UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 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 March 31, 2010





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.)65
      MARKET STREET
              SUITE
      1207, CAMANA BAY
              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
            30,160,953Class
      B Ordinary Shares, $0.10 par value
            6,254,949(Class)
            (Outstanding
      as of April 30, 2010)
















GREENLIGHT
CAPITAL RE, LTD.





TABLE OF CONTENTS





PagePART
      I — FINANCIAL INFORMATIONItem
      1.
            Financial
      StatementsCondensed Consolidated
      Balance Sheets as of March 31, 2010 (unaudited) and December 31,
      2009
            
            
            1Condensed Consolidated Statements of Income for
      the Three Months Ended March 31, 2010 and 2009
      (unaudited)
            
            
            2Condensed
      Consolidated Statements of Shareholders' Equity for the Three Months Ended
      March 31, 2010 and 2009 (unaudited)
            
            
            3Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2010 and 2009 (unaudited)
            
            
            4Notes
      to the Condensed Consolidated Financial Statements
      (unaudited)
            
            
            5Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            
            17Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            
            
            26Item
      4.
            Controls and Procedures
            
            
            27PART
      II — OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            
            
            28Item
      1A.
            Risk
      Factors
            
            
            28Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            
            28Item
      3.
            Defaults
      Upon Senior Securities
            
            
            28Item
      4.
            Removed and Reserved
            
            
            28Item
      5.
            Other
      Information
            
            
            28Item
      6.
            Exhibits
            
            
            28SIGNATURES
            
            
            29








Table of contents





PART
I — FINANCIAL INFORMATION


Item
1. FINANCIAL STATEMENTS





GREENLIGHT CAPITAL RE, LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS





March
31, 2010 and December 31, 2009


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





March
      31,
              2010
              (unaudited)
            
            
            December
      31,
              2009AssetsInvestmentsDebt
      instruments, trading, at fair value
            
            $
            90,721
            
            
            $
            95,838Equity
      securities, trading, at fair value
            
            
            652,869
            
            
            
            593,201Other
      investments, at fair value
            
            
            157,395
            
            
            
            141,561Total
      investments
            
            
            900,985
            
            
            
            830,600Cash
      and cash equivalents
            
            
            52,105
            
            
            
            31,717Restricted
      cash and cash equivalents
            
            
            610,455
            
            
            
            590,871Financial
      contracts receivable, at fair value
            
            
            24,377
            
            
            
            30,117Reinsurance
      balances receivable
            
            
            106,130
            
            
            
            82,748Loss
      and loss adjustment expense recoverable
            
            
            8,199
            
            
            
            7,270Deferred
      acquisition costs, net
            
            
            36,626
            
            
            
            34,401Unearned
      premiums ceded
            
            
            4,869
            
            
            
            6,478Notes
      receivable
            
            
            15,175
            
            
            
            15,424Other
      assets
            
            
            3,231
            
            
            
            4,754Total
      assets
            
            $
            1,762,152
            
            
            $
            1,634,380Liabilities
      and shareholders’ equityLiabilitiesSecurities
      sold, not yet purchased, at fair value
            
            $
            584,926
            
            
            $
            570,875Financial
      contracts payable, at fair value
            
            
            14,787
            
            
            
            16,200Due
      to prime brokers
            
            
            112,829
            
            
            
            —Loss
      and loss adjustment expense reserves
            
            
            146,253
            
            
            
            137,360Unearned
      premium reserves
            
            
            128,283
            
            
            
            118,899Reinsurance
      balances payable
            
            
            31,686
            
            
            
            34,301Funds
      withheld
            
            
            15,612
            
            
            
            14,711Other
      liabilities
            
            
            11,082
            
            
            
            12,796Total
      liabilities
            
            
            1,045,458
            
            
            
            905,142Shareholders’
      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, 30,160,953 (2009: 30,063,893); Class B: par value
      $0.10; authorized, 25,000,000; issued and outstanding, 6,254,949 (2009:
      6,254,949))
            
            
            3,642
            
            
            
            3,632Additional
      paid-in capital
            
            
            482,366
            
            
            
            481,449Non-controlling
      interest in joint venture
            
            
            29,517
            
            
            
            30,597Retained
      earnings
            
            
            201,169
            
            
            
            213,560Total
      shareholders’ equity
            
            
            716,694
            
            
            
            729,238Total
      liabilities and shareholders’ equity
            
            $
            1,762,152
            
            
            $
            1,634,380







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


1
 Table of contents








GREENLIGHT CAPITAL RE, LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(UNAUDITED)





For
the three months ended March 31, 2010 and 2009


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





Three
      months ended
              March
      31,2010
            
            
            2009RevenuesGross
      premiums written
            
            $
            66,887
            
            
            $
            71,871Gross
      premiums ceded
            
            
            (578
            )
            
            
            (1,220
            )Net
      premiums written
            
            
            66,309
            
            
            
            70,651Change
      in net unearned premium reserves
            
            
            (10,993
            )
            
            
            (24,458
            )Net
      premiums earned
            
            
            55,316
            
            
            
            46,193Net
      investment (loss) income
            
            
            (16,831
            )
            
            
            27,717Other
      (expense) income, net
            
            
            (154
            )
            
            
            2,124Total
      revenues
            
            
            38,331
            
            
            
            76,034ExpensesLoss
      and loss adjustment expenses incurred, net
            
            
            29,135
            
            
            
            30,196Acquisition
      costs, net
            
            
            16,910
            
            
            
            13,245General
      and administrative expenses
            
            
            5,147
            
            
            
            4,378Total
      expenses
            
            
            51,192
            
            
            
            47,819Net
      (loss) income before non-controlling interest and income tax
      expense
            
            
            (12,861
            )
            
            
            28,215Non-controlling
      interest in loss (income) of joint venture
            
            
            479
            
            
            
            (330
            )Net
      (loss) income before income tax expense
            
            
            (12,382
            )
            
            
            27,885Income
      tax expense
            
            
            (9
            )
            
            
            (75
            )Net
      (loss) income
            
            $
            (12,391
            )
            
            $
            27,810Earnings
      (loss) per shareBasic
            
            $
            (0.34
            )
            
            $
            0.77Diluted
            
            $
            (0.34
            )
            
            $
            0.77Weighted
      average number of ordinary shares used in the determination
      ofBasic
            
            
            35,949,107
            
            
            
            36,078,258Diluted
            
            
            35,949,107
            
            
            
            36,334,870







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


2
 Table of contents





GREENLIGHT CAPITAL RE, LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


(UNAUDITED)





For
the three months ended March 31, 2010 and 2009


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








Three
      months ended March 31,2010
            
            
            2009Ordinary
      share capitalBalance
      – beginning of period
            
            $
            3,632
            
            
            $
            3,604Issue
      of Class A ordinary share capital, net of
forfeitures
            
            
            10
            
            
            
            20Balance
      – end of period
            
            $
            3,642
            
            
            $
            3,624Additional
      paid-in capitalBalance
      – beginning of period
            
            $
            481,449
            
            
            $
            477,571Issue
      of Class A ordinary share capital
            
            
            32
            
            
            
            221Share-based
      compensation expense, net of forfeitures
            
            
            885
            
            
            
            724Balance
      – end of period
            
            $
            482,366
            
            
            $
            478,516Non-controlling
      interestBalance
      – beginning of period
            
            $
            30,597
            
            
            $
            6,058Non-controlling
      interest (withdrawal) contribution to joint venture
            
            
            (601
            )
            
            
            —Non-controlling
      interest in (loss) income of joint venture
            
            
            (479
            )
            
            
            330Balance
      – end of period
            
            $
            29,517
            
            
            $
            6,388Retained
      earningsBalance
      – beginning of period
            
            $
            213,560
            
            
            $
            4,207Net
      (loss) income
            
            
            (12,391
            )
            
            
            27,810Balance
      – end of period
            
            $
            201,169
            
            
            $
            32,017Total
      shareholders’ equity
            
            $
            716,694
            
            
            $
            520,545





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




3
 Table of contents





GREENLIGHT CAPITAL RE, LTD.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





For
the three months ended March 31, 2010 and 2009


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





Three
      months ended March 31,2010
            
            
            2009Cash
      provided by (used in)
              Operating
      activitiesNet
      (loss) income
            
            $
            (12,391
            )
            
            $
            27,810Adjustments
      to reconcile net (loss) income to net cash provided by (used
      in) operating activitiesNet
      change in unrealized gains on investments and financial
      contracts
            
            
            13,877
            
            
            
            6,738Net
      realized losses (gains) on investments and financial
      contracts
            
            
            6,361
            
            
            
            (42,477
            )Foreign
      exchange loss on restricted cash and cash
equivalents
            
            
            2,233
            
            
            
            2,298Non-controlling
      interest in (loss) income of joint venture
            
            
            (479
            )
            
            
            330Share-based
      compensation expense
            
            
            885
            
            
            
            743Depreciation
      expense
            
            
            56
            
            
            
            10Net
      change inReinsurance
      balances receivable
            
            
            (23,382
            )
            
            
            (28,359
            )Loss
      and loss adjustment expense recoverables
            
            
            (929
            )
            
            
            4,662Deferred
      acquisition costs, net
            
            
            (2,225
            )
            
            
            (6,718
            )Unearned
      premiums ceded
            
            
            1,609
            
            
            
            903Other
      assets
            
            
            1,467
            
            
            
            (2,281
            )Loss
      and loss adjustment expense reserves
            
            
            8,893
            
            
            
            18,309Unearned
      premium reserves
            
            
            9,384
            
            
            
            23,556Reinsurance
      balances payable
            
            
            (2,615
            )
            
            
            2,213Funds
      withheld
            
            
            901
            
            
            
            (199
            )Other
      liabilities
            
            
            (1,714
            )
            
            
            422Performance
      compensation payable to related party
            
            
            —
            
            
            
            3,032Net
      cash provided by operating activities
            
            $
            1,931
            
            
            $
            10,992Investing
      activitiesPurchases
      of investments and financial contracts
            
            
            (280,990
            )
            
            
            (250,091
            )Sales
      of investments and financial contracts
            
            
            208,745
            
            
            
            314,677Change
      in due to prime brokers
            
            
            112,829
            
            
            
            —Change
      in restricted cash and cash equivalents, net
            
            
            (21,817
            )
            
            
            (98,488
            )Change
      in notes receivable, net
            
            
            249
            
            
            
            (15,146
            )Non-controlling
      interest contribution in joint venture
            
            
            (601
            )
            
            
            —Net
      cash provided by (used in) investing activities
            
            $
            18,415
            
            
            $
            (49,048
            )Financing
      activitiesNet
      proceeds from share issue
            
            
            10
            
            
            
            —Net
      proceeds from exercise of stock options
            
            
            32
            
            
            
            222Net
      cash provided by financing activities
            
            $
            42
            
            
            $
            222Net
      increase (decrease) in cash and cash equivalents
            
            
            20,388
            
            
            
            (37,834
            )Cash
      and cash equivalents at beginning of the period
            
            
            31,717
            
            
            
            94,144Cash
      and cash equivalents at end of the period
            
            $
            52,105
            
            
            $
            56,310Supplementary
      informationInterest
      paid in cash
            
            $
            2,413
            
            
            $
            1,574Interest
      received in cash
            
            
            1,470
            
            
            
            629Income
      tax paid in cash
            
            
            10
            
            
            
            —





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


4
 Table of contents








GREENLIGHT CAPITAL RE, LTD.


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)








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 wholly-owned
subsidiary, Greenlight Reinsurance, Ltd. (‘‘Greenlight Reinsurance’’), provides
global specialty property and casualty reinsurance. Greenlight Reinsurance has
an unrestricted Class ‘‘B’’ insurance license under Section 4(2) of the Cayman
Islands Insurance Law. Greenlight Reinsurance 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.





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, 2009. 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 three months ended March 31, 2010 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.




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 collateralize the liability created from securities sold, not yet
purchased. Cash held for the benefit of counterparties is used to collateralize
the current value of any amounts that may be due to the counterparty under the
financial contracts.





Loss
and Loss Adjustment Expense Reserves and Recoverable





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, industry
data, historical experience as well as the Company's own actuarial estimates.
These estimates are reviewed by the Company periodically on a contract by
contract basis and adjusted as 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.








5
 Table of contents





Notes
Receivable





Notes
receivable include promissory notes receivable from third party entities. These
notes are generally recorded at cost along with accrued interest, if any, which
approximates 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 three months ended March 31, 2010,
the notes earned interest at annual interest rates ranging from 6% to 10% and
had remaining maturity terms ranging from 4 years to 9 years. Included in notes
receivable balance were accrued interest of $0.8 million at March 31, 2010
(December 31, 2009: $0.7 million) and all notes were considered current and
performing. Interest income earned on notes receivable is included in the
condensed consolidated statements of income in net investment
income.





Deposit
Assets and Liabilities





The
Company accounts for reinsurance contracts in accordance with U.S. GAAP. 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. 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
March 31, 2010, included in the condensed consolidated balance sheets under
reinsurance balances receivable and reinsurance balances payable were $2.5
million and $0.8 million of deposit assets and deposit liabilities
(December 31, 2009: $2.1 million and $0.8 million), respectively. For the three
months ended March 31, 2010, included in other income were $0.2 million (2009:
$0) related to losses on deposit accounted contracts, and $0 (2009: $0.1
million) relating to gains on deposit accounted contracts.




Financial
Instruments





Investments and Securities Sold, Not Yet
  Purchased





The
Company’s investments in debt instruments and equity securities that are
classified as “trading securities” are carried at fair value. The fair values of
the listed equity and debt instruments are derived based on quoted prices
(unadjusted) in active markets for identical assets (Level 1 inputs). The
fair values of 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, private debt
instruments are valued using cash flow models using assumptions and estimates
that may be subjective and non-observable (Level 3 inputs).





The
Company’s “other investments” may include investments in private and unlisted
equity securities, limited partnerships, futures, commodities, exchange traded
options and over-the-counter options (“OTC”), 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 and unlisted 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, including the most recent net asset values. 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 as of when the underlying security must have been traded to be eligible
for the dividend declared. Interest income and interest expense are recorded on
an accrual basis.






6
 Table of contents





Derivative
Financial Instruments





U.S. GAAP
requires that an entity recognize all derivatives on 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. The Company’s derivative financial instrument assets
generally are included in investments in securities or financial contracts
receivable. The Company’s derivative financial instrument liabilities generally
are 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. Financial contracts, which include total return swaps,
credit default swaps ("CDS"), and other derivative instruments, are recorded at
their fair value with any unrealized gains and losses included in net investment
income in the condensed consolidated statements of income. 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 on the contract.





Total
return swap agreements, included on 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 changes in
the value of 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. 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 CDS for the purpose 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. A CDS trading in
an active market is 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).





Earnings
(Loss) Per Share





Basic
earnings (loss) 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. In the event of a net loss, any stock options
outstanding are excluded from the calculation of diluted loss per share. U.S.
GAAP 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. In the event of a net loss, the participating securities are
excluded from the calculation of both basic and diluted loss per share.
Therefore, for the three months ended March 31, 2010, unvested restricted
stock has been excluded from the weighted average shares
outstanding.





Three
      months ended
              March
      31,2010
            
            
            2009Weighted
      average shares outstanding
            
            
            35,949,107
            
            
            
            36,078,258Effect
      of dilutive service provider share-based awards
            
            
            —
            
            
            
            98,156Effect
      of dilutive employee and director share-based awards
            
            
            —
            
            
            
            158,45635,949,107
            
            
            
            36,334,870Anti-dilutive
      stock options outstanding
            
            
            160,000
            
            
            
            239,006Participating
      securities excluded from calculation of loss per
share
            
            
            465,092
            
            
            
            —








7
 Table of contents




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 generally expected to be taxed at a 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. Verdant has not taken any
tax positions that are subject to uncertainty or that are reasonably likely to
have a material impact to Verdant or the Company.





Recently
Issued Accounting Standards





In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update (“ASU”) No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.
This ASU requires additional disclosures and clarifies some existing disclosure
requirements about fair value measurement.  ASU No. 2010-06 amends
Codification Subtopic 820-10 to require a reporting entity to disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers. A
reporting entity should present separately information about purchases, sales,
issuances, and settlements in the reconciliation for fair value measurements
using significant unobservable inputs (Level 3). In addition, ASU No. 2010-06
clarifies the requirements of the existing disclosures. ASU No. 2010-06 is
effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measurements,
which are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. Early application is permitted. The
Company has adopted this ASU and has provided the required disclosures in
accordance with ASU No. 2010-06 in this Form 10-Q for the period ending March
31, 2010. For those additional disclosures required for
fiscal years beginning after December 15, 2010, the Company anticipates first
including those in its Form 10-Q for the period ending March 31,
2011.





In
February 2010, the FASB issued ASU No. 2010-09 which amended Subsequent Events
(Topic 855). This ASU continues to require SEC filers to evaluate subsequent
events through the date its financial statements are issued, but no longer
requires SEC filers to disclose in the financial statements that it has done so
or the date through which subsequent events have been evaluated. The ASU was
effective immediately upon issuance and as a result the Company no longer
discloses the date through which subsequent events have been
evaluated.





Reclassifications





Certain
prior period balances have been reclassified to conform to the
current period presentation. The reclassifications resulted in no changes
to net income (loss) 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 (loss) 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 March 31, 2010:








Fair
      value measurements as of March 31, 2010Description
            
            Quoted
      prices in active markets (Level 1)
            
            
            Significant
      other observable
              inputs (Level
      2)
            
            
            Significant
              unobservable
      inputs
              (Level
      3)
            
            
            Total($
      in thousands)Assets:Debt
      instruments
            
            $
            —
            
            
            $
            89,520
            
            
            $
            1,201
            
            
            $
            90,721Listed
      equity securities
            
            
            652,869
            
            
            
            —
            
            
            
            —
            
            
            
            652,869Commodities
            
            
            103,887
            
            
            
            —
            
            
            
            —
            
            
            
            103,887Private
      and unlisted equity securities
            
            
            —
            
            
            
            —
            
            
            
            42,488
            
            
            
            42,488Call
      options
            
            
            —
            
            
            
            584
            
            
            
            —
            
            
            
            584Put
      options
            
            
            —
            
            
            
            10,436
            
            
            
            —
            
            
            
            10,436Financial
      contracts receivable
            
            
            —
            
            
            
            24,377
            
            
            
            —
            
            
            
            24,377$
            756,756
            
            
            $
            124,917
            
            
            $
            43,689
            
            
            $
            925,362Liabilities:Listed
      equity securities, sold not yet purchased
            
            $
            (583,368
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            (583,368
            )Debt
      instruments, sold not yet purchased
            
            
            —
            
            
            
            (1,558
            )
            
            
            —
            
            
            
            (1,558
            )Financial
      contracts payable
            
            
            —
            
            
            
            (14,787
            )
            
            
            —
            
            
            
            (14,787
            )$
            (583,368
            )
            
            $
            (16,345
            )
            
            $
            —
            
            
            $
            (599,713
            )







8
 Table of contents





The
following table presents the Company’s investments, categorized by the level of
the fair value hierarchy as of December 31, 2009:





Fair
      value measurements as of December 31, 2009Description
            
            Quoted
      prices in
              active
      markets
              (Level
      1)
            
            
            Significant
      other
              observable
              inputs
              (Level
      2)
            
            
            Significant
              unobservable
              inputs
              (Level
      3)
            
            
            Total($
      in thousands)Assets:Debt
      instruments
            
            $
            —
            
            
            $
            94,301
            
            
            $
            1,537
            
            
            $
            95,838Listed
      equity securities
            
            
            593,201
            
            
            
            —
            
            
            
            —
            
            
            
            593,201Commodities
            
            
            102,239
            
            
            
            —
            
            
            
            —
            
            
            
            102,239Private
      and unlisted equity securities
            
            
            —
            
            
            
            —
            
            
            
            25,228
            
            
            
            25,228Call
      options
            
            
            —
            
            
            
            5,285
            
            
            
            —
            
            
            
            5,285Put
      options
            
            
            —
            
            
            
            8,809
            
            
            
            —
            
            
            
            8,809Financial
      contracts receivable
            
            
            —
            
            
            
            30,117
            
            
            
            —
            
            
            
            30,117$
            695,440
            
            
            $
            138,512
            
            
            $
            26,765
            
            
            $
            860,717Liabilities:Listed
      equity securities, sold not yet purchased
            
            $
            (570,875
            )
            
            $
            —
            
            
            $
            —
            
            
            $
            (570,875
            )Financial
      contracts payable
            
            
            —
            
            
            
            (16,200
            )
            
            
            —
            
            
            
            (16,200
            )$
            (570,875
            )
            
            $
            (16,200
            )
            
            $
            —
            
            
            $
            (587,075
            )








The
following tables present the reconciliation of the balances for all investments
measured at fair value using significant unobservable inputs (Level 3) as of and
for the three months ended March 31, 2010 and 2009:





Fair
      value measurements using
              significant
      unobservable inputs
              (Level
      3)Debt
              instruments
            
            
            Private
      and unlistedequity
      securities
            
            
            Total2010
            
            ($
      in thousands)Beginning
      balance, January 1, 2010
            
            $
            1,537
            
            
            $
            25,228
            
            
            $
            26,765Purchases,
      sales, issuances, and settlements, net
            
            
            (7
            )
            
            
            16,064
            
            
            
            16,057Total
      gains (losses) realized and unrealized in earnings,
    net
            
            
            (329
            )
            
            
            1,196
            
            
            
            867Transfers
      into (out of) Level 3, net
            
            
            —
            
            
            
            —
            
            
            
            —Ending
      balance, March 31, 2010
            
            $
            1,201
            
            
            $
            42,488
            
            
            $
            43,689








Fair
      value measurements using
                significant
      unobservable inputs
                (Level
      3)Debt
                instruments
              
              
              Private
      and unlisted
                equitysecurities
              
              
              Total2009
              
              ($
      in thousands)Beginning
      balance, January 1, 2009
              
              $
              4,115
              
              
              $
              11,776
              
              
              $
              15,891Purchases,
      sales, issuances, and settlements, net
              
              
              1,732
              
              
              
              (82
              )
              
              
              1,650Total
      gains (losses) realized and unrealized in earnings,
      net
              
              
              (1,485
              )
              
              
              (1,887
              )
              
              
              (3,372
              )Transfers
      into (out of) Level 3, net
              
              
              4,990
              
              
              
              —
              
              
              
              4,990Ending
      balance, March 31, 2009
              
              $
              9,352
              
              
              $
              9,807
              
              
              $
              19,159





There
were no transfers in or out of Level 1, Level 2 or Level 3 during the three
months ended March 31, 2010.





For the
three months ended March 31, 2010, realized gains of $0.4 million (2009: $0.05
million) and
change in unrealized gains of $0.4 million (2009: $3.4 million) on
securities still held at the reporting date, and valued using unobservable
inputs, are included as net investment income (loss) in the condensed
consolidated statements of income.





Debt
Instruments, Trading





At March
31, 2010, the following investments were included in debt
instruments:





2010
            
            Cost/
      amortized
              cost
            
            
            Unrealized
              gains
            
            
            Unrealized
              losses
            
            
            Fair
              value($
      in thousands)Corporate
      debt – U.S
            
            $
            56,952
            
            
            $
            37,116
            
            
            $
            (5,482
            )
            
            $
            88.586Corporate
      debt – Non U.S
            
            
            910
            
            
            
            1,236
            
            
            
            (11
            )
            
            
            2,135Total
      debt instruments
            
            $
            57,862
            
            
            $
            38,352
            
            
            $
            (5,493
            )
            
            $
            90,721








9
 Table of contents





At
December 31, 2009, the following investments were included in debt
instruments:





2009
            
            Cost/
              amortized
              cost
            
            
            Unrealized
              gains
            
            
            Unrealized
              losses
            
            
            Fair
              value($
      in thousands)Corporate
      debt – U.S.
            
            $
            60,121
            
            
            $
            36,040
            
            
            $
            (5,555
            )
            
            $
            90,606Corporate
      debt – Non U.S.
            
            
            2,961
            
            
            
            2,274
            
            
            
            (3
            )
            
            
            5,232Total
      debt instruments
            
            $
            63,082
            
            
            $
            38,314
            
            
            $
            (5,558
            )
            
            $
            95,838








The
maturity distribution for debt securities held at March 31, 2010 is as
follows:





Cost/
              amortized
              cost
            
            
            Fair
              value($
      in thousands)Within
      one year
            
            $
            6,201
            
            
            $
            9,558From
      one to five years
            
            
            24,243
            
            
            
            43,390From
      five to ten years
            
            
            23,394
            
            
            
            34,118More
      than ten years
            
            
            4,024
            
            
            
            3,655$
            57,862
            
            
            $
            90,721








Investment
in Equity Securities, Trading





At March
31, 2010, the following long positions were included in investment securities,
trading:





Cost
            
            
            Unrealized
              gains
            
            
            Unrealized
              losses
            
            
            Fair
              value($
      in thousands)Equities
      – listed
            
            $
            547,437
            
            
            $
            124,711
            
            
            $
            (36,812
            )
            
            $
            635,336Exchange
      traded funds
            
            
            7,879
            
            
            
            9,654
            
            
            
            —
            
            
            
            17,533$
            555,316
            
            
            $
            134,365
            
            
            $
            (36,812
            )
            
            $
            652,869





At
December 31, 2009, the following long positions were included in investment
securities, trading:





Cost
            
            
            Unrealized
              gains
            
            
            Unrealized
              losses
            
            
            Fair
              value($
      in thousands)Equities
      – listed
            
            $
            510,229
            
            
            $
            104,768
            
            
            $
            (40,040
            )
            
            $
            574,957Exchange
      traded funds
            
            
            7,879
            
            
            
            10,365
            
            
            
            —
            
            
            
            18,244$
            518,108
            
            
            $
            115,133
            
            
            $
            (40,040
            )
            
            $
            593,201





Other
Investments





“Other
investments” include options, commodities and private and unlisted equity
securities. Options are derivative financial instruments that give the buyer, in
exchange for a premium payment, the right, but not the obligation, to either
purchase from (call option) or sell to (put option) the writer, a specified
underlying security at a specified price on or before a specified 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. For OTC options a dealer acts as the
counterparty and therefore the Company is exposed to credit risk to the extent
the dealer is unable to meet its obligations. As of March 31, 2010, the Company
held OTC call options and put options with fair values of $0.03 million and
$10.44 million (December 31, 2009: $0.2 million and $8.8 million),
respectively.








10
 Table of contents





At March
31, 2010, the following securities were included in other
investments:





Cost
            
            
            Unrealized
              gains
            
            
            Unrealized
              losses
            
            
            Fair
              value($
      in thousands)Commodities
            
            $
            96,552
            
            
            $
            7,335
            
            
            $
            —
            
            
            $
            103,887Private
      and unlisted equity securities
            
            
            44,138
            
            
            
            1,230
            
            
            
            (2,881
            )
            
            
            42,487Put
      options
            
            
            12,323
            
            
            
            93
            
            
            
            (1,980
            )
            
            
            10,436Call
      options
            
            
            6,289
            
            
            
            —
            
            
            
            (5,704
            )
            
            
            585$
            159,302
            
            
            $
            8,658
            
            
            $
            (10,565
            )
            
            
            157,395





At
December 31, 2009, the following securities were included in other
investments:





Cost
            
            
            Unrealized
              gains
            
            
            Unrealized
              losses
            
            
            Fair
              value($
      in thousands)Commodities
            
            $
            96,552
            
            
            $
            5,687
            
            
            $
            —
            
            
            $
            102,239Private
      and unlisted equity securities
            
            
            27,636
            
            
            
            1,430
            
            
            
            (3,838
            )
            
            
            25,228Put
      options
            
            
            6,269
            
            
            
            2,540
            
            
            
            —
            
            
            
            8,809Call
      options
            
            
            6,406
            
            
            
            51
            
            
            
            (1,172
            )
            
            
            5,285$
            136,863
            
            
            $
            9,708
            
            
            $
            (5,010
            )
            
            $
            141,561





Included
in private and unlisted equity securities are investments in private equity
funds with a fair value of $2.1 million. The fair values of private equity
funds were determined based on unadjusted net
asset values reported by the funds' managers as of periods
prior to the Company's reporting period. The private equity
funds have varying lock-up periods and as of March 31, 2010 none of
the funds were redeemable. The Company had unfunded commitments relating to
a private equity fund of $6.8 million as of March 31, 2010 which are
included in the schedule of commitments and contingencies in Note 8 of these
condensed consolidated financial statements.





Investments
in Securities Sold, Not Yet Purchased





At March
31, 2010 and December 31, 2009, all equities sold, not yet purchased included in
the Company’s investment portfolio were in equities listed on recognized
exchanges (Level 1).





At March
31, 2010, the following securities were included in investments in
securities sold, not yet purchased:





Proceeds
            
            Unrealized
      gains
            
            
            Unrealized
      losses
            
            
            Fair
              value($
      in thousands)Equities
      - listed
            $
            (530,424
            )
            $
            58,672
            
            
            $
            (100,285
            )
            $
            (572,037
            )Warrants
      and rights on listed equities
            
            —
            
            
            —
            
            
            
            (543
            )
            
            (543
            )Exchange
      traded funds
            
            (9,119
            )
            
            —
            
            
            
            (1,669
            )
            
            (10,788
            )Debt
      instruments
            
            (1,572
            )
            
            14
            
            
            
            —
            
            
            (1,558
            )$
            (541,115
            )
            $
            58,686
            
            
            $
            (102,497
            )
            $
            (584,926
            )





At
December 31, 2009, the following securities were included in investments in
securities sold, not yet purchased:





Proceeds
            
            
            Unrealized
      gains
            
            
            Unrealized
      losses
            
            
            Fair
              value($
      in thousands)Equities -
      listed
            $
            (536,895
            )
            
            $
            62,278
            
            
            $
            (79,525
            )
            $
            (554,142
            )Warrants
      and rights on listed equities
            
            —
            
            
            
            —
            
            
            
            (733
            )
            
            (733
            )Exchange
      traded funds
            
            (15,678
            )
            
            
            —
            
            
            
            (322
            )
            
            (16,000
            )$
            (552,573
            )
            
            $
            62,278
            
            
            $
            (80,580
            )
            $
            (570,875
            )









11
 Table of contents





Financial
Contracts





As of
March 31, 2010 and December 31, 2009, the Company had entered into total return
swaps, CDS, and interest rate options contracts with various financial
institutions to meet certain investment objectives but not for hedging purposes.
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 security.





At March
31, 2010, the fair value of financial contracts outstanding was as
follows:





Financial
      Contracts
            
            Listing
              currency
            
            Notional
      amount of
              underlying
      instruments
            
            Fair
      value of net assets
              (obligations)
              on
      financial
              contracts($
      in thousands)Financial
      contracts receivableInterest
      rate options
            
            USD
            
            1,723,954
            
            $
            15,119Credit
      default swaps, purchased – sovereign debt
            
            USD
            
            186,337
            
            
            3,680Total
      return swaps – equities
            
            USD
            
            40,573
            
            
            5,578Total
      financial contracts receivable, at fair value
            
            
            
            
            
            $
            24,377Financial
      contract payableCredit
      default swaps, purchased – sovereign debt
            
            USD
            
            19,552
            
            $
            (266
            )Credit
      default swaps, purchased – corporate debt
            
            USD
            
            121,118
            
            
            (6,613
            )Credit
      default swaps, issued – corporate debt
            
            USD
            
            13,909
            
            
            (7,465
            )Total
      return swaps – equities
            
            USD
            
            12,462
            
            
            (443
            )Total
      financial contracts payable, at fair value
            
            
            
            
            
            $
            (14,787
            )







At
December 31, 2009, the fair value of financial contracts outstanding was as
follows:





Financial
      Contracts
            
            Listing
              currency
            
            Notional
      amount of
              underlying
      instruments
            
            Fair
      value of net assets
              (obligations)
              on
      financial
              contracts($
      in thousands)Financial
      contracts receivableInterest
      rate options
            
            USD
            
            1,723,954
            
            $
            20,325Credit
      default swaps, purchased – sovereign debt
            
            USD
            
            315,722
            
            
            5,322Total
      return swaps – equities
            
            USD
            
            45,516
            
            
            4,470Total
      financial contracts receivable, at fair value
            
            
            
            
            
            $
            30,117Financial
      contract payableCredit
      default swaps, purchased – sovereign debt
            
            USD
            
            20,811
            
            $
            (128
            )Credit
      default swaps, purchased – corporate debt
            
            USD
            
            121,118
            
            
            (7,281
            )Credit
      default swaps, issued – corporate debt
            
            USD
            
            13,909
            
            
            (8,739
            )Total
      return swaps – equities
            
            USD
            
            2,286
            
            
            (52
            )Total
      financial contracts payable, at fair value
            
            
            
            
            
            $
            (16,200
            )





As of
March 31, 2010, included in interest rate options are contracts on U.S. and
Japanese interest rates. As of March 31, 2010, included in financial contracts
payable was a CDS issued by the Company relating to the debt issued
by an unrelated entity ("reference entity"). The CDS is scheduled to
terminate in September 2013 and has a notional amount of
$13.9 million. Under this contract, the Company receives fees 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 March 31, 2010, the reference entity had a financial
strength rating of (B3) and a surplus notes rating of (Caa3) from
Moody’s Investors Service. The fair value of the CDS at March 31, 2010 was
$7.5 million which was determined based on broker quotes obtained
for identical or similar contracts traded in an active market (Level 2
inputs). AtMarch 31,
2010,based on an
evaluation of the reference entity, management believed it was
not probable that the Company would be required to pay the
notional amount of the CDS.




12
 Table of contents





During
the three months ended March 31, 2010 and 2009, 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
      March 31,2010
            
            
            2009($
      in thousands)Interest
      rate options
            
            Net
      investment income (loss)
            
            $
            (5,206
            )
            
            $
            970Credit
      default swaps, purchased – Corporate debt
            
            Net
      investment income (loss)
            
            
            (3
            )
            
            
            3,917Credit
      default swaps, purchased – Sovereign debt
            
            Net
      investment income (loss)
            
            
            2,157
            
            
            
            (2,036
            )Total
      return swaps – Equities
            
            Net
      investment income (loss)
            
            
            797
            
            
            
            (10,586
            )Credit
      default swaps, issued – Corporate debt
            
            Net
      investment income (loss)
            
            
            1,448
            
            
            
            (1,986
            )Options,
      futures, warrants, and rights
            
            Net
      investment income (loss)
            
            
            (7,286
            )
            
            
            (2,389
            )$
            (8,093
            )
            
            $
            (12,110
            )





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 months ended
March 31, 2010, the Company’s volume of derivative activities (based on notional
amounts) was as follows:





Derivatives
      not designated as hedging instruments
            
            Entered
            
            
            Exited($
      in thousands)Credit
      default swaps
            
            $
            —
            
            
            $
            130,644Total
      return swaps
            
            
            10,238
            
            
            
            4,116Options
            
            
            188,260
            
            
            
            2,199Futures
            
            
            44,436
            
            
            
            41,763Total
            
            $
            242,934
            
            
            $
            178,722








Derivatives
      not designated as hedging instruments
              
              Entered
              
              
              Exited($
      in thousands)Credit
      default swaps
              
              $
              33,343
              
              
              $
              20,850Total
      return swaps
              
              
              —
              
              
              
              2,509Interest
      rate options
              
              
              27,770
              
              
              
              —Options
              
              
              2,971
              
              
              
              12,223Rights
              
              
              4,126
              
              
              
              2,613Total
              
              $
              68,210
              
              
              $
              38,195




Due to Prime
Brokers




At March 31, 2010, the Company had an
indebtedness of $112.8 million to its prime brokers relating to investments
purchased on margin. In the normal course of business, the Company's investment
guidelines allow for temporary (30 days) leverage up to 20% of net invested
assets, and for an extended time period up to 5% of net invested assets.




4.
            REINSURANCE
      BALANCES RECEIVABLE





At March
31, 2010, included in reinsurance balances receivable were $26.7 million due
from a ceding insurer drawn under a letter of credit issued by the Company
to the ceding insurer. These funds are being held in an interest bearing
segregated account by the ceding insurer.




5.
            RETROCESSION





The
Company may from time to time purchase retrocessional coverage for one or more
of the following reasons: to manage its overall exposure, to
reduce its net liability on individual risks, to obtain additional
underwriting capacity and to balance its underwriting portfolio. Additionally,
retrocession can be used as a mechanism to share the risks and rewards of
business written and therefore can be used as a tool to align the
Company's interests with those of its counter-parties.




6.
   SHARE CAPITAL





During
the three months ended March 31, 2010, 94,720 (2009: 186,956) restricted
shares of 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 issue date, subject to the grantee's continued
service with the Company.







13
 Table of contents





The
restricted share award activities during the three months ended March 31, 2010
were as follows:
 
 Number
      of non-vested
                restricted shares
              
              
              Weighted average
                grant
      date fair valueBalance
      at December 31, 2009
              
              
              474,782
              
              
              $
              16.51Granted
              
              
              94,720
              
              
              
              25.00Vested
              
              
              (104,410
              )
              
              
              16.12Forfeited
              
              
              -
              
              
              
              -Balance
      at March 31, 2010
              
              
              465,092
              
              
              $
              18.32


During
the three months ended March 31, 2010, 2,340 (2009: 17,500) stock options were
exercised which had a weighted average exercise price of $13.85 (2009: $12.72)
per share. The intrinsic value of options exercised during the three months
ended March 31, 2010 was $26,511 (2009: $39,900).  For any options
exercised, the Company issues new Class A ordinary shares from the shares
authorized for issuance under the Company’s stock incentive plan.  At
March 31, 2010, 39,177 Class A ordinary shares were available for future
issuance under the Company’s stock incentive plan.





On April
28, 2010, the Company’s shareholders approved an amendment to the Company’s
stock incentive plan to increase the number of Class A ordinary shares available
for issuance from 2.0 million to 3.5 million Class A ordinary shares. At April
30, 2010, as a result of this amendment, there were 1,539,177 Class A ordinary
shares available for future issuance.





Employee
and director stock option activities during the three months ended March 31,
2010 were as follows:





Number
      of options
            
            
            Weighted average
              exercise price
            
            
            Weighted average
              grant
      date fair valueBalance
      at December 31, 2009
            
            
            1,281,340
            
            
            $
            14.24
            
            
            $
            6.33Granted
            
            
            —
            
            
            
            —
            
            
            
            —Exercised
            
            
            (2,340
            )
            
            
            13.85
            
            
            
            7.13Forfeited
            
            
            —
            
            
            
            —
            
            
            
            —Expired
            
            
            —
            
            
            
            —
            
            
            
            —Balance
      at March 31, 2010
            
            
            1,279,000
            
            
            $
            14.24
            
            
            $
            6.33





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





March
      31, 2010
            
            
            March
      31, 2009Class
      A
            
            
            Class
      B
            
            
            Class
      A
            
            
            Class
      BBalance
      – beginning of period
            
            
            30,063,893
            
            
            
            6,254,949
            
            
            
            29,781,736
            
            
            
            6,254,949Issue
      of ordinary shares, net of forfeitures
            
            
            97,060
            
            
            
            —
            
            
            
            204,456
            
            
            
            —Balance
      – end of period
            
            
            30,160,953
            
            
            
            6,254,949
            
            
            
            29,986,192
            
            
            
            6,254,949







7.
            RELATED
      PARTY TRANSACTIONS





Investment
Advisory Agreement





The
Company is party to an Investment Advisory Agreement (the ‘‘Advisory
Agreement’’) with DME Advisors, LP (“DME Advisors”) under which the Company and
DME Advisors created a joint venture for the purposes of managing certain
jointly held assets. DME Advisors is a related party and an affiliate of David
Einhorn, Chairman of the Company’s Board of Directors.





Pursuant to the Advisory Agreement with DME Advisors, 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. At March 31, 2010, the loss carry forward balance was $111.2 million. At
March 31, 2010, no performance compensation expense was recorded due to the net
investment loss reported for the three months ended March 31, 2010. For the
three months ended March 31, 2009, $3.0 million of performance compensation
expense was recorded.





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 loss for the three months ended March 31, 2010 are management fees of
$3.3 million (March 31, 2009: $2.2 million). All management fees were fully paid
as of March 31, 2010.





Service
Agreement





The
Company has entered into a service agreement with DME Advisors, pursuant to
which DME Advisors provides investor relations services to the Company for
compensation of $5,000 per month (plus expenses). The agreement is automatically
renewed for one year periods until terminated by the Company or DME Advisors for
any reason with 30 days prior written notice to the other party.






14
 Table of contents







8.
            COMMITMENTS
      AND CONTINGENCIES





Operating
Lease





Effective
September 1, 2005, the Company entered into a five-year non-cancelable lease
agreement to rent office space in the Cayman Islands. Effective April 25,
2010, this lease was terminated and the Company was released from all
future obligations and liabilities relating to this lease agreement. 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 latter 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 as
of March 31, 2010.





The total
rent expense related to leased office spaces for the three months ended March
31, 2010 was $0.1 million (2009: $0.2 million).





Specialist
Service Agreement





The
Company has 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, the
Company is obligated to make minimum payments for another two years 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





Periodically,
the Company makes investments in private equity vehicles. As part of the
Company's participation in such private equity investments, the Company may make
funding commitments. As of March 31, 2010, the Company had commitments to invest
an additional $17.1 million in private equity investments.





The
following is a schedule of future minimum payments required under the above
commitments:





2010
            
            
            2011
            
            
            2012
            
            
            2013
            
            
            2014
            
            
            Thereafter
            
            
            Total($
      in thousands)Operating
      lease obligations
            
            $
            250
            
            
            $
            276
            
            
            $
            276
            
            
            $
            276
            
            
            $
            276
            
            
            $
            967
            
            
            $
            2,321Specialist
      service agreement
            
            
            470
            
            
            
            400
            
            
            
            150
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,020Private
      and unlisted investments (1)
            
            
            17,110
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            17,110$
            17,830
            
            
            $
            676
            
            
            $
            426
            
            
            $
            276
            
            
            $
            276
            
            
            $
            967
            
            
            $
            20,451





(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 the
      year ended December 31, 2010.







Letters
of Credit





At March
31, 2010, the Company had the following letter of credit facilities, which
automatically renew each year unless terminated by either party in
accordance with the required notice period:




Available
            
            
            Termination
      Date
            
            Notice
      period required for termination($
      in thousands)Citibank
      N.A
            
            $
            400,000
            
            
            
            October,
      11, 2010
            
            120
      days prior to termination dateButterfield
      Bank (Cayman) Limited
            
            
            25,000
            
            
            
            June
      6, 2010
            
            30
      days prior to termination dateBank
      of America, N.A
            
            
            50,000
            
            
            
            July
      20, 2010
            
            90
      days prior to termination date$
            475,000






At March
31, 2010, an aggregate amount of $245.2 million (December 31, 2009: $278.4
million) in letters of credit were issued under the above facilities. Under
these facilities, the Company provides collateral that may consist of
equity securities and cash equivalents. At March 31, 2010, total equity
securities and cash equivalents with a fair value in the aggregate of $296.6
million (December 31, 2009: $315.2 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 March 31, 2010 and December 31, 2009.





Litigation





From time
to time in the normal course of business, we may be involved in formal and
informal dispute resolution procedures, which may include arbitration or
litigation, the outcomes of which determine our rights and obligations under our
reinsurance contracts and other contractual agreements. In some disputes, we may
seek to enforce our rights under an agreement or to collect funds owing to us.
In other matters, we may resist attempts by others to collect funds or enforce
alleged rights. While the final outcome of legal disputes cannot be predicted
with certainty, we do not believe that any of existing disputes, when finally
resolved, will have a material adverse effect on our business, financial
condition or operating results.





15
 Table of contents







9.
            SEGMENT
      REPORTING





The
Company manages its business on the basis of one operating segment, property and
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
              March
      31, 2010
            
            
            Three
      months ended
              March
      31, 2009($
      in thousands)
            
            
            ($
      in thousands)PropertyCommercial
      lines
            
            $
            13,407
            
            
            
            20.0
            %
            
            $
            19,413
            
            
            
            27.0
            %Personal
      lines
            
            
            6,855
            
            
            
            10.2
            
            
            
            11
            
            
            
            0.0CasualtyGeneral
      liability
            
            
            5,662
            
            
            
            8.5
            
            
            
            2,632
            
            
            
            3.7Motor
      liability
            
            
            11,689
            
            
            
            17.5
            
            
            
            16,688
            
            
            
            23.2SpecialtyHealth
            
            
            21,987
            
            
            
            32.9
            
            
            
            17,379
            
            
            
            24.2Medical
      malpractice
            
            
            (1,360
            )
            (1)
            
            (2.0
            )
            
            
            4,620
            
            
            
            6.4Workers’
      compensation
            
            
            3,275
            
            
            
            4.9
            
            
            
            11,128
            
            
            
            15.5Financial
            
            
            5,372
            
            
            
            8.0
            
            
            
            —
            
            
            
            —$
            66,887
            
            
            
            100.0
            %
            
            $
            71,871
            
            
            
            100.0
            %





(1)
            The
      negative balance represents premiums returned upon commutation of a
      contract.







Gross
Premiums Written by Geographic Area of Risks Insured





Three
      months ended
              March
      31, 2010
            
            
            Three
      months ended
              March
      31, 2009($
      in thousands)
            
            
            ($
      in thousands)North
      America
            
            $
            51,863
            
            
            
            77.5
            %
            
            $
            51,267
            
            
            
            71.3
            %Worldwide
      (1)
            
            
            15,024
            
            
            
            22.5
            
            
            
            20,358
            
            
            
            28.3Caribbean
            
            
            —
            
            
            
            —
            
            
            
            246
            
            
            
            0.4$
            66,887
            
            
            
            100.0
            %
            
            $
            71,871
            
            
            
            100.0
            %





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


















16
 Table of 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 months ended March 31, 2010 and 2009 and financial condition as of March
31, 2010 and December 31, 2009. 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, 2009.





Special
Note About Forward-Looking Statements





Certain
statements in Management’s Discussion and Analysis of Financial Condition
and Results of Operations (‘‘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, 2009. 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 on 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 Holding Company, Ltd. (“Verdant”), our wholly owned subsidiary
which, among other activities, has made or may make strategic investments
in a select group of property and casualty insurers and general agents in the
United States.





Because
we 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. In addition, 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 U.S. GAAP. 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 its greater predictability.
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 our severity
business to generate higher profit margins and return on equity than those of
our frequency business.






17
 Table of contents





Outlook
and Trends





We
believe that the rebound in the financial markets during 2009 resulted in
restored financial positions in the property and casualty insurance and
reinsurance industry. As a result, we believe that underwriting capacity
has become more available in the property and casualty market which has
resulted in a delay in significant price increases for our specialty
products. In addition, the lack of large catastrophes in 2009
has preserved industry capital. Further, we believe the slowdown in
worldwide economic activity has decreased the overall demand for insurance.
Notwithstanding, price reductions from prior years appear to have slowed,
and in some areas reversed. We believe that pricing of the property
and casualty industry will be relatively flat for the near term until
insurers and reinsurers begin to realize that the current price levels are not
economically rational. Given that throughout the industry prior years'
reserve redundancies have been reduced substantially and current interest rates
are low, which limits opportunities for traditional fixed maturity investment
income, we believe the industry will eventually need to increase
pricing. However, we do not expect to see the effects of this until late
2010 or 2011. Price increases could occur earlier if financial and credit
markets experience additional adverse shocks and loss of capital of
insurers and reinsurers.





Despite
an overall less attractive marketplace, we believe that we are well positioned
to compete for 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 continue to suffer from capacity issues
even after the rebound of the financial markets during 2009.  In the first
quarter of 2010, we have seen a number of large, frequency-oriented
opportunities that we believe fit well within our business
strategy.  Attractive underwriting opportunities could increase
for us if financial and credit markets report large losses while we
maintain our financial strength. We continue to see some consolidation in the
insurance and reinsurance industry in 2010.  We believe if merger
and acquisition activity in the reinsurance industry increases
and the number of industry participants decreases we may benefit from
increased opportunities since insurers may prefer to diversify their reinsurance
placements.





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 some markets, such as subsectors of the
credit and surety markets, we believe prices are rising substantially and
reinsurance capacity is being withdrawn due to recent loss activity. In
January 2010, we entered the credit and surety markets for the first time, as we
believe recent dislocations will create above average opportunities
for profit over the near term. Property catastrophe retrocession pricing has
remained flat during first quarter of 2010. At the same time, property
catastrophe reinsurance pricing softened by an estimated 8% to 10% versus first
quarter of 2009. We believe this soft pricing is due to the increased
underwriting capacity of the industry, and in the absence of large catastrophe
events, could further soften the property catastrophe retrocessional market
later in 2010 and into 2011. If pricing softens significantly in property
catastrophe retrocessional coverage, we expect to reduce our exposures
accordingly. While it is unclear what other businesses could
be significantly affected by the current economic downturn, we believe that
opportunities are likely to arise in a number of areas, including the
following:





•   lines
of business that experience significant losses;





•   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 coverage
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.





During
the first quarter of 2010, the U.S. government passed the Health Care Reform
Bill – “Patient Protection and Affordable Care Act” which is expected to
overhaul the health care system in the U.S. We are monitoring the impact of this
Act on our business and the health care industry, but it is currently too early
to predict with certainty the magnitude of any impact, and whether the Act will
positively or negatively impact our business.





Our investment portfolio
continues to be conservatively postured in 2010 as the market appears to have
priced in a sustained economic recovery which may or may not hold. Our long
portfolio is, for the most part, invested in stable, less cyclical
businesses and three of our top five positions were initiated in
2009. We continue to hold short positions in businesses that we
believe should be fundamentally challenged, especially in a difficult economic
environment. We believe that there is a risk that the market will contract
the multiples of higher reported earnings, which we believe have
been principally supported by significant government stimulus programs
and one-time temporary inventory improvements. Given the challenging
macroeconomic environment and higher government deficits, we continue to hold a
significant position in gold and have other macro hedges in place in the
form of options on higher interest rates and some corporate and
sovereign CDS. We will continue to opportunistically evaluate
mispriced equity investments as the credit contraction continues to bear
out.





We intend
to continue monitoring both underwriting and financial 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
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, 2009, continue to describe the more significant
judgments and estimates used in the preparation of our consolidated financial
statements. These accounting policies pertain to premium revenues and risk
transfer, investments, loss and loss adjustment expense reserves, acquisition
costs, bonus accruals 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.






18
 Table of contents





Results
of Operations





Three
Months Ended March 31, 2010 and 2009





For the
three months ended March 31, 2010, we reported a net loss of $12.4 million,
as compared to a net income of $27.8 million reported for the same period in
2009. The net loss is principally due to our investment portfolio reporting
a net loss of $16.8 million, or a loss of 1.9%, for the first quarter of
2010 as compared to a net investment income of $27.7 million, or a return of
4.6%, for the same period in 2009. The underwriting income for the three
months ended March 31, 2010 was $9.3 million compared to $2.8 million for the
same period in 2009.  The increase in the underwriting income for the three
months ended March 31, 2010 was principally due to no major catastrophe losses
being reported during the period as compared to the same period in 2009, as
well as a gain reported on commutation of a severity contract during the first
quarter of 2010.





During
the three months ended March 31, 2010, the basic adjusted book value per share
decreased by $0.37 per share, or 1.9%, to $18.87 per share from $19.24 per share
at December 31, 2009. During the three months ended March 31, 2010, fully
diluted adjusted book value decreased by $0.35 per share, or 1.9%, to $18.60 per
share from $18.95 per share at December 31, 2009.





Basic
adjusted book value per share is a non-GAAP measure which excludes the
non-controlling interest in a joint venture from total shareholders' equity. In
addition, fully diluted adjusted book value per share is also a non-GAAP measure
and represents basic adjusted book value per share combined with the
impact from dilution of all in-the-money stock options issued and
outstanding as of any period end. We believe that long-term growth
in fully diluted adjusted book value per share is the most relevant measure
of our financial performance. In addition, fully diluted adjusted 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
property and casualty reinsurance industry.










March 31,
              2010
            
            
            December
      31, 2009
            
            
            September
      30, 2009
            
            
            June
      30,
              2009
            
            
            March
      31,
              2009($ in thousands)Basic adjusted and fully diluted
      adjusted book value per share
      numerator:Total shareholders'
      equity (GAAP)
            $
            716,694
            
            
            $
            729,238
            
            
            $
            648,677
            
            
            $
            614,546
            
            
            $
            520,545Less:
      Non-controlling interest in joint venture
            
            (29,517
            )
            
            
            (30,597
            )
            
            
            (8,111
            )
            
            
            (7,395
            )
            
            
            (6,388
            )Basic adjusted book
      value per share numerator
            $
            687,177
            
            
            $
            698,641
            
            
            $
            640,566
            
            
            $
            607,151
            
            
            
            514,157Add: Proceeds from in-the-money options issued and outstanding
            
            16,590
            
            
            
            16,623
            
            
            
            16,031
            
            
            
            16,642
            
            
            
            16,642Fully diluted
      adjusted book value per share numerator
            $
            703,767
            
            
            $
            715,264
            
            
            $
            656,597
            
            
            $
            623,793
            
            
            $
            530,799Basic adjusted and fully diluted adjusted
      book value per share
      denominator:Ordinary shares
      issued and outstanding for basic adjusted book value per share
      denominator
            
            36,415,902
            
            
            
            36,318,842
            
            
            
            36,308,842
            
            
            
            36,276,342
            
            
            
            36,241,141Add: In-the-money
      stock options issued and outstanding
            
            1,419,000
            
            
            
            1,421,340
            
            
            
            1,406,340
            
            
            
            1,460,840
            
            
            
            1,460,840Fully diluted
      adjusted book value per share denominator
            
            37,834,902
            
            
            
            37,740,182
            
            
            
            37,715,182
            
            
            
            37,737,182
            
            
            
            37,701,981Basic adjusted book
      value per share
            $
            18.87
            
            
            $
            19.24
            
            
            $
            17.64
            
            
            $
            16.74
            
            
            $
            14.19Fully diluted
      adjusted book value per share
            $
            18.60
            
            
            $
            18.95
            
            
            $
            17.41
            
            
            $
            16.53
            
            
            $
            14.08







Premiums
Written





Details
of gross premiums written are provided below:





Three
      months ended
              March
      31,2010
            
            
            2009($
      in thousands)Frequency
            
            $
            52,341
            
            
            
            78.3
            %
            
            $
            46,799
            
            
            
            65.1
            %Severity
            
            
            14,546
            
            
            
            21.7
            
            
            
            25,072
            
            
            
            34.9Total
            
            $
            66,887
            
            
            
            100.0
            %
            
            $
            71,871
            
            
            
            100.0
            %





We expect
quarterly reporting of premiums written to remain volatile as our underwriting
portfolio continues to develop. 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 month periods ended March 31, 2010 and 2009.
In the first quarter of 2010, we identified a new opportunity relating to credit
and surety markets (which we have classified as “Specialty – Financial” in our
line of business analysis) which accounted for $4.1 million of the increase in
frequency premiums written for the three months ended March 31, 2010. The
remaining $1.6 million of increase in frequency premiums written was the net
impact of increases in our personal lines, health, and general liability lines
partially offset by decreases in motor liability and workers' compensation
lines. The decrease in motor liability premiums resulted from the termination of
a poorly performing contract and a deteriorating motor liability market, while
the decrease in workers’ compensation lines was mainly a result of decreases in
the underlying insured policies due to the current economic
slowdown.




The
decrease in severity premiums was partially due to our decision to decrease our
participation in a property catastrophe contract due to changing market
conditions and partially due to a medical malpractice contract being
terminated and unearned premiums being returned to the ceding insurer during the
three months ended March 31, 2010. Offsetting these decreases was $1.3 million
of severity premiums written in our financial line relating to surety risk. A
detailed analysis of gross premiums written by line of business can be found in
Note 9 to the condensed consolidated financial statements.




19
 Table of contents





For
the three months ended March 31, 2010, our ceded premiums were $0.6 million
compared to $1.2 million of ceded premiums for same period in 2009. The decrease
in ceded premiums was primarily the result of decreases in health and workers’
compensation lines which were partially offset by an increase in our general
liability line. While the health premiums written increased for the three months
ended March 31, 2010, the health premiums ceded decreased. This was due to one
of our ceding insurers retaining the excess layer of coverage which in turn no
longer required us to obtain retrocession coverage of the excess layer on those
health contracts.





Details
of net premiums written are provided below:
 Three
      months ended
                March
      31,2010
              
              
              2009($
      in thousands)Frequency
              
              $
              51,763
              
              
              
              78.1
              %
              
              $
              46,053
              
              
              
              65.2
              %Severity
              
              
              14,546
              
              
              
              21.9
              
              
              
              24,598
              
              
              
              34.8Total
              
              $
              66,309
              
              
              
              100.0
              %
              
              $
              70,651
              
              
              
              100.0
              %
 
 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
              March
      31,2010
            
            
            2009($
      in thousands)Frequency
            
            $
            45,861
            
            
            
            82.9
            %
            
            $
            31,877
            
            
            
            69.0
            %Severity
            
            
            9,455
            
            
            
            17.1
            
            
            
            14,316
            
            
            
            31.0Total
            
            $
            55,316
            
            
            
            100.0
            %
            
            $
            46,193
            
            
            
            100.0
            %





Premiums
relating to quota share contracts are earned over the contract period in
proportion to the period of protection. The increase in frequency net premiums
earned is attributable principally to increased premiums earned from the health,
personal and general liability lines offset by small decreases in motor
liability and workers compensation lines, as compared to the corresponding 2009
period. Similarly the decrease in our severity earned premiums is a direct
result of the decrease in our severity underwriting portfolio for reasons
explained above.





Losses Incurred, Net





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
              March
      31,2010
            
            
            2009($
      in thousands)Frequency
            
            $
            28,717
            
            
            
            98.6
            %
            
            $
            16,978
            
            
            
            56.2
            %Severity
            
            
            418
            
            
            
            1.4
            
            
            
            13,218
            
            
            
            43.8Total
            
            $
            29,135
            
            
            
            100.0
            %
            
            $
            30,196
            
            
            
            100.0
            %








Total
losses incurred on frequency contracts continued to increase as a result of an
increase in premiums earned. Losses incurred as a percentage of premiums earned
(i.e. loss ratio) fluctuate based on the mix of business, and the favorable or
adverse development of our larger contracts. Our overall loss ratio for the
three months ended March 31, 2010 was 52.7% compared to 65.4% for the same
period in 2009. The loss ratios for our frequency business were 62.6% and 53.3%
for the three months ended March 31, 2010 and 2009, respectively. The increase
in frequency loss ratio was primarily related to our personal lines. During the
first quarter of 2010, we had no changes to our loss ratio estimates in personal
lines, however, during the first quarter of 2009 our personal lines had
reported significantly favorable loss development which had resulted in a
reversal of losses (and a lower overall frequency loss ratio) during the first
quarter of 2009. During the three months ended March 31, 2010, we also reported
higher loss ratios relating to general liability and workers’ compensation lines
which were partially offset by a decrease in our health line loss ratio.





We expect
losses incurred on our severity business to be volatile from period to period.
The loss ratios for our severity business were 4.4% and 92.3% for the three
months ended March 31, 2010 and 2009, respectively. The decrease in the loss
ratio for our severity business during the three months ended March 31, 2010 is
primarily due to the lack of losses incurred on catastrophe excess of loss
contracts during the three months ended March 31, 2010 compared to the same
period in 2009. In addition, the severity loss ratio reported for the three
months ended March 31, 2010 was unusually low due to the reversal of loss
reserves upon commutation of a medical malpractice contract during the first
quarter of 2010. Losses incurred for the three months ended March 31, 2010 can
be further broken down into losses paid and changes in loss reserves as
follows:





Three
      months ended
              March
      31, 2010
            
            
            Three
      months ended
              March
      31, 2009Gross
            
            
            Ceded
            
            
            Net
            
            
            Gross
            
            
            Ceded
            
            
            Net($
      in thousands)Losses
      paid (recovered)
            
            $
            21,566
            
            
            $
            (423)
            
            
            $
            21,143
            
            
            $
            8,372
            
            
            $
            (1,155
            )
            
            $
            7,217Change
      in reserves
            
            
            8,921
            
            
            
            (929)
            
            
            
            7,992
            
            
            
            18,317
            
            
            
            4,662
            
            
            
            22,979Total
      losses incurred
            
            $
            30,487
            
            
            $
            (1,352)
            
            
            $
            29,135
            
            
            $
            26,689
            
            
            $
            3,507
            
            
            $
            30,196







20
 Table of contents





Included
in change in reserves of $8.0 million for the three months ended March
31, 2010, were changes in prior period reinsurance
reserves primarily due to the elimination of $1.9 million loss reserves
relating to a medical malpractice contract that was commuted during the first
quarter of 2010. There were no other significant developments of prior period
reserves during the three months ended March 31, 2010.




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
              March
      31,2010
            
            
            2009($
      in thousands)Frequency
            
            $
            15,996
            
            
            
            94.6
            %
            
            $
            13,493
            
            
            
            101.9
            %Severity
            
            
            914
            
            
            
            5.4
            
            
            
            (248
            )
            
            
            (1.9
            )Total
            
            $
            16,910
            
            
            
            100.0
            %
            
            $
            13,245
            
            
            
            100.0
            %





Increased
acquisition costs for the three months ended March 31, 2010, compared to the
corresponding 2009 period are a result of the increases in premiums earned
during the period. For the three months ended March 31, 2010, the acquisition
cost ratio for frequency business was 34.9% compared to 42.3% for the
corresponding 2009 period. The lower ratio was principally due to no further
profit commissions being accrued on a personal lines contract for the three
months ended March 31, 2010, where as for the same period in 2009, a large
profit commission was recorded on this contract due to favorable loss
development. The decrease in acquisition cost ratio was also attributed to
downward swings in profit and ceding commission rates for workers’ compensation
and general liability contracts which had increases in loss ratios during the
period. These decreases in our acquisition cost ratio were partially offset by
increases in profit commission rates on health contracts which
had improved loss ratios during the period. We expect acquisition
costs to be higher for frequency business than for severity business. The
acquisition cost ratio for severity business was 9.7% for the three months ended
March 31, 2010 compared to (1.7) % for the corresponding 2009 period. The
negative acquisition cost ratio in 2009 was a result of reversal of profit
commissions previously accrued relating to an aggregate catastrophe severity
contract which reported a large loss during the three months ended March 31,
2009. In the absence of any large catastrophe losses for the three months ended
March 31, 2010, the severity acquisition cost ratio reflects the profit
commissions, ceding commissions and brokerage expenses related to our severity
contracts. The overall acquisition cost ratio for the three months ended March
31, 2010 increased to 30.6% from 28.7% for the corresponding 2009
period.





General and Administrative Expenses





Our
general and administrative expenses increased by $0.8 million to $5.1 million
for the three months ended March 31, 2010 compared to the same period in 2009.
The increase in general and administrative expenses for the three months ended
March 31, 2010 resulted mainly from higher employee costs including employee
bonuses. The general and administrative expenses for the three months ended
March 31, 2010 and 2009 include $0.9 million and $0.7 million, respectively, for
the expensing of the fair value of stock options and restricted stock granted to
employees and directors.





Net Investment (Loss) Income





A summary
of our net investment (loss) income is as follows:





Three
      months ended
              March
      31,2010
            
            
            2009($
      in thousands)Realized
      gains (losses) and movement in unrealized gains
    (losses)
            
            $
            (10,700
            )
            
            $
            33,441Interest,
      dividend and other investment income
            
            
            2,328
            
            
            
            2,808Interest,
      dividend and other investment expenses
            
            
            (5,197
            )
            
            
            (3,296
            )Investment
      advisor compensation
            
            
            (3,262
            )
            
            
            (5,236
            )Net
      investment (loss) income
            
            $
            (16,831
            )
            
            $
            27,717





For the
three months ended March 31, 2010, investment loss, net of all fees and
expenses, was 1.9% on our investment portfolio. This compares to a 4.6%
investment gain reported for the corresponding 2009 period. For the three months
ended March 31, 2010, our long portfolio’s positive returns were offset by
losses on our short portfolio, resulting in a net loss of 1.9%.





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. As of March 31, 2010, the loss carry forward balance was
$111.2 million.





Our
investment advisor, DME Advisors, LP ("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 positions held by us that are disclosed by DME Advisors or
its affiliates to their other clients.




21
 Table of contents





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.





Our
wholly owned subsidiary, 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 expected to be taxed at a rate of 35%. For the three months ended March 31,
2010, we recorded a deferred tax asset of $66,899 (December 31, 2009: $68,719)
resulting solely from the temporary differences in recognition of expenses for
tax purposes. An accrual of $15,882 (December 31, 2009: $19,529) was recorded
for current taxes payable as of March 31, 2010. Based on the timing of the
reversal of the temporary differences and likelihood of generating sufficient
taxable income to realize the future tax benefit, management believes 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. Verdant has not taken
any tax positions that are subject to uncertainty or that are reasonably likely
to have a material impact to Verdant or the Company.





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 three months ended March 31, 2010 and 2009:





Three
      months ended
              March
      31, 2010
            
            
            Three
      months ended
              March
      31, 2009Frequency
            
            
            Severity
            
            
            Total
            
            
            Frequency
            
            
            Severity
            
            
            TotalLoss
      ratio
            
            
            62.6
            %
            
            
            4.4
            %
            
            
            52.7
            %
            
            
            53.3
            %
            
            
            92.3
            %
            
            
            65.4
            %Acquisition
      cost ratio
            
            
            34.9
            %
            
            
            9.7
            %
            
            
            30.6
            %
            
            
            42.3
            %
            
            
            (1.7
            )%
            
            
            28.7
            %Composite
      ratio
            
            
            97.5
            %
            
            
            14.1
            %
            
            
            83.3
            %
            
            
            95.6
            %
            
            
            90.6
            %
            
            
            94.1
            %Internal
      expense ratio
            
            
            
            
            
            
            
            
            
            
            9.3
            %
            
            
            
            
            
            
            
            
            
            
            9.5
            %Combined
      ratio
            
            
            
            
            
            
            
            
            
            
            92.6
            %
            
            
            
            
            
            
            
            
            
            
            103.6
            %





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. Given that we opportunistically underwrite a concentrated portfolio
across several lines of business that have varying expected loss ratios, we can
expect there to be significant annual variations in the loss ratios reported
from our frequency business. In addition, the loss ratios for both frequency and
severity business can vary depending on the lines of business
written.





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





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





The
internal expense ratio is the ratio of all general and administrative expenses
to net premiums earned. We expect our internal expense ratio to decrease as we
continue to expand our underwriting operations.





The
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 (loss) income or other income into account. Given
the nature of our opportunistic underwriting strategy, we expect that our
combined ratio may be volatile from period to period.





Financial
Condition





Investments
and Due to Prime Brokers





At March
31, 2010, investments reported in the condensed consolidated balance sheets were
$901.0 million compared to $830.6 million as of December 31, 2009, an increase
of 8.5%. For the three months ended March 31, 2010, our exposure to long
investments increased from 85% as of December 31, 2009, to 96%, while our
exposure to short investments increased from 65% as of December 31, 2009, to
70%. This exposure analysis is conducted on a notional basis and does not
include cash (U.S. dollar and foreign currencies), gold, CDS, foreign
exchange options or interest rate options. The increase in our long
exposure was in part facilitated by investments purchased using leverage.
At March 31, 2010, we had an indebtedness of $112.8 million to our prime
brokers. From time to time we incur indebtedness to our prime brokers to
implement our investment strategy in accordance with our investment
guidelines. On a net basis, our invested assets decreased as a result of a
$26.7 million letter of credit being redeemed by a ceding insurer, as well
as a net investment loss of $16.8 million for the three months ended March
31, 2010. These decreases were offset by $26.1 million of funds from our
underwriting activities transferred into our investment portfolio.





Our
investment portfolio, including any derivatives, is valued at fair value and any
unrealized gains or losses are reflected in net investment (loss) income in the
condensed consolidated statements of income. As of March 31, 2010, 87.9% of
our investment portfolio (excluding restricted and unrestricted cash and
cash equivalents and due to brokers) was comprised of investments valued
based on quoted prices in actively traded markets (Level 1), 9.2% comprised of
securities valued based on observable inputs other than quoted prices (Level 2)
and 2.9% 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 March 31,
2010, $115.0 million of our investments were valued based on broker quotes, of
which $102.9 million were based on observable market information and classified
as Level 2, and $12.1 million were based on non-observable inputs and classified
as Level 3.





During
the three months ended March 31, 2010, there were no transfers between Level 1,
Level 2 and Level 3 investments. Our Level 3 investments increased
primarily as a result of private equity investments purchased during the
three months ended March 31, 2010.




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 include the use of investment manager statements and management estimates
based on third party appraisals of underlying assets for valuing private equity
investments.





22
 Table of contents




Reinsurance
Balances Receivable





At March
31, 2010, reinsurance balances receivable were $106.1 million compared to $82.7
million as of December 31, 2009, an increase of $23.4 million, or 28.3%. The
increase in the reinsurance balances receivable relates primarily to $26.7
million due from one of our ceding insurers which drew $26.7 million under a
letter of credit we had issued to the ceding insurer. At March 31, 2010, the
funds were being held in an interest-bearing segregated account. Interest on the
account accrues to our benefit.





Loss
and Loss Adjustment Expense Reserves





We
establish reserves for contracts based on estimates of the ultimate cost of all
losses including incurred but not reported reserves (“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.





Reserves
for loss and loss adjustment expenses as of March 31, 2010 and December 31, 2009
were comprised of the following:





March
      31, 2010
            
            
            December
      31, 2009Case
              Reserves
            
            
            IBNR
            
            
            Total
            
            
            Case
              Reserves
            
            
            IBNR
            
            
            Total($
      in thousands)Frequency
            
            $
            21,256
            
            
            $
            76,472
            
            
            $
            97,728
            
            
            $
            19,704
            
            
            $
            69,166
            
            
            $
            88,870Severity
            
            
            23,010
            
            
            
            25,515
            
            
            
            48,525
            
            
            
            20,472
            
            
            
            28,018
            
            
            
            48,490Total
            
            $
            44,266
            
            
            $
            101,987
            
            
            $
            146,253
            
            
            $
            40,176
            
            
            $
            97,184
            
            
            $
            137,360





The
increase in loss reserves is mainly a result of estimated losses incurred
associated with the increase in earned premiums during the three months ended
March 31, 2010. The decrease in severity IBNR reserves during the three months
ended March 31, 2010 was primarily due to the elimination of IBNR reserves
attributable to a commuted contract. For most of the contracts written as of
March 31, 2010, 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 April 30, 2010, our maximum aggregate loss exposure to any
series of natural peril events was $97.5 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)
            
            $
            58,450
            
            
            $
            97,450Europe
            
            
            46,900
            
            
            
            70,900Japan
            
            
            46,900
            
            
            
            70,900Rest
      of the world
            
            
            26,900
            
            
            
            50,900Maximum
      Aggregate
            
            
            58,450
            
            
            
            97,450





(1)             Includes
the Caribbean





Liquidity
and Capital Resources





General





We are
organized as a holding company with no operations of our own. As a holding
company we have minimal continuing cash needs, and most of such needs are
principally related to the payment of administrative expenses. All of our
underwriting operations are conducted through our sole reinsurance subsidiary,
Greenlight Reinsurance, which underwrites risks associated with our
property and casualty reinsurance programs. There are restrictions on
Greenlight Reinsurance’s ability to pay dividends which 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.





As of
March 31, 2010, the financial strength of Greenlight Reinsurance was rated “A-
(Excellent)” with a stable outlook by A.M. Best Company, Inc. ("A.M.
Best"). This rating reflects A.M. Best’s opinion of our financial strength,
operating performance and ability to meet obligations and it is not an
evaluation directed toward the protection of investors or a recommendation to
buy, sell or hold our Class A ordinary shares.








23
 Table of contents





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 fees and investment
expenses), including realized gains, and other income. We use cash from our
operations to pay losses and loss adjustment expenses, profit commissions and
general and administrative expenses. In addition, during the three months ended
March 31, 2010, $26.7 million of our cash was used to fund a letter of credit
drawn by one of our ceding insurers. 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 March 31, 2010, approximately 93.8% of our investments were comprised of
publicly-traded equity securities, actively traded debt instruments
and gold bullion which can all be readily liquidated to meet current
and future liabilities. As of March 31, 2010, the majority of our investments
were valued based on quoted prices in active markets for identical assets (Level
1). Given our value-oriented long and short investment strategy, if markets are
distressed we would expect the liability of the short portfolio to decline. Any
reduction in the liability would cause our need for restricted cash to decrease
and thereby free cash to be used for any purpose. Additionally, since the
majority of our invested assets are liquid, even in distressed markets, we
believe securities can be sold or covered to generate cash to pay claims. Since
we classify our investments as “trading,” we book all gains and losses
(including unrealized gains and losses) on all our investments (including
derivatives) in our condensed consolidated statements of income for each
reporting period.





For the
three months ended March 31, 2010, we generated an overall cash flow of $20.4
million. We generated $1.9 million in cash from operating activities primarily
as a result of net premiums collected and retained from underwriting
operations. We used $281.0 million for purchases of investments which was
facilitated by $112.8 million of funds borrowed on margin from our prime
brokers, and generated $208.7 million from proceeds of the sale of investments.
We also used $21.8 million of restricted cash and cash equivalents to support
our exposure for short investments which increased from 65% at December 31, 2009
to 70% at March 31, 2010.





We
believe we have sufficient projected cash flow from operations to meet our
foreseeable liquidity requirements. We expect that our operational needs for
liquidity will be met by cash, funds generated from future underwriting
activities, and future net investment income, including realized gains. We have
no current plans to issue debt and expect to fund our operations for the next 12
months from operating cash flow. However, we cannot provide assurances
that in the future we will not incur indebtedness to implement our business
strategy, pay claims or make acquisitions.





Although
Greenlight Capital Re, Ltd is 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 minimum net worth
requirement for Greenlight Reinsurance is $120,000. Any dividend payment would
have to be approved by the appropriate Cayman Islands regulatory authority prior
to payment. As of March 31, 2010, Greenlight Reinsurance exceeded the minimum
required net worth by $688.0 million.





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 March 31, 2010, Greenlight Reinsurance had three letter
of credit facilities as follows:


Available
            
            
            Termination
      Date
            
            Notice
      period required for termination($
      in thousands)Citibank
      N.A
            
            $
            400,000
            
            
            
            October,
      11, 2010
            
            120
      days prior to termination dateButterfield
      Bank (Cayman) Limited
            
            
            25,000
            
            
            
            June
      6, 2010
            
            30
      days prior to termination dateBank
      of America, N.A
            
            
            50,000
            
            
            
            July
      20, 2010
            
            90
      days prior to termination date$
            475,000




As of March 31, 2010, an aggregate amount of $245.2 million (December 31,
2009: $278.4 million) in letters of credit was issued from the available $475.0
million facilities. Under the letter of credit facilities, we provide collateral
that may consist of equity securities and cash equivalents. As of March 31,
2010, we had pledged an aggregate of $296.6 million (December 31, 2009: $315.2
million) of equity securities and cash equivalents as security for our letter of
credit facilities.





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 Re will be prohibited from paying dividends to us. For the three
months ended March 31, 2010, the Company was in compliance with all of the
covenants under each of these facilities.





Capital





As of
March 31, 2010, total shareholders’ equity was $716.7 million compared to $729.2
million at December 31, 2009. This decrease in total shareholders’ equity is
principally due to the net loss of $12.4 million reported during the three
months ended March 31, 2010.





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. Consequently, we do not presently anticipate that we will incur any
material indebtedness in the ordinary course of our business, apart from the
periodic indebtness provided by our prime brokers to implement our business
strategy in accordance with our investment guidelines. We currently have a Form S-3
registration statement for an aggregate principal amount of $200.0 million in
securities, 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 have not made any significant commitments for
capital expenditures during the period ended March 31, 2010.





On April
28, 2010, our shareholders approved an amendment to our stock incentive plan to
increase the number of Class A ordinary shares available for issuance from 2.0
million to 3.5 million Class A ordinary shares. At April 30, 2010, as a result
of this amendment, there were 1,539,177 Class A ordinary shares available for
future issuance.





24
 Table of contents




Contractual
Obligations and Commitments





The
following table shows our aggregate contractual obligations by time period
remaining to due date as of March 31, 2010:





Less
      than
              12
      months
            
            
            1-3
      years
            
            
            3-5
      years
            
            
            More
      than
              5
      years
            
            
            Total($
      in thousands)Operating
      lease obligations (1)
            
            $
            319
            
            
            $
            552
            
            
            $
            552
            
            
            $
            898
            
            
            $
            2,321Specialist
      service agreement
            
            
            470
            
            
            
            550
            
            
            
            —
            
            
            
            —
            
            
            
            1,020Private
      equity investments (2)
            
            
            17,110
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            17,110Loss
      and loss adjustment expense reserves (3)
            
            
            65,271
            
            
            
            52,493
            
            
            
            19,071
            
            
            
            9,418
            
            
            
            146,253$
            83,170
            
            
            $
            53,595
            
            
            $
            19,623
            
            
            $
            10,316
            
            
            $
            166,704





(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 March 31, 2010, we had made commitments of $43.8 million in private and
unlisted investments of which we have invested $26.7 million, and our remaining
commitments to these investments total $17.1 million. Given the nature of
private equity investments, we are unable to determine with any degree of
accuracy when the commitments will be called. Therefore, for purposes of the
above table, we have assumed that all commitments with no fixed payment schedule
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.





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 8 to the accompanying
condensed consolidated financial statements. Effective April 25, 2010, this
lease was terminated and we were released from all future obligations and
liabilities relating to this lease agreement.





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. We occupied
the premises in August 2009. Under the terms of the lease agreement, our minimum
annual rent payments are $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 8 to the accompanying condensed consolidated financial
statements.





We have 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, 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 8 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 terminate 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. As of March 31, 2010, the loss carry
forward balance was $111.2 million. For the three months ended March
31, 2010, a management fee of $3.3 million was paid to DME Advisors and no
performance compensation amount was accrued due to the net investment
loss.





In February 2007, the Company entered into a service agreement with DME Advisors
pursuant to which DME Advisors will provide investor relations services to us
for compensation of $5,000 per month (plus expenses). The agreement had an
initial term of one year, and will continue for sequential 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.





25
 Table of contents







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
March 31, 2010, our investment portfolio included significant 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 March 31, 2010,
a 10% decline in the price of each of these listed equity securities and
equity-based derivative instruments would result in a $12.4 million, or 1.5%,
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
March 31, 2010, 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, options and investments in securities denominated in foreign currencies,
we are also exposed to foreign currency risk. Foreign currency exchange rate
risk is the potential for adverse changes in the U.S. dollar value of
investments (long and short), speculative foreign currency options and
cash positions due to a change in the exchange rate of the foreign currency
in which cash and financial instruments are denominated. As of March
31, 2010, 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. The
following table summarizes the net impact that a 10% increase and decrease in
the value of the United States dollar against select foreign currencies would
have on the value of our investment portfolio as of March 31, 2010:





10% increase in U.S.
      dollar
            
            
            
            10%
      decrease in U.S. dollarForeign
      Currency
            
            
            Change
      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)British
      Pounds
            
            $
            (1,885
            )
            
            (0.2
            )%
            
            $
            1,885
            
            
            0.2
            %Canadian
      Dollar
            
            
            (2,552
            )
            
            (0.3
            )
            
            
            2,552
            
            
            0.3Euro
            
            
            (3,979
            )
            
            (0.5
            )
            
            
            3,979
            
            
            0.5Indian
      Rupee
            
            
            1,055
            
            
            0.1
            
            
            
            (1,055
            )
            
            (0.1
            )Japanese
      Yen
            
            
            16,768
            
            
            2.0
            
            
            
            (7,472
            )
            
            (0.9
            )Swiss
      Franc
            
            
            (3,491
            )
            
            (0.4
            )
            
            
            3,491
            
            
            0.4Other
            
            
            (765
            )
            
            (0.1
            )
            
            
            765
            
            
            0.1Total
            
            $
            5,151
            
            
            0.6
            %
            
            $
            4,145
            
            
            0.5
            %








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, CDS, 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 the
converse is also true as interest rates fall. Additionally, some of our
derivative investments may also be credit sensitive and their value may
indirectly fluctuate with changes in interest rates. 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 as of March 31,
2010:








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
            $
            (2,343
            )
            (0.28
            )%
            
            
            $
            2,371
            
            
            
            0.28
            %Credit
      default swaps
            
            (257
            )
            (0.03
            )
            
            
            
            257
            
            
            
            0.03Interest
      rate options
            
            15,853
            
            1.88
            
            
            
            
            (7,202
            )
            
            
            (0.86
            )Net
      exposure to interest rate risk
            $
            13,253
            
            1.57
            %
            
            
            $
            (4,574
            )
            
            
            (0.55
            )%








26
 Table of contents





For
the purposes of the above table, the hypothetical impact of changes in
interest rates on debt instruments, CDS, and interest
rate options was determined based on the interest rates
applicable to each instrument individually. We periodically monitor
our net exposure to interest rate risk and generally do not expect changes in
interest rates to have a materially adverse impact on our
operations.





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. We closely and regularly
monitor our concentration of credit risk with each prime broker and if
necessary, transfer cash or securities between prime brokers
to diversify and mitigate our credit risk. 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 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 March 31, 2010 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.







27
 Table of contents





PART
II — OTHER INFORMATION





Item
1. LEGAL PROCEEDINGS





From time
to time in the normal course of business, we may be involved in formal and
informal dispute resolution procedures, which may include arbitration or
litigation, the outcomes of which determine our rights and obligations under our
reinsurance contracts and other contractual agreements. In some disputes, we may
seek to enforce our rights under an agreement or to collect funds owing to us.
In other matters, we may resist attempts by others to collect funds or enforce
alleged rights. While the final outcome of legal disputes cannot be predicted
with certainty, we do not believe that any of existing disputes, when finally
resolved, will have a material adverse effect on our business, financial
condition or operating results.


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, 2009,
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 April 30, 2010, 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, 2009, 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.
As of March 31, 2010, we had repurchased 228,900 shares under the share
repurchase plan. During the three months ended March 31, 2010, there were no
repurchases of our Class A ordinary shares.





Item
3. DEFAULTS UPON SENIOR SECURITIES





None.





Item
4.REMOVED ANDRESERVED





Item
5. OTHER INFORMATION





None.





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










28
 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:
            May 3,
      2010/s/
      Tim
      CourtisName:
            Tim
      CourtisTitle:
            Chief
      Financial OfficerDate:
            May
      3, 2010











29