                                                                      %
                                                                                                                      $
                                                                                                                      86,238
                                                                                                                      
                                                                                                                      89.7
                                                                                                                      %Worldwide(1)
                                                                                                                      
                                                                                                                      —
                                                                                                                      
                                                                                                                      —
                                                                                                                      
                                                                                                                      
                                                                                                                      2,959
                                                                                                                      
                                                                                                                      11.7
                                                                                                                      
                                                                                                                      
                                                                                                                      20,358
                                                                                                                      
                                                                                                                      14.4
                                                                                                                      
                                                                                                                      
                                                                                                                      9,088
                                                                                                                      
                                                                                                                      9.5Caribbean
                                                                                                                      
                                                                                                                      1,500
                                                                                                                      
                                                                                                                      2.1
                                                                                                                      
                                                                                                                      
                                                                                                                      800
                                                                                                                      
                                                                                                                      3.1
                                                                                                                      
                                                                                                                      
                                                                                                                      1,746
                                                                                                                      
                                                                                                                      1.2
                                                                                                                      
                                                                                                                      
                                                                                                                      800
                                                                                                                      
                                                                                                                      0.8$
                                                                                                                      70,047
                                                                                                                      
                                                                                                                      100.0
                                                                                                                      %
                                                                                                                      $
                                                                                                                      25,360
                                                                                                                      
                                                                                                                      100.0
                                                                                                                      %
                                                                                                                      $
                                                                                                                      141,918
                                                                                                                      
                                                                                                                      100.0
                                                                                                                      %
                                                                                                                      $
                                                                                                                      96,126
                                                                                                                      
                                                                                                                      100.0
                                                                                                                      %




(1)           "Worldwide"
risk is comprised of individual policies that insure risks on a worldwide
basis.






9.
            SUBSEQUENT
      EVENTS




On July 10, 2009, the SEC
declared effective the Company's shelf registration statement for an
aggregate principal amount of $200.0 million in securities.




On
July 21, 2009, the Company entered into a $50.0 million letter of credit
facility with Bank of America, N.A. This facility terminates on July 20, 2010,
although the termination date is automatically extended for an additional
year unless notice is delivered to the other party at least 90
days prior to the termination date.





20
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contents




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




References
to "we," "us," "our," "our company," "Greenlight Re," or
"the Company" refer to Greenlight Capital Re, Ltd. and its wholly-owned
subsidiaries, Greenlight Reinsurance, Ltd. and Verdant Holding Company,
Ltd.,  unless the context dictates otherwise. References to our
"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, 2009 and 2008 and financial condition
as of June 30, 2009 and December 31, 2008. This discussion and analysis should
be read in conjunction with our audited consolidated financial statements and
related notes thereto contained in our annual report on Form 10-K for the fiscal
year ended December 31, 2008.




Special
Note About Forward-Looking Statements




Certain
statements in Management’s Discussion and Analysis ("MD&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" 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, as amended (the "Exchange Act"). These
forward-looking statements generally are identified by the words "believe,"
"project," "predict," "expect," "anticipate," "estimate," "intend," "plan,"
"may," "should," "will," "would," "will be," "will continue," "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" (refer to Part I,
Item 1A) contained in our annual report on Form 10-K for the fiscal year ended
December 31, 2008. We undertake no obligation to publicly update or revise 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
Exchange Act, we do not intend to make public announcements regarding
reinsurance or investments 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 specialist 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, which we believe will provide us with 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 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.




In
addition, we seek to form strategic alliances with insurance companies and
general agents to complement our property and casualty reinsurance business and
our non-traditional investment approach. To facilitate such strategic alliances,
we formed Verdant, our wholly owned subsidiary, principally for the purpose
of making strategic investments in a select group of property and casualty
insurers and general agents in the U.S.




21
 Link to table of
contents


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




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 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
relatively 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 greater predictability of
the frequency business. We also expect that over time the profit margins and
return on equity of 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




We
believe there currently is a lack of capacity in the property and casualty
industry due to significant loss of capital from combined investment and
underwriting losses in 2008.  As a result, we expect to continue
seeing significant opportunities to expand our business through the remainder of
2009 in both frequency and severity risks. We believe insurance pricing
generally will continue to increase through 2010.  Further, volatile
lines of business may experience significant increases in pricing along with
greater restrictions on the terms and conditions of insurance coverage. We
believe that market conditions will harden during 2010 due to worldwide economic
conditions and limited available capital expected to enter the industry.
Countering these developments, we also believe that a slowdown in worldwide
economic activity may lead to reduced insurable risk exposures, which in turn
may decrease the demand for insurance, perhaps significantly. In addition,
competitive conditions could return if our competitors believe they now are able
to raise additional capital to fund growth.




We
believe that we are well positioned to compete for attractive opportunities in
frequency business due to our increasing market recognition, and the development
of certain strategic relationships. In addition, there are a number of insurers
and reinsurers that have had significant investment-related issues that have
created uncertainty in their businesses. We expect write downs of certain asset
classes from 2008 to continue to reduce the capital positions of a number of
reinsurers.  Further, we believe that the financial and credit crisis
in the U.S. and the rest of the world has the potential to cause significant
losses in certain lines of business.





If
the current challenges facing the insurance industry create significant
dislocations, we believe we will be well positioned to capitalize on and compete
for resulting opportunities. In the first half of 2009, we have seen
pricing of property catastrophe retrocession business increase substantially.
While it is unclear what other businesses could be significantly affected
by the current financial and credit issues, we believe that opportunities are
likely to arise in a number of areas, including the following:




•
              lines
      of business that experience significant loss
    experience;


•
              lines
      of business where current market participants are experiencing financial
      distress or uncertainty; and


•
              business that
      is premium and capital intensive due to regulatory and other
      requirements.





Significant market dislocations that increase the pricing of
certain insurance coverages could create the need for insureds to retain risks
and therefore fuel the opportunity or need to form new captives. If this
happens, a number of these captives could form in the Cayman Islands, enhancing
our opportunity to provide additional reinsurance to the Cayman Islands' captive
market.






22
 Link to table of contents
  Despite an
increase in the S&P 500 index of 37.9% from its low in March 2009 to the end
of the quarter, we believe the economic outcome is highly uncertain which may
prolong the current market volatility. Our investment portfolio moved
towards a more defensive position during the second quarter of 2009 ending
with a net equity exposure of 7%. We will continue our defensive
posture until security selection becomes the primary driver of
performance. In the meantime, we continue to identify investment
opportunities in the current environment created by mispriced securities, both
in equities and the distressed debt of corporate issuers.
  In addition,
we recently formed Verdant, a Delaware corporation, principally for the
purpose of making strategic investments in a select group of property and
casualty insurers and general agents in the U.S. to
complement our property and casualty reinsurance business and our
non-traditional investment approach. These strategic investments further
differentiate us from our competition, provide capital and capacity to
certain clients and create value for our shareholders through
investment returns, fee income streams and underwriting
profits.




We intend to
continue monitoring market conditions to position ourselves 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 underlying results and product line
concentrations in any given period may not be indicative of our future results
of operations.




Critical
Accounting Policies




Our
condensed consolidated financial 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 annual report on Form 10-K for
the fiscal year ended December 31, 2008 continue to describe the more
significant judgments and estimates used in the preparation of our condensed
consolidated financial statements. These accounting policies pertain to premium
revenue recognition, investment valuations, loss and loss adjustment expenses,
acquisition costs, and share-based payments. 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.




Recently
issued accounting standards and their impact to the Company have been presented
under "Recently Issued Accounting Standards" in Note 2 of the accompanying
condensed consolidated financial statements.




Results
of Operations




Three
and Six Months Ended June 30, 2009 and 2008




For the
three months ended June 30, 2009, we reported net income of
$92.2 million, as compared to $33.5 million reported for the same period in
2008. The increase in net income is principally due to our investment
portfolio reporting a net gain of $88.3 million, or a return of 13.9%,
for the second quarter of 2009 as compared to a net investment income of $31.0
million, or a return of 4.5%, for the same period in 2008. Underwriting
income reported for the three months ended June 30, 2009 increased by $4.1
million to $10.2 million from $6.1 million reported for the three months ended
June 30, 2008.





For the
six months ended June 30, 2009, we reported a net income of $120.0 million,
as compared to net income of $28.8 million reported for the same period in
2008. The increase in net income is principally due to our investment
portfolio reporting a net gain of $116.0 million, or a return of
19.1%, for the six months ended June 30, 2009 as compared to a net investment
income of $25.3 million, or a return of 3.6%, for the same period in 2008.
Underwriting income reported for the six months ended June 30, 2009 increased by
$1.4 million to $13.0 million from $11.6 million reported for the six months
ended June 30, 2008.




As a
result of adopting SFAS No. 160, the non-controlling interest in joint venture
was reclassified from liabilities into shareholders’ equity for all periods
presented. As a result of this reclassification, the recalculated fully diluted
book value per share at December 31, 2008 was $13.55 per share (compared to
$13.39 per share at December 31, 2008 prior to adopting SFAS No.
160).




Our
primary financial goal is to increase the long-term value in fully diluted book
value per share. During the three months ended June 30, 2009, fully diluted book
value increased by $2.48 per share, or 17.4%, to $16.73 per share from
$14.25 per share at March 31, 2009. During the six months ended June 30, 2009,
fully diluted book value increased by $3.18 per share, or 23.5%, to
$16.73 per share from $13.55 per share at December 31, 2008. Fully diluted
book value per share is a non-GAAP measure and represents basic book value per
share combined with the impact from dilution of share based compensation
including in-the-money stock options as of any period end. We believe that long
term growth in fully diluted book value per share is the most relevant measure
of our financial performance. In addition, fully diluted book value per share
may be of benefit to our investors, shareholders, and other interested parties
to form a basis of comparison with other companies within the
reinsurance industry.






23
 Link to table of contents




Premiums
Written




Details
of gross premiums written are provided below:




Three
      months ended
                                                                                      June
      30,
                                                                                    
                                                                                    Six
      months ended
                                                                                      June
      30,($
      in thousands)
                                                                                    
                                                                                    ($
      in thousands)2009
                                                                                    
                                                                                    2008
                                                                                    
                                                                                    2009
                                                                                    
                                                                                    2008Frequency
                                                                                    $
                                                                                    67,047
                                                                                    
                                                                                    95.7
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    20,801
                                                                                    
                                                                                    82.0
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    113,846
                                                                                    
                                                                                    80.2
                                                                                    %
                                                                                    
                                                                                    
                                                                                    $
                                                                                    77,646
                                                                                    
                                                                                    80.8
                                                                                    %Severity
                                                                                    
                                                                                    3,000
                                                                                    
                                                                                    4.3
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,559
                                                                                    
                                                                                    18.0
                                                                                    
                                                                                    
                                                                                    
                                                                                    28,072
                                                                                    
                                                                                    19.8
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    18,480
                                                                                    
                                                                                    19.2Total
                                                                                    $
                                                                                    70,047
                                                                                    
                                                                                    100.0
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    25,360
                                                                                    
                                                                                    100.0
                                                                                    %
                                                                                    
                                                                                    $
                                                                                    141,918
                                                                                    
                                                                                    100.0
                                                                                    %
                                                                                    
                                                                                    
                                                                                    $
                                                                                    96,126
                                                                                    
                                                                                    100.0
                                                                                    %




We expect
quarterly reporting of premiums written to remain volatile as our underwriting
portfolio continues to develop. 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 premiums is reflected in the premiums written for both frequency
business and severity business when comparing the three and six month
periods ended June 30, 2009 and 2008. For the three months ended June 30, 2009,
the frequency premiums increased by $46.2 million. The largest contributor to
the increase was a new multi-year homeowners’ personal lines contract entered
into during the second quarter of 2009 accounting for $17.7 million of the
increase. Increases in motor liability and health coverage premiums accounted
for $8.3 million and $6.1 million of the increases respectively. In addition,
frequency premiums written for general liability line were higher by $5.5
million. A contract entered into during July 2008 accounted for $12.5
million of the increase, offset by a $7.0 million reduction on another general
liability contract which was renewed in May 2009 as a quota share contract
whereas the expiring contract was an excess of loss contract. Premiums written
on quota share contracts are recorded over the period of coverage while premiums
written on an excess of loss contract are recorded in full at inception.
Workers' compensation premiums written accounted for $3.3 million of the
increase. The remaining increases in frequency premiums resulted from premiums
returned and premiums adjusted during the three months ended June
30, 2008.





For the
six months ended June 30, 2009, the $36.2 million increase in frequency premiums
written was largely attributable to a new multi-year homeowners’ personal lines
contract which accounted for $17.7 million of the increase. In addition,
workers' compensation, and general liability lines contributed $8.5
million, and $6.8 million, respectively, to the increase in frequency
premiums written. These increases in premiums written were offset by decreases
in the specialty health premiums written of $2.5 million during the six months
ended June 30, 2009.




For the
three months ended June 30, 2009, the decrease in severity premiums of $1.6
million was principally due to the fact that the comparative prior period
included a multi-year professional liability contract for which the premiums
were written in full at inception.





For the
six months ended June 30, 2009, the increase in severity premiums of $9.6
million was principally due to an increase in commercial property
lines, primarily from a new excess of loss contract written ($11.5 million) and
additional premiums on an existing excess of loss contract ($2.5 million),
offset by a decrease in medical malpractice lines ($4.5 million). A detailed
analysis of gross premiums written by line of business can be found in Note 8 to
the condensed consolidated financial statements.




For the
six months ended June 30, 2009, our ceded premiums were $7.8 million compared to
$14.9 million of ceded premiums for the same period in 2008. The decrease in
ceded premiums is primarily the result of a specialty health frequency contract
and its corresponding retroceded contracts which expired during 2009
and were not renewed.




Details
of net premiums written are provided below:




Three
      months ended
                            June
      30,
                          
                          
                          Six
      months ended
                            June
      30,($
      in thousands)
                          
                          
                          ($
      in thousands)2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Frequency
                          $
                          60,716
                          
                          95.7
                          %
                          $
                          15,186
                          
                          76.9
                          %
                          
                          $
                          106,769
                          
                          
                          
                          79.6
                          %
                          
                          $
                          62,758
                          
                          
                          
                          77.3
                          %Severity
                          
                          2,720
                          
                          4.3
                          
                          
                          4,559
                          
                          23.1
                          
                          
                          
                          27,318
                          
                          
                          
                          20.4
                          
                          
                          
                          18,481
                          
                          
                          
                          22.7Total
                          $
                          63,436
                          
                          100.0
                          %
                          $
                          19,745
                          
                          100.0
                          %
                          
                          $
                          134,087
                          
                          
                          
                          100.0
                          %
                          
                          $
                          81,239
                          
                          
                          
                          100.0
                          %







24
 Link to table of contents




Net Premiums
Earned




Net
premiums earned reflect 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:






Three
      months ended
                            June
      30,
                          
                          
                          Six
      months ended
                            June
      30,($
      in thousands)
                          
                          
                          ($
      in thousands)2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Frequency
                          $
                          38,154
                          
                          77.3
                          %
                          $
                          15,341
                          
                          62.2
                          %
                          
                          $
                          70,032
                          
                          
                          
                          73.3
                          %
                          
                          $
                          33,295
                          
                          
                          
                          63.8
                          %Severity
                          
                          11,193
                          
                          22.7
                          
                          
                          9,341
                          
                          37.8
                          
                          
                          
                          25,508
                          
                          
                          
                          26.7
                          
                          
                          
                          18,879
                          
                          
                          
                          36.2Total
                          $
                          49,347
                          
                          100.0
                          %
                          $
                          24,682
                          
                          100.0
                          %
                          
                          $
                          95,540
                          
                          
                          
                          100.0
                          %
                          
                          $
                          52,174
                          
                          
                          
                          100.0
                          %





The
increase in net premiums earned is attributable principally to increased
frequency premiums being earned as a result of the frequency portfolio
developing further, as compared to the corresponding 2008 period.




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:






Three
      months ended
                                  June
      30,
                                
                                
                                Six
      months ended
                                  June
      30,($
      in thousands)
                                
                                
                                ($
      in thousands)2009
                                
                                
                                2008
                                
                                
                                2009
                                
                                
                                2008Frequency
                                $
                                23,800
                                
                                101.0
                                %
                                $
                                6,102
                                
                                65.3
                                %
                                
                                $
                                40,777
                                
                                
                                
                                75.9
                                %
                                
                                $
                                14,098
                                
                                
                                
                                65.7
                                %Severity
                                
                                (253
                                )
                                (1.0
                                )
                                
                                3,235
                                
                                34.7
                                
                                
                                
                                12,966
                                
                                
                                
                                24.1
                                
                                
                                
                                7,363
                                
                                
                                
                                34.3Total
                                $
                                23,547
                                
                                100.0
                                %
                                $
                                9,337
                                
                                100.0
                                %
                                
                                $
                                53,743
                                
                                
                                
                                100.0
                                %
                                
                                $
                                21,461
                                
                                
                                
                                100.0
                                %




The loss
ratios for our frequency business were 62.4% and 39.8% for the three months
ended June 30, 2009 and 2008, respectively. The increase in frequency loss ratio
is mostly the result of the mix of contracts, and a large reduction of
estimated ultimate loss recorded on a personal property
contract during the three months ended June 30, 2008. The increase in
loss ratio also related to earning of premiums on motor, general
liability and workers' compensation contracts.  For the three months
ended June 30, 2009, the incurred losses on severity contracts were $(0.3)
million due to a $2.8 million reduction in the estimated reserves on an
aggregate catastrophe excess of loss contract.





The loss
ratios for our frequency business were 58.2% and 42.3% for the six months ended
June 30, 2009 and 2008, respectively. The increase in frequency loss ratio
is primarily due to the fact that the loss ratio for the six months ended
June 30, 2008, was exceptionally low due to favorable loss development on a
large personal lines contract. For the six months ended June 30, 2009, a
more diverse mix of business, including motor liability and specialty
health contracts which generally have higher expected loss ratios, resulted
in our loss ratio being higher than the same period in
2008. We expect losses incurred on our severity business to be volatile
from period to period. The loss ratios for our severity business were 50.8% and
39.0% for the six months ended June 30, 2009 and 2008, respectively. The
increase in severity loss ratio during the six months ended June 30, 2009
is primarily due to losses incurred on an aggregate catastrophe excess of loss
contract. During the six months ended June 30, 2009, the insured reported
that the aggregation of several 2008 natural peril losses resulted in an
estimated aggregate loss which exceeded its retention limits and permeated
into the excess of loss limit insured by us. For the three months ended March
31, 2009, we had recorded an estimated reserve of $9.5 million relating to this
contract which was adjusted at June 30, 2009, to $6.7 million based on
updated information received from the insured.




Losses
incurred in the three and six months ended June 30, 2009 can be further broken
down into losses paid and changes in loss reserves. Losses incurred for the
three and six months ended June 30, 2009 and 2008 were comprised as
follows:





Three
      months ended
                      June
      30, 2009
                    
                    
                    Three
      months ended
                      June
      30, 2008Gross
                    
                    
                    Ceded
                    
                    
                    Net
                    
                    
                    Gross
                    
                    
                    Ceded
                    
                    
                    Net($
      in thousands)Losses
      paid (recovered)
                    
                    $
                    8,817
                    
                    
                    $
                    (1,156
                    )
                    
                    $
                    7,661
                    
                    
                    $
                    6,456
                    
                    
                    $
                    (2,584
                    )
                    
                    $
                    3,872Change in
      reserves
                    
                    
                    15,766
                    
                    
                    
                    120
                    
                    
                    
                    15,886
                    
                    
                    
                    5,229
                    
                    
                    
                    236
                    
                    
                    
                    5,465Total
                    
                    $
                    24,583
                    
                    
                    $
                    (1,036
                    )
                    
                    $
                    23,547
                    
                    
                    $
                    11,685
                    
                    
                    $
                    (2,348
                    )
                    
                    $
                    9,337






25
 Link to table of contents




Six
      months ended
                    June
      30, 2009
                  
                  
                  Six
      months ended
                    June
      30, 2008Gross
                  
                  
                  Ceded
                  
                  
                  Net
                  
                  
                  Gross
                  
                  
                  Ceded
                  
                  
                  Net($
      in thousands)Losses
      paid (recovered)
                  
                  $
                  17,189
                  
                  
                  $
                  (2,312
                  )
                  
                  $
                  14,877
                  
                  
                  $
                  11,840
                  
                  
                  $
                  (4,409
                  )
                  
                  $
                  7,431Movement
      in reserves
                  
                  
                  34,083
                  
                  
                  
                  4,783
                  
                  
                  
                  38,866
                  
                  
                  
                  14,988
                  
                  
                  
                  (958
                  )
                  
                  
                  14,030Total
                  
                  $
                  51,272
                  
                  
                  $
                  2,471
                  
                  
                  $
                  53,743
                  
                  
                  $
                  26,828
                  
                  
                  $
                  (5,367
                  )
                  
                  $
                  21,461




The increase in gross
losses incurred for the three and six months ended June 30, 2009, is principally
due to higher premiums being earned on a more diverse mix of business and
the underwriting portfolio continuing to develop.For
the six months ended June 30, 2009, the decrease in ceded reserves of $4.8
million was principally due to favorable loss development on an inward
contract and the reduction in reserves recoverable on the corresponding
retroceded contract. During the six months ended June 30, 2009, the
aggregate development of prior period reinsurance reserves was not
significant.




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 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:




Three
      months ended
                            June
      30,
                          
                          
                          Six
      months ended
                            June
      30,($
      in thousands)
                          
                          
                          ($
      in thousands)2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Frequency
                          $
                          14,124
                          
                          90.7
                          %
                          $
                          8,145
                          
                          88.3
                          %
                          
                          $
                          27,616
                          
                          
                          
                          95.8
                          %
                          
                          $
                          16,538
                          
                          
                          
                          86.3
                          %Severity
                          
                          1,454
                          
                          9.3
                          
                          
                          1,083
                          
                          11.7
                          
                          
                          
                          1,207
                          
                          
                          
                          4.2
                          
                          
                          
                          2,619
                          
                          
                          
                          13.7Total
                          $
                          15,578
                          
                          100.0
                          %
                          $
                          9,228
                          
                          100.0
                          %
                          
                          $
                          28.823
                          
                          
                          
                          100.0
                          %
                          
                          $
                          19,157
                          
                          
                          
                          100.0
                          %







Increased
acquisition costs for the three and six months ended June 30, 2009, compared to
the corresponding 2008 periods, are a result of the increases in premiums earned
during the periods. For the six months ended June 30, 2009, the acquisition cost
ratio for frequency business was 39.4% compared to 49.7% for the corresponding
2008 period. The lower ratio was due to the fact that the acquisition cost
ratio for the six months ended June 30, 2008 was exceptionally high due to
the accrual of profit commissions on a large personal lines contract as a result
of favorable loss development. The decrease in the acquisition
ratio is attributed, to a lesser extent, to a downward swing
in profit commission rates for specialty health contracts which had adverse loss
development during the six months ended June 30, 2009. We
expect acquisition costs to be higher for frequency business than for
severity business. The acquisition cost ratio for severity business was 4.7% for
the six months ended June 30, 2009 compared to 13.9% for the corresponding 2008
period. The lower acquisition cost ratio is a result of reversal of profit
commissions previously accrued relating to an aggregate catastrophe severity
contract which reported a large loss during the six months ended June 30, 2009.
Overall, the total acquisition cost ratio decreased to 30.2% for the six months
ended June 30, 2009 from 36.7% for the corresponding 2008 period.





General and Administrative Expenses




For the
three months ended June 30, 2009, we reported general and administrative
expenses of $5.3 million compared to $3.2 million reported during the same
period in 2008. The increase is principally due to higher salaries and benefits
expenses as a result of an increase in the deferred component of the
employees’ performance bonus accrual relating to the 2007 and 2008
underwriting years.




Our
general and administrative expenses of $9.7 million for the six months
ended June 30, 2009 were higher than the $7.7 million reported for the
same period in 2008 due to the higher salaries and benefits
expenses explained above. The general and administrative expenses for the
six months ended June 30, 2009 and 2008 include $1.5 million and
$1.4 million, respectively, for the expensing of the fair value of stock
options and restricted stock granted to employees and directors.




Net Investment Income




A summary
of our net investment income is as follows:





Three
      months ended
                                June
      30,
                              
                              Six
      months ended
                                June
      30,($
      in thousands)
                              
                              ($
      in thousands)2009
                              
                              2008
                              
                              2009
                              
                              2008Realized
      gains and movement in unrealized gains and losses,
      net
                              $
                              97,757
                              $
                              36,727
                              $
                              131,198
                              $
                              32,065Interest,
      dividend and other investment income
                              
                              6,683
                              
                              8,168
                              
                              9,729
                              
                              12,941Interest,
      dividend and other investment expenses
                              
                              (3,902
                              )
                              (5,099
                              )
                              (7,436
                              )
                              (8,501
                              )Investment
      advisor compensation
                              
                              (12,215
                              )
                              (8,771
                              )
                              (17,451
                              )
                              (11,242
                              )Net
      investment income
                              $
                              88,323
                              $
                              31,025
                              $
                              116,040
                              $
                              25,263







26
 Link to table of contents




Investment
income, net of all fees and expenses, resulted in a gain of 13.9% on our
investment portfolio for the three months ended June 30, 2009, compared to a
gain of 4.5% for the corresponding 2008 period. Investment income, net of all
fees and expenses, resulted in a gain of 19.1% on our investment portfolio for
the six months ended June 30, 2009. This compares to a gain of 3.6%
reported for the corresponding 2008 period.  Although the
investment returns for the first quarter were generated mainly from our
short investments, the returns for the second quarter were generated
from our long investments, which gained 30% gross of all fees. This
was offset by losses of 14% on the short investments. Approximately
75% of the long returns resulted from equities and 25% resulted
from debt instruments. The returns on long equities was mainly
due to the fair values of our larger long equities recovering which resulted in
the reversal of unrealized losses previously recognized.
The return on debt instruments was mainly due
to our investment in Ford Motor Company’s secured
debt.





Pursuant
to the Advisory Agreement, performance compensation equal to 20% of the net
income of the Company’s share of the account managed by DME Advisors is payable
to DME Advisors, subject to a loss carry forward provision. The loss
carry forward provision allows DME Advisors to earn reduced incentive
compensation of 10% on net investment income in any year subsequent to the year
in which the investment account incurs a loss, until all the losses are recouped
and an additional amount equal to 150% of the aggregate investment loss is
earned. For the year ended December 31, 2008, the portfolio reported an
investment loss and as a result no performance compensation was paid to DME
Advisors for fiscal 2008. The performance compensation for fiscal 2009 and
subsequent years will be reduced to 10% of net investment income until the
total loss carry forward balance is recovered. As of June 30, 2009,
the loss carry forward balance was $178.2 million. Included in investment
advisor compensation for the three and six months ended June 30, 2009 was
performance compensation of $9.7 million and $12.7 million,
respectively.




Our
investment advisor, DME Advisors, and its affiliates manage and expect to
manage client accounts other than 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, on our website we provide the
names of the largest disclosed long positions in our investment portfolio
as of the last trading day of each month. DME Advisors may choose not to
disclose certain positions to its other clients in order to protect its
investment strategy.  Therefore, our website presents the largest long
positions held by us that are disclosed by DME Advisors or its affiliates to
their other clients.




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.




Verdant, a
Delaware corporation, is subject to corporate income taxes on its taxable
income. The effective federal income tax rate for Verdant is expected to be
35%. For the six months ended June 30, 2009, a current tax expense of
$17,600 was recorded based on the pre-tax income earned by Verdant during the
period. Included in other assets is a deferred tax asset of
$74,200 resulting from the temporary differences between taxable
income and reported net income of Verdant. An accrual had been recorded for
taxes payable in other liabilities in the condensed consolidated balance sheet
at June 30, 2009 for $91,800. We believe it is more likely than not that the
deferred tax asset will be fully realized in the future and therefore
no valuation allowance has been recorded.




Ratio Analysis




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. The following table provides the
ratios for the six months ended June 30, 2009 and 2008:




Six
      months ended
                        June
      30, 2009
                      
                      
                      Six
      months ended
                        June
      30, 2008Frequency
                      
                      
                      Severity
                      
                      
                      Total
                      
                      
                      Frequency
                      
                      
                      Severity
                      
                      
                      TotalLoss
      ratio
                      
                      
                      58.2
                      %
                      
                      
                      50.8
                      %
                      
                      
                      56.3
                      %
                      
                      
                      42.3
                      %
                      
                      
                      39.0
                      %
                      
                      
                      41.1
                      %Acquisition
      cost ratio
                      
                      
                      39.4
                      %
                      
                      
                      4.7
                      %
                      
                      
                      30.2
                      %
                      
                      
                      49.7
                      %
                      
                      
                      13.9
                      %
                      
                      
                      36.7
                      %Composite
      ratio
                      
                      
                      97.6
                      %
                      
                      
                      55.5
                      %
                      
                      
                      86.5
                      %
                      
                      
                      92.0
                      %
                      
                      
                      52.9
                      %
                      
                      
                      77.8
                      %Internal
      expense ratio
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      10.2
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      14.7
                      %Combined
      ratio
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      96.7
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      92.5
                      %




The loss
ratio is calculated by dividing loss and loss adjustment expenses incurred by
net premiums earned. We expect that our loss ratio will be volatile for our
severity business and may exceed that of our frequency business in certain
periods.




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. During the six months ended June
30, 2009, our net earned premiums increased 83.1% while our general and
administrative expenses increased 26.6% as compared to the corresponding 2008
period, resulting in a lower 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 or other income into account. The reported
combined ratio for the six months ended June 30, 2009 was 96.7%. Given the
nature of our opportunistic underwriting strategy, we expect that our combined
ratio may be volatile from period to period.






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Financial
Condition




Investment
in Securities





As of June
30, 2009, our investments in securities reported in the condensed consolidated
balance sheets were $595.6 million compared to $494.0 million as of December 31,
2008, an increase of 20.6%. The increase was principally due to investment
income of $116.0 million for the six months ended June 30, 2009, and partly due
to investments purchased from net positive cash
flows generated from underwriting operations. As of June 30,
2009, our investment portfolio had a gross overall exposure of
76% long and 55% short. Our investment portfolio moved towards a more
defensive position during the second quarter of 2009 with an
ending net equity exposure of 7%.  During the second quarter of
2009, we replaced our entire position in a gold exchange
traded fund with physical gold which is being held at a professional
custodian facility. Physical gold has been included in other investments, at
fair value, on the condensed consolidated balance sheet as of June 30,
2009.




Our
entire investment portfolio, including any derivatives, is valued at fair value
and any unrealized gains or losses are reflected in net investment income in the
condensed consolidated statements of income. As of June 30, 2009, 82.0% of
our investment portfolio (excluding restricted and unrestricted cash and
cash equivalents) was comprised of securities valued based on quoted prices
in actively traded markets (level 1), 16.4% was comprised of securities valued
based on observable inputs other than quoted prices (level 2) and 1.6% was
comprised of securities valued based on non-observable inputs (level
3).





In
determining whether a market for a financial instrument is active or inactive,
we obtain information from our investment advisor who makes the determination
based on feedback from executing brokers, market makers, and in-house traders to
assess the level of market activity and available liquidity for any given
financial instrument. Where a financial instrument is valued based on broker
quotes, our investment advisor generally requests multiple quotes. The
ultimate value is based on an average of the quotes obtained. Broker quoted
prices are generally not adjusted in determining the ultimate values and are
obtained with the expectation of the quotes being binding. As of June 30,
2009, $133.2 million of our investments in securities including derivatives
were valued based on multiple broker quotes, all of which were based on
observable market information and classified as level 2. During the six months
ended June 30, 2009, debt instruments with a fair value of $5.0 million were
transferred from level 2 to level 3, as there was no longer an active market for
these instruments and we were unable to obtain multiple quotes for these
instruments. The fair values of these securities were estimated using the last
available transaction price, adjusted for credit risk, expectation of future
cash flows, and other non-observable inputs. In addition, during the six
months ended June 30, 2009, debt instruments with a fair value of $3.2 million
were transferred out of level 3, as multiple broker quotes were obtained
for determining fair values.




Non-observable
inputs used by our investment advisor include discounted cash flow models for
valuing certain corporate debt instruments. In addition, other non-observable
inputs used for valuing private equity investments include investment manager
statements and management estimates based on third party appraisals of
underlying assets.




Loss
and Loss Adjustment Expense Reserves




We
establish reserves for contracts based on estimates of the ultimate cost of all
losses including 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 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 occurrences.




For
natural peril risk exposed business, once an event has occurred that may give
rise to a claim, we establish loss reserves based on loss payments and case
reserves reported by our clients. We 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 rely on
industry information, knowledge of the business written and management’s
judgment.






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Reserves
for loss and loss adjustment expenses as of June 30, 2009 and December 31, 2008
were comprised of the following:




June
      30, 2009
              
              
              December
      31, 2008Case
                Reserves
              
              
              IBNR
              
              
              Total
              
              
              Case
                Reserves
              
              
              IBNR
              
              
              Total($
      in thousands)Frequency
              
              $
              9,600
              
              
              $
              66,939
              
              
              $
              76,539
              
              
              $
              6,666
              
              
              $
              49,127
              
              
              $
              55,793Severity
              
              
              8,950
              
              
              
              30,045
              
              
              
              38,995
              
              
              
              —
              
              
              
              25,632
              
              
              
              25,632Total
              
              $
              18,550
              
              
              $
              96,984
              
              
              $
              115,534
              
              
              $
              6,666
              
              
              $
              74,759
              
              
              $
              81,425




The
increase in loss reserves is principally due to the increase in earned premiums
during the six months ended June 30, 2009. As of June 30, 2009, the severity
case reserves pertained to a catastrophe excess of loss contract ($6.7
million) and the balance relating to a professional liability contract. For most
of the contracts written as of June 30, 2009, 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.




Our
severity business includes contracts that contain or may contain natural peril
loss exposure. As of August 1, 2009, our maximum aggregate loss exposure to any
series of natural peril events was $75.4 million. For purposes of the preceding
sentence, aggregate loss exposure is equal to the sum of all the aggregate
limits available in the contracts that contain natural peril exposure minus
reinstatement premiums for the same contracts. We categorize peak zones as:
United States, Europe, Japan and the rest of the world. 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:




Zone
              
              Single
      Event
                Loss
              
              
              Aggregate
                Loss($
      in thousands)USA(1)
              
              $
              60,350
              
              
              $
              75,350Europe
              
              
              48,800
              
              
              
              48,800Japan
              
              
              48,800
              
              
              
              48,800Rest
      of the world
              
              
              28,800
              
              
              
              28,800Maximum
      Aggregate
              
              
              60,350
              
              
              
              75,350




(1)  Includes
the Caribbean




Liquidity
and Capital Resources




General




Greenlight
Capital Re, Ltd. is organized as a holding company with no operations
of its own. As a holding company it has minimal continuing cash
needs, most of which are for administrative expenses. All our underwriting
operations are conducted through our sole reinsurance subsidiary,
Greenlight Reinsurance, Ltd., ("Greenlight Reinsurance"), which underwrites
risks associated with property and casualty reinsurance
programs. Restrictions on Greenlight Reinsurance’s ability to pay dividends
are described in more detail below. It is our current policy to retain earnings
to support the growth of our business. We currently do not expect to pay
dividends on our ordinary shares.




Sources
and Uses of Funds




Our
sources of funds primarily consist of premium receipts (net of brokerage and
ceding commissions), investment income (net of advisory compensation and
investment expenses), including realized gains, and other income from fees
generated by Verdant. We use cash to pay losses and loss adjustment expenses,
profit commissions and general and administrative expenses. In addition, during
the six months ended June 30, 2009, we used $15.0 million to purchase promissory
notes as part of our strategic alliance with insurance companies and general
agents. Substantially all of our funds, including shareholders’ capital, net of
funds required for cash liquidity purposes, are invested by our investment
advisor in accordance with our investment guidelines. As of June 30, 2009,
approximately 96% of our investments in securities were comprised of
publicly-traded equity securities, actively traded debt instruments and
gold bullion, which can be readily liquidated to meet current and
future liabilities. We believe that we have sufficient flexibility to liquidate
our long securities to generate liquidity. Similarly, we can generate liquidity
from our short portfolio by covering securities and by freeing up restricted
cash no longer required for collateral.




For the
six months ended June 30, 2009, we had a positive cash flow of $39.3 million and
we generated $30.5 million in cash from operating activities primarily relating
to net premiums collected and retained from underwriting operations. As of June
30, 2009, we believe we have sufficient projected cash flow from operations to
meet our liquidity requirements. We expect that our operational needs for
liquidity will be met by cash, funds generated from underwriting activities,
other income from Verdant’s operations and net investment income. We have
no current plans to issue equity or debt and expect to fund our operations
for the foreseeable future using operating cash flow. We filed a Form S-3
registration statement for an aggregate principal amount of $200.0 million
in securities,whichwasdeclared effectiveby the SEC on July 10,
2009, in order
to provide us with additional flexibility and timely access to public capital
markets should we require additional capital for working capital, capital
expenditures, acquisitions, and for other general corporate
purposes.




Although
we are not subject to any significant legal prohibitions on the payment of
dividends, Greenlight Reinsurance is subject to Cayman Islands regulatory
constraints that affect its ability to pay dividends to us and include a minimum
net worth requirement. Currently, the statutory minimum net worth requirement
for Greenlight Reinsurance is $120,000. In addition, 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 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 from reinsurance obtained from
unlicensed or non-admitted insurers we anticipate that all of our U.S. clients
and some of our non-U.S. clients will require us to provide collateral through
funds withheld, trust arrangements, letters of credit or a combination
thereof.





As of June
30, 2009, Greenlight Reinsurance had a letter of credit facility of $400.0
million with Citibank, N.A. with a termination date of October 11, 2010. 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.





In addition,
at June 30, 2009, Greenlight Reinsurance had a $25.0 million letter of credit
facility with Butterfield Bank (Cayman) Limited ("Butterfield Bank") with a
termination date of June 6, 2010. 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, 2009, an aggregate amount of $223.1 million (December 31, 2008:
$167.3 million) in letters of credit was issued from the available $425.0
million facilities. Under the letter of credit facilities, we provide collateral
that may consist of equity securities and cash equivalents. As of June 30, 2009,
we had pledged $230.3 million (December 31, 2008: $220.2 million) of equity
securities and cash equivalents as collateral for the above letter of credit
facilities.




On July 21,
2009, Greenlight Reinsurance entered into a $50.0 million letter of credit
facility with Bank of America, N.A. This facility terminates on July 20, 2010,
although the termination date is automatically extended for an additional
year unless notice is delivered to the other party at least 90
days prior to the termination date.




Each of
the facilities contains various covenants that, in part, restrict
Greenlight Reinsurance's ability to place a lien or charge on the pledged assets
and further restrict Greenlight Reinsurance's ability to issue any debt without
the consent of the letter of credit provider. Additionally, if an event of
default exists, as defined in the letter of credit agreements, Greenlight
Reinsurance will be prohibited from paying dividends to us. For the six months
ended June 30, 2009, the Company was in compliance with all of the covenants
under each of these facilities.




Capital




As of
June 30, 2009, total shareholders’ equity was $614.5 million compared to
$491.4 million at December 31, 2008. This increase in total shareholders’ equity
is principally due to the net income of $120.0 million reported during the
six months ended June 30, 2009.




Our
capital structure currently consists entirely of equity issued in two separate
classes of ordinary shares. We expect that the existing capital base and
internally generated funds will be sufficient to implement our business strategy
for the foreseeable future. Consequently, we do not presently anticipate that we
will incur any material indebtedness in the ordinary course of our business.
We filed a Form S-3
registration
statement for an aggregate principal amount of $200.0 million in securities,whichwasdeclared effectiveby the SECon July 10, 2009,in order to provide us with
additional flexibility and timely access to public capital markets should we
require additional capital for working capital, capital expenditures,
acquisitions, and for other general corporate purposes.We did not
make any significant capital expenditures during the three months ended June 30,
2009.




Contractual
Obligations and Commitments




The
following table shows our aggregate contractual obligations by time period
remaining to due date as of June 30, 2009:




Less
      than
                1
      year
              
              
              1-3
      years
              
              
              3-5
      years
              
              
              More
      than
                5
      years
              
              
              Total($
      in thousands)Operating
      lease obligations(1)
              
              $
              378
              
              
              $
              570
              
              
              $
              552
              
              
              $
              1,105
              
              
              $
              2,605Specialist
      service agreement
              
              
              500
              
              
              
              300
              
              
              
              —
              
              
              
              —
              
              
              
              800Private
      equity investments(2)
              
              
              18,949
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              18,949Loss
      and loss adjustment expense reserves(3)
              
              
              40,517
              
              
              
              42,780
              
              
              
              17,872
              
              
              
              14,365
              
              
              
              115,534$
              60,344
              
              
              $
              43,650
              
              
              $
              18,424
              
              
              $
              15,470
              
              
              $
              137,888




(1)
            Reflects
      our contractual obligations pursuant to the September 1, 2005 lease
      agreement and the July 9, 2008 lease agreement as described
      below.




(2)
            As
      of June 30, 2009, we had made commitments to invest a total of $49.6
      million in private investments. As of June 30, 2009, we had invested $30.7
      million of this amount, and our remaining commitments to these investments
      were $18.9 million. Given the nature of 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 with no fixed payment schedules 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 without specific approval from the Board
      of Directors.




(3)
            Due
      to the nature of our reinsurance operations the amount and timing of the
      cash flows associated with our reinsurance contractual liabilities will
      fluctuate, perhaps materially, and, therefore, are highly
      uncertain.






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On
September 1, 2005, we entered into a five-year lease agreement for office
premises in the Cayman Islands. The lease repayment schedule is included under
operating lease obligations in the above table and in Note 7 to the accompanying
condensed consolidated 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 from July 1, 2008 and ends on June 30, 2018. 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. The minimum lease payments are included in the above
table under operating lease obligations and in Note 7 to the accompanying
condensed consolidated financial statements.





Effective
September 1, 2007, we entered into a service agreement with a specialist service
provider for the provision of administration and support in developing and
maintaining business relationships, reviewing and recommending programs and
managing risks relating to 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 contracts to which the
Company is bound are adequately administered by the specialist service
provider. The minimum payments are included in the above table under specialist
service agreement and in Note 7 to the accompanying condensed consolidated
financial statements.




On January
1, 2008, we entered into an agreement wherein the Company and DME Advisors
agreed to create a joint venture for the purposes of managing certain jointly
held assets. The term of the agreement is January 1, 2008 through December 31,
2010, with automatic three-year renewals unless either the Company or DME
Advisors terminates the agreement by giving 90 days notice prior to the end of
the three year term. Pursuant to this agreement, the Company pays a monthly
management fee of 0.125% on the Company’s share of the assets managed by DME
Advisors and performance compensation of 20% on the net investment income
of the Company’s share of assets managed by DME Advisors subject to a loss carry
forward provision. The loss carry forward provision allows DME Advisors to
earn reduced incentive compensation of 10% on net investment income in any year
subsequent to the year in which the investment account incurs a loss, until all
the losses are recouped and an additional amount equal to 150% of the
aggregate loss is earned. DME Advisors is not entitled to earn
performance compensation in a year in which the investment portfolio incurs a
loss. For the year ended December 31, 2008 the portfolio reported a net
investment loss and as a result no performance compensation was paid to DME
Advisors. The performance compensation for fiscal 2009 and subsequent years will
be reduced to 10% of net investment income until the total loss carry
forward balance is recovered. As of June 30, 2009, the loss carry
forward balance was $178.2 million. For the six months ended June 30,
2009, $12.7 million was accrued relating to performance compensation for
DME Advisors at the reduced rate of 10% of profits.




In February 2007, the Company entered into a service agreement with DME Advisors
pursuant to which DME Advisors will provide investor relations services to the
Company for monthly compensation of $5,000 plus expenses. The agreement had an
initial term of one year, and will continue for subsequent one year periods
until terminated by us or DME Advisors. Either party may terminate the agreement
for any reason with 30 days prior written notice to the 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 the following types of market
risk:


• equity
price risk;


• foreign
currency risk;


• interest
rate risk;


• credit
risk;


• effects
of inflation; and


• political
risk.




Equity price risk. As of
June 30, 2009, 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 their current reported value. This risk is partly mitigated
by the presence of both long and short equity securities. As of June 30, 2009, a
10% decline in the price of each of these listed equity securities and
equity-based derivative instruments would result in a $1.1 million, or 0.2%,
decline in the fair value of our 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, 2009, we had no known 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
cash and investments in securities denominated in foreign currencies, we are
exposed to foreign currency risk. Foreign currency exchange rate risk is the
potential for loss in the U.S. dollar value of investments and speculative
foreign cash positions due to a decline in the exchange rate of the foreign
currency in which the cash and investments are denominated. As of June 30, 2009,
some of our currency exposure resulting from foreign denominated securities
(longs and shorts) was reduced by offsetting cash balances (shorts and longs)
denominated in the corresponding foreign currencies including European Union
euro, Canadian dollar, Japanese yen and British pound, leading to a net exposure
to foreign currencies of $152.0 million. As of June 30, 2009, a 10% decrease in
the value of the United States dollar against select foreign currencies would
result in a $15.2 million, or 2.1%, decline in the value of our investment
portfolio.




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 securities denominated in foreign currencies and
should not be relied on as indicative of future results.





Interest rate risk.Our
investment portfolio includes interest rate sensitive securities, such as
corporate debt instruments, credit default swaps, and interest rate options. The
primary market risk exposure for any debt instrument is interest rate risk. As
interest rates rise, the market value of our long fixed-income portfolio falls,
and conversely, as interest rates fall, the market value of our long
fixed-income portfolio rises. Additionally, some of our derivative investments
may also be credit sensitive and their value may indirectly fluctuate with
changes in interest rates.






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The
following table summarizes the impact that a 100 basis point increase or
decrease in interest rates would have on the value of our investment
portfolio.





100
      basis point increase
                                                  in
      interest rates
                                                
                                                
                                                
                                                100
      basis point decrease
                                                  in
      interest ratesChange
      in
                                                  fair
      value
                                                
                                                Change
      in fair value as % of investment portfolio
                                                
                                                
                                                
                                                Change
      in
                                                  fair
      value
                                                
                                                Change
      in fair value as % of investment portfolio($
      in thousands)Debt
      instruments
                                                $
                                                (1,350.1
                                                )
                                                (0.18
                                                )
                                                %
                                                
                                                $
                                                1,400.6
                                                
                                                0.19
                                                
                                                %Credit
      default swaps
                                                
                                                (203.5
                                                )
                                                (0.03
                                                )
                                                
                                                
                                                
                                                203.5
                                                
                                                0.03Interest
      rate options
                                                
                                                4,559.5
                                                
                                                0.61
                                                
                                                
                                                
                                                
                                                (7,182.2
                                                )
                                                (0.96
                                                )Net
      exposure to interest rate risk
                                                $
                                                3,005.9
                                                
                                                0.40
                                                
                                                %
                                                
                                                $
                                                (5,578.1
                                                )
                                                (0.74
                                                )
                                                %




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,
the securities of our investment portfolio are held with several prime
brokers, subjecting us to the related 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 and majority of cash balances are held by prime brokers on our
behalf, we have no significant concentrations of credit risk.




Effects of
inflation. 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 and assets values in our investment
portfolio.




Political risk.We are exposed to political risk to the extent that our investment
advisor, on our behalf and subject to our investment guidelines, trades
securities that are listed on various U.S. and foreign exchanges and markets.
The governments in any of these jurisdictions could impose restrictions,
regulations or other measures, which may have a material adverse impact on our
investment strategy.





Item 4. CONTROLS AND PROCEDURES




Disclosure
Controls and Procedures




As required
by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the "Exchange
Act"), the Company has evaluated, with the participation of management,
including the Chief Executive Officer and the Chief Financial Officer, the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in such rules) as of the end of the period covered under
this quarterly report. Based on such evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports prepared in accordance with the rules and regulations of
the SEC is recorded, processed, summarized and reported within the time
periods specified by the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its principal executive officer and
principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.




Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that the Company’s disclosure controls and procedures will
prevent all errors and all frauds. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.




Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control. The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.





Changes
in Internal Control Over Financial Reporting




There
have been no significant changes in the Company’s internal control over
financial reporting during the three months ended June 30, 2009 that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.  The Company
continues to review its disclosure controls and procedures, including its
internal controls over financial reporting, and may from time to time make
changes aimed at enhancing their effectiveness and to ensure that the Company’s
systems evolve with its business.







33
 Link to table of
contents




PART
II — OTHER INFORMATION




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 Annual
Report on Form 10-K for the fiscal year ended December 31, 2008, 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 July 31, 2009, there have been no material changes to the risk
factors disclosed in Item 1A "Risk Factors" included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008, 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS




On August 5,
2008, the Company’s Board of Directors adopted a share repurchase plan
authorizing the Company to purchase up to two million of its Class A
ordinary shares. Shares may be purchased in the open market or through privately
negotiated transactions under the plan. 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.
During the six months ended June 30, 2009, there were no repurchases of our
Class A ordinary shares.




Item
3. DEFAULTS UPON SENIOR
SECURITIES




None.




Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS




Annual General
Meeting of Shareholders. The Company held its 2009 Annual
General Meeting of Shareholders on April 28, 2009. Pursuant to the Company’s
Third 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 the record date of the 2009 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 excess being allocated to the Class A ordinary shares
in accordance with Article 53 of the Company’s Third Amended and Restated
Articles of Association.





The
following tables summarize the voting results after adjustment of voting power.
For more information on the following proposals, see the Company’s definitive
proxy statement dated March 3, 2009.




(1) The
following persons were elected Directors of Greenlight Capital Re, Ltd. by
shareholders to serve for the term expiring at the Annual General Meeting of
Shareholders in 2010.




Director
                                  
                                  Class
      A
                                    For
                                  
                                  
                                  Class
      A Against
                                  
                                  
                                  Class
      A Abstain
                                  
                                  
                                  Class
      A Withheld
                                  
                                  
                                  Class
      B
                                    For
                                  
                                  
                                  Class
      B Against
                                  
                                  
                                  Class
      B Abstain
                                  
                                  
                                  Class
      B
                                    WithheldAlan
      Brooks
                                  
                                  
                                  64,391,039
                                  
                                  
                                  
                                  18,681
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0David
      Einhorn
                                  
                                  
                                  64,376,020
                                  
                                  
                                  
                                  67,383
                                  
                                  
                                  
                                  3,774
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Leonard
      Goldberg
                                  
                                  
                                  64,411,622
                                  
                                  
                                  
                                  30,883
                                  
                                  
                                  
                                  4,672
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Ian
      Isaacs
                                  
                                  
                                  64,417,382
                                  
                                  
                                  
                                  25,123
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Frank
      Lackner
                                  
                                  
                                  64,417,382
                                  
                                  
                                  
                                  25,123
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Bryan
      Murphy
                                  
                                  
                                  64,423,824
                                  
                                  
                                  
                                  18,681
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Joseph
      Platt
                                  
                                  
                                  63,400,187
                                  
                                  
                                  
                                  1,042,318
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0






34
 Link to table of contents




(2) The
following persons were elected Directors of Greenlight Reinsurance, Ltd. by
shareholders to serve for the term expiring at the Annual General Meeting of
Shareholders in 2010.





Director
                                  
                                  Class
      A
                                    For
                                  
                                  
                                  Class
      A
                                    Against
                                  
                                  
                                  Class
      A
                                    Abstain
                                  
                                  
                                  Class
      A Withheld
                                  
                                  
                                  Class
      B
                                    For
                                  
                                  
                                  Class
      B
                                    Against
                                  
                                  
                                  Class
      B
                                    Abstain
                                  
                                  
                                  Class
      B
                                    WithheldAlan
      Brooks
                                  
                                  
                                  64,423,824
                                  
                                  
                                  
                                  18,681
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0David
      Einhorn
                                  
                                  
                                  64,413,075
                                  
                                  
                                  
                                  30,322
                                  
                                  
                                  
                                  3,777
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Leonard
      Goldberg
                                  
                                  
                                  64,423,838
                                  
                                  
                                  
                                  18,681
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Ian
      Isaacs
                                  
                                  
                                  64,417,382
                                  
                                  
                                  
                                  25,123
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Frank
      Lackner
                                  
                                  
                                  63,983,374
                                  
                                  
                                  
                                  25,123
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Bryan
      Murphy
                                  
                                  
                                  64,423,824
                                  
                                  
                                  
                                  18,681
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Joseph
      Platt
                                  
                                  
                                  63,508,107
                                  
                                  
                                  
                                  934,398
                                  
                                  
                                  
                                  4,669
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  8,771,466
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
  (3) The
shareholders ratified the appointment of BDO Seidman, LLP to serve as the
independent auditors of Greenlight Capital Re, Ltd. for
2009.





Class
      A
              
              
              Class
      BFor
              
              
              64,444,127
              
              
              
              8,771,466Against
              
              
              3,047
              
              
              
              0Abstain
              
              
              0
              
              
              
              0Withheld
              
              
              0
              
              
              
              0




(4) The
shareholders ratified the appointment of BDO Seidman, LLP to serve as the
independent auditors of Greenlight Reinsurance, Ltd. for 2009.





Class
      A
              
              
              Class
      BFor
              
              
              64,444,127
              
              
              
              8,771,466Against
              
              
              3,044
              
              
              
              0Abstain
              
              
              0
              
              
              
              0Withheld
              
              
              0
              
              
              
              0




Item 5. OTHER INFORMATION




On April 28, 2009,
the Company adopted revisions to its Code of Business Conduct and
Ethics.  The revisions include, among other things, a new section
regarding the requirements of and penalties under the Foreign Corrupt Practices
Act.  In addition, on April 28, 2009, the Company
amended and restated each of its Audit Committee Charter, Nominating and
Corporate Governance Committee Charter and Compensation Committee Charter as
part of its annual review of each of these charters.  The full text of
the Amended and Restated Code of
Business Conduct and Ethics and each of the amended and restated committee
charters are available free of charge through the corporate governance page of
the Company’s website atwww.greenlightre.ky.




Item 6. EXHIBITS




12.1
              Ratio
      of Earnings to Fixed Charges and Preferred Share Dividends31.1
              Certification
      of the Chief Executive Officer filed hereunder pursuant to Section 302 of
      the Sarbanes Oxley Act of 200231.2
              Certification
      of the Chief Financial Officer filed hereunder pursuant to Section 302 of
      the Sarbanes Oxley Act of 200232.1
              Certification
      of the Chief Executive Officer filed hereunder pursuant to Section 906 of
      the Sarbanes Oxley Act of 200232.2
              Certification
      of the Chief Financial Officer filed hereunder pursuant to Section 906 of
      the Sarbanes Oxley Act of
2002










35
 Link to table of contents









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 GoldbergName:
            Leonard
      GoldbergTitle:
            Chief
      Executive OfficerDate:
            August
      3, 2009/s/
      Tim CourtisName:
            Tim
      CourtisTitle:
            Chief
      Financial OfficerDate:
            August
      3, 2009










36