UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
DC 20549


________________




Form 10-Q





(Mark
      One)þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended September 30, 2008.oro
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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
            (I.R.S.
      employerincorporation
      or organization)
            identification
      no)802
      WEST BAY ROAD
            KY1-1205THE
      GRAND PAVILION
            (Zip
      code)PO
      BOX 31110GRAND
      CAYMANCAYMAN
      ISLANDS(Address
      of principal executive offices)





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





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes o     No þ





Class A
      Ordinary Shares, $.10 par value
            30,010,636(Class)
            (Outstanding
      as of November4,2008)





Table of Contents


GREENLIGHT
CAPITAL RE, LTD.


TABLE OF CONTENTS





PagePART I — FINANCIAL
      INFORMATIONItem 1.
            Financial StatementsCondensed Consolidated Balance Sheets as of
      September 30, 2008 (unaudited) and
      December 31, 2007
            2Condensed Consolidated Statements of Income for
      the Three and Nine Months Ended September 30, 2008 and 2007
      (unaudited)
            3Condensed Consolidated Statements of
      Shareholders’ Equity for the Nine Months Ended September 30, 2008 and
      2007 (unaudited)
            4Condensed Consolidated Statements of Cash Flows for the
      Nine Months Ended September 30, 2008 and 2007
      (unaudited)
            5Notes to the Condensed Consolidated Financial Statements
      (unaudited)
            6Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            16Item 3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            26Item 4T.
            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.
            Submission of Matters to a Vote of Security
      Holders
            28Item 5.
            Other Information
            30Item 6.
            Exhibits
            30SIGNATURES





Table of Contents


PART I —FINANCIAL INFORMATION


Item 1.FINANCIAL
STATEMENTS





GREENLIGHT
CAPITAL RE, LTD.


CONDENSED
CONSOLIDATED BALANCE SHEETS


September 30,
2008 and December 31, 2007


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





September 30,
                2008
                (Unaudited)
            
            
            December 31,
                2007AssetsInvestments
      in securitiesDebt
      securities, trading, at fair value
            
            $
            8,458
            
            
            $
            1,520Equity
      securities, trading, at fair value
            
            
            368,864
            
            
            
            570,440Other
      investments, at fair value
            
            
            12,165
            
            
            
            18,576Total
      investments in securities
            
            
            389,487
            
            
            
            590,536Cash
      and cash equivalents
            
            
            216,137
            
            
            
            64,192Restricted
      cash and cash equivalents
            
            
            400,360
            
            
            
            371,607Financial
      contracts receivable, at fair value
            
            
            6,323
            
            
            
            222Reinsurance
      balances receivable
            
            
            66,006
            
            
            
            43,856Loss
      and loss adjustment expense recoverables
            
            
            9,480
            
            
            
            6,721Deferred
      acquisition costs
            
            
            17,804
            
            
            
            7,302Unearned
      premiums ceded
            
            
            10,147
            
            
            
            8,744Other
      assets
            
            
            956
            
            
            
            965Total
      assets
            
            $
            1,116,700
            
            
            $
            1,094,145Liabilities
      and Shareholders’ EquityLiabilitiesSecurities
      sold, not yet purchased, at fair value
            
            $
            369,504
            
            
            $
            332,706Financial
      contracts payable, at fair value
            
            
            10,272
            
            
            
            17,746Loss
      and loss adjustment expense reserves
            
            
            68,504
            
            
            
            42,377Unearned
      premium reserves
            
            
            99,988
            
            
            
            59,298Reinsurance
      balances payable
            
            
            34,035
            
            
            
            19,140Funds
      withheld
            
            
            4,720
            
            
            
            7,542Other
      liabilities
            
            
            5,099
            
            
            
            2,869Minority
      interest in joint venture
            
            
            6,319
            
            
            
            —Performance
      compensation payable to related party
            
            
            —
            
            
            
            6,885Total
      liabilities
            
            
            598,441
            
            
            
            488,563Shareholders’
      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 30,010,636, (2007: 29,847,787); Class B: par
      value $0.10; authorized, 25,000,000; issued and outstanding, 6,254,949
      (2007: 6,254,949))
            
            
            3,627
            
            
            
            3,610Additional
      paid-in capital
            
            
            479,166
            
            
            
            476,861Retained
      earnings
            
            
            35,466
            
            
            
            125,111Total
      shareholders’ equity
            
            
            518,259
            
            
            
            605,582Total
      liabilities and shareholders’ equity
            
            $
            1,116,700
            
            
            $
            1,094,145





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 INCOME


(UNAUDITED)


For
the three and nine months ended September 30, 2008 and 2007


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





Three
      Months Ended
              September 30,
            
            
            Nine
      Months Ended
              September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007RevenuesGross
      premiums written
            
            $
            37,684
            
            
            $
            19,766
            
            
            $
            133,810
            
            
            $
            123,275Gross
      premiums ceded
            
            
            1,169
            
            
            
            (209
            )
            
            
            (13,718
            )
            
            
            (28,486
            )Net
      premiums written
            
            
            38,853
            
            
            
            19,557
            
            
            
            120,092
            
            
            
            94,789Change
      in net unearned premium reserves
            
            
            (10,256
            )
            
            
            11,155
            
            
            
            (39,321
            )
            
            
            (18,184
            )Net
      premiums earned
            
            
            28,597
            
            
            
            30,712
            
            
            
            80,771
            
            
            
            76,605Net
      investment (loss) income
            
            
            (117,809
            )
            
            
            (4,776
            )
            
            
            (92,546
            )
            
            
            707Total
      revenues
            
            
            (89,212
            )
            
            
            25,936
            
            
            
            (11,775
            )
            
            
            77,312ExpensesLoss
      and loss adjustment expenses incurred, net
            
            
            14,777
            
            
            
            11,339
            
            
            
            36,238
            
            
            
            31,465Acquisition
      costs, net
            
            
            12,204
            
            
            
            13,458
            
            
            
            31,361
            
            
            
            30,685General
      and administrative expenses
            
            
            3,452
            
            
            
            3,232
            
            
            
            11,122
            
            
            
            9,078Total
      expenses
            
            
            30,433
            
            
            
            28,029
            
            
            
            78,721
            
            
            
            71,228Net
      (loss) income before minority interest
            
            
            (119,645
            )
            
            
            (2,093
            )
            
            
            (90,496
            )
            
            
            6,084Minority
      interest in loss of joint venture
            
            
            1,212
            
            
            
            —
            
            
            
            851
            
            
            
            —Net
      (loss) income
            
            $
            (118,433
            )
            
            $
            (2,093
            )
            
            $
            (89,645
            )
            
            $
            6,084(Loss)
      earnings per shareBasic
            
            $
            (3.29
            )
            
            $
            (0.06
            )
            
            $
            (2.49
            )
            
            $
            0.21Diluted
            
            
            (3.29
            )
            
            
            (0.06
            )
            
            
            (2.49
            )
            
            
            0.21Weighted
      average number of ordinary shares used in the determination
    ofBasic
            
            
            35,995,236
            
            
            
            35,981,312
            
            
            
            35,987,778
            
            
            
            28,393,955Diluted
            
            
            35,995,236
            
            
            
            35,981,312
            
            
            
            35,987,778
            
            
            
            28,855,816





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 SHAREHOLDERS’
EQUITY


(UNAUDITED)


For
the nine months ended September 30, 2008 and 2007


(Expressed in thousands of
U.S. dollars)





September 30,
                2008
            
            
            September 30,
                2007Ordinary
      share capitalBalance —
      beginning of period
            
            $
            3,610
            
            
            $
            2,156Issue
      of Class A ordinary share capital
            
            
            17
            
            
            
            1,191Issue
      of Class B ordinary share capital
            
            
            —
            
            
            
            263Balance —
      end of period
            
            $
            3,627
            
            
            $
            3,610Additional
      paid-in capitalBalance —
      beginning of period
            
            $
            476,861
            
            
            $
            219,972Issue
      of Class A ordinary share capital
            
            
            9
            
            
            
            207,144Issue
      of Class B ordinary share capital
            
            
            —
            
            
            
            49,737IPO
      expenses
            
            
            —
            
            
            
            (2,629
            )Stock
      options and awards expense
            
            
            2,296
            
            
            
            2,233Balance —
      end of period
            
            $
            479,166
            
            
            $
            476,457Retained
      earningsBalance —
      beginning of period
            
            $
            125,111
            
            
            $
            90,039Net
      (loss) income
            
            
            (89,645
            )
            
            
            6,084Balance —
      end of period
            
            $
            35,466
            
            
            $
            96,123Total
      shareholders’ equity
            
            $
            518,259
            
            
            $
            576,190





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.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


For
the nine months ended September 30, 2008 and 2007


(Expressed
in thousands of U.S. dollars)





Nine
      Months
                Ended
      September 30,
                2008
            
            
            Nine
      Months
                Ended
      September 30,
                2007Cash
      provided by (used in)Operating
      activitiesNet
      (loss) income
            
            $
            (89,645
            )
            
            $
            6,084Adjustments
      to reconcile net (loss) income to net cash provided by (used in) operating
      activitiesNet
      change in unrealized gains and losses on securities and financial
      contracts
            
            
            166,213
            
            
            
            16,062Net
      realized gains on securities and financial contracts
            
            
            (69,605
            )
            
            
            (32,193
            )Foreign
      exchange gain on restricted cash and cash equivalents
            
            
            (7,600
            )
            
            
            (1,380
            )Minority
      interest in loss of joint venture
            
            
            851
            
            
            
            —Stock
      options and awards expense
            
            
            2,313
            
            
            
            2,233Depreciation
            
            
            30
            
            
            
            30Purchases
      of securities
            
            
            —
            
            
            
            (742,843
            )Sales
      of securities
            
            
            —
            
            
            
            731,776Change
      inRestricted
      cash and cash equivalents
            
            
            —
            
            
            
            (247,773
            )Financial
      contracts receivable, at fair value
            
            
            —
            
            
            
            (681
            )Reinsurance
      balances receivable
            
            
            (22,150
            )
            
            
            (33,757
            )Loss
      and loss adjustment expense recoverables
            
            
            (2,759
            )
            
            
            (7,462
            )Deferred
      acquisition costs
            
            
            (10,502
            )
            
            
            5,006Unearned
      premiums ceded
            
            
            (1,403
            )
            
            
            (16,207
            )Other
      assets
            
            
            (21
            )
            
            
            544Financial
      contracts payable, at fair value
            
            
            —
            
            
            
            23,773Loss
      and loss adjustment expense reserves
            
            
            26,127
            
            
            
            34,398Unearned
      premium reserves
            
            
            40,690
            
            
            
            34,448Reinsurance
      balances payable
            
            
            14,895
            
            
            
            18,128Funds
      withheld
            
            
            (2,822
            )
            
            
            5,677Other
      liabilities
            
            
            2,230
            
            
            
            183Performance
      compensation payable to related party
            
            
            (6,885
            )
            
            
            (14,474
            )Net
      cash provided by (used in) operating activities
            
            
            39,957
            
            
            
            (218,428
            )Investing
      activitiesPurchases
      of securities and financial contracts
            
            
            (1,082,866
            )
            
            
            —Sales
      of securities and financial contracts
            
            
            1,210,530
            
            
            
            —Restricted
      cash and cash equivalents
            
            
            (21,153
            )
            
            
            —Minority
      interest in joint venture
            
            
            5,468
            
            
            
            —Net
      cash provided by investing activities
            
            
            111,979
            
            
            
            —Financing
      activitiesNet
      proceeds from share issue
            
            
            —
            
            
            
            255,706Net
      proceeds from exercise of stock options
            
            
            9
            
            
            
            —Net
      cash provided by financing activities
            
            
            9
            
            
            
            255,706Net
      increase in cash and cash equivalents
            
            
            151,945
            
            
            
            37,278Cash
      and cash equivalents at beginning of the period
            
            
            64,192
            
            
            
            82,704Cash
      and cash equivalents at end of the period
            
            $
            216,137
            
            
            $
            119,982Supplementary
      informationInterest
      paid in cash
            
            $
            11,289
            
            
            $
            2,360Interest
      received in cash
            
            
            9,850
            
            
            
            10,764





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


Condensed
Consolidated Financial Statements.




5
 Table of Contents


GREENLIGHT
CAPITAL RE, LTD.


NOTESTO THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


September 30,
2008 and 2007





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. (the “Subsidiary”), provides global
specialty property and casualty reinsurance. The Subsidiary has an unrestricted
Class “B” insurance license under Section 4(2) of the Cayman Islands
Insurance Law. The Subsidiary commenced underwriting in April 2006. In August
2004, GLRE raised gross proceeds of $212.2 million from private placements
of Class A and Class B ordinary shares. In May 2007, GLRE raised
proceeds of $208.3 million, net of underwriting fees, in an initial public
offering of Class A ordinary shares as well as an additional
$50.0 million from a private placement of Class B ordinary
shares.





The
Class A ordinary shares of GLRE are listed on Nasdaq Global Select Market
under the symbol “GLRE.”





As
used herein, the “Company” refers collectively to GLRE and the
Subsidiary.





These
unaudited 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, 2007. 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 nine months ended September 30, 2008 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 the Subsidiary. All significant
intercompany transactions and balances have been eliminated on consolidation.
These condensed consolidated financial statements also include the accounts of
the joint venture created between the Company and DME Advisors, LP (“DME”)
effective January 1, 2008. Please refer to Note 6 for more details
relating to the joint venture. DME’s share of interest in the joint venture is
recorded as a minority interest.





Use
of Estimates





The
preparation of consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of income and expenses during the period. Actual results
could differ from these estimates.





Restricted
Cash and Cash Equivalents





The
Company is required to maintain cash in segregated accounts with prime brokers
and swap counterparties. The amount of restricted cash held by prime brokers is
used to support the liability created from securities sold, not yet purchased,
as well as net cash from foreign currency transactions. Cash held for the
benefit of swap counterparties is used to collateralize the current value of any
amounts that may be due to the counterparty under the swap
contract.


6
 Table of Contents


Loss
and Loss Adjustment Expense Reserves and Recoverables





The
Company establishes reserves for contracts based on estimates of the ultimate
cost of all losses including losses incurred but not reported. These estimated
ultimate reserves are based on reports received from ceding companies,
historical experience as well as the Company’s own actuarial estimates. These
estimates are reviewed periodically and adjusted when deemed necessary. Since
reserves are based on estimates, the final settlement of losses may vary from
the reserves established and any adjustments to the estimates, which may be
material, are recorded in the period they are determined.





Loss
and loss adjustment expense recoverables include the amounts due from
retrocessionaires for paid and unpaid loss and loss adjustment expenses on
retrocession agreements. Ceded losses incurred but not reported are estimated
based on the Company’s actuarial estimates. These estimates are reviewed
periodically and adjusted when deemed necessary. The Company may not be able to
ultimately recover the loss and loss adjustment expense recoverable amounts due
to the retrocessionaires’ inability to pay. The Company regularly evaluates the
financial condition of its retrocessionaires and records provisions for
uncollectible reinsurance recoverable when recovery becomes
unlikely.





Financial
Instruments





Investments
in Securities and Securities Sold, Not Yet Purchased





Effective
January 1, 2008, the Company adopted Statement of Financial Accounting
Standards (“SFAS") No. 157, “Fair Value Measurements,” which establishes a
framework for measuring fair value by creating a hierarchy of fair value
measurements based on inputs used in deriving fair values and enhances
disclosure requirements for fair value measurements. The adoption of
SFAS No. 157 had no material impact to the Company’s results of
operations or financial condition as there were no material changes in the
valuation techniques used by the Company to measure fair value. The Company’s
investments in debt and equity securities that are classified as “trading
securities” are carried at fair value. The fair values of the listed equity and
debt investments are derived based on quoted prices (unadjusted) in active
markets for identical assets (Level 1 inputs). The fair values of private
debt securities 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).





The
Company’s “Other Investments” may include investments in private equity
securities, limited partnerships, futures, 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 equity securities, where observable inputs are not
available, the fair values are derived based on unobservable inputs
(Level 3 inputs) such as management’s assumptions developed from available
information, using the services of the investment advisor. Amounts invested in
exchange traded and OTC call and put options are recorded as an asset or
liability at inception. Subsequent to initial recognition unexpired exchange
traded option contracts are recorded at fair market 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.





Premiums
and discounts on debt securities are amortized into net investment income over
the life of the security. Dividend income and expense are recorded on the
ex-dividend date. The ex-dividend date is the date as of when the underlying
security must have been traded to be eligible for the dividend declared.
Interest income and interest expense are recorded on an accrual
basis.





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





7
 Table of Contents


Financial
contracts may also include exchange traded futures contracts that are based on
the movement of a particular index. 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 from actual transactions (Level 2).





The
Company purchases and sells credit default swaps ("CDS") for the purposes of
either managing its exposure to certain investments, or for other strategic
investment purposes. A CDS is
a derivative instrument that provides protection against an investment loss due
to specified credit or default events of a reference entity. The seller of a CDS
guarantees to the buyer a specified amount if the reference entity defaults on
its obligations or fails to perform. The buyer of a CDS pays a premium over time
to the seller in exchange for obtaining this
protection. CDS
trading in an active market are valued at fair value based on broker or market
maker quotes for identical instruments in an active market (Level 2) or
based on the current credit spreads on identical contracts (Level
2).





Earnings
Per Share





Basic
earnings per share are based on weighted average ordinary shares outstanding
during the three and nine months ended September 30, 2008 and 2007 and
exclude dilutive effects of stock options and unvested stock awards. Diluted
earnings per share assumes the exercise of all dilutive stock options and stock
awards using the treasury stock method.





Three
      Months Ended
              September 30,
            
            
            Nine Months Ended
              September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Weighted
      average shares outstanding
            
            
            35,995,236
            
            
            
            35,981,312
            
            
            
            35,987,778
            
            
            
            28,393,955Effect
      of dilutive service provider stock options
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            174,800Effect
      of dilutive employee and director options and stock awards
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            287,06135,995,236
            
            
            
            35,981,312
            
            
            
            35,987,778
            
            
            
            28,855,816Anti-dilutive
      stock options and stock award outstanding
            
            
            1,878,689
            
            
            
            1,702,424
            
            
            
            1,878,689
            
            
            
            208,000








Recently
Issued Accounting Standards





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 157, “Fair Value Measurements.” SFAS No. 157
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not
require any new fair value measurements but applies whenever other standards
require or permit assets or liabilities to be measured by fair value. The
Company adopted SFAS No. 157 for its financial assets and financial
liabilities effective January 1, 2008. The adoption of
SFAS No. 157 did not have a material impact on the Company’s condensed
consolidated financial statements.





In
February 2008, the FASB approved the issuance of FASB Staff Position (“FSP”)
FAS 157-2. FSP FAS 157-2 defers the effective date of
SFAS No. 157 until January 1, 2009 for non-financial assets and
non-financial liabilities except those items recognized or disclosed at fair
value on an annual or more frequently recurring basis.




In
October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of a
Financial Asset when the Market for That Asset is Not Active."This FSP clarifies the application of FASB Statement No.
157, "Fair
Value Measurements", in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. This FSP is effective
from October 10, 2008, including prior periods for which financial statements
have not been issued. The implementation of this FSP did not have a material
impact on the Company’s results of operation or financial
position.


In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities.” SFAS No. 159 permits
entities to choose to measure eligible items at fair value at specified election
dates. For items for which the fair value option has been elected, unrealized
gains and losses are to be reported in earnings at each subsequent reporting
date. The fair value option is irrevocable unless a new election date occurs,
may be applied instrument by instrument, with a few exceptions, and applies only
to entire instruments and not to portions of instruments. SFAS No. 159
provides an opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting. The Company adopted SFAS No. 159 effective
January 1, 2008. As a result, the unrealized gains and losses on the
Company’s investments in private equity securities and limited partnerships, are
now included in net investment income in the condensed consolidated statements
of income, as opposed to other comprehensive income. The adoption of
SFAS No. 159 did not have a material impact on the Company’s condensed
consolidated financial statements except for the change in presentation of cash
flows relating to investments in the condensed consolidated statement of cash
flows as described below.





Additionally,
SFAS No. 159 amends SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” such that cash flows relating to
“trading securities” must be classified in the condensed consolidated statement
of cash flows based on the nature and purpose for which the securities were
acquired. Prior to adopting SFAS No. 159, the Company classified cash
flows relating to investments as operating activities. The Company has
determined that activities that generate investment income or loss should be
classified under investing activities to reflect the underlying nature and
purpose of the Company’s investing strategies. Therefore, upon adoption of
SFAS No. 159, the Company has classified cash flows relating to
investments in securities, restricted cash and cash equivalents, and financial
contracts receivable and payable, as investing activities. Prior period
comparatives have not been reclassified.




8
 Table of Contents






In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business
Combinations.” SFAS No. 141 (Revised) is effective for acquisitions
during the fiscal years beginning after December 15, 2008 and early
adoption is prohibited. This statement establishes principles and requirements
for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The statement also provides guidance
for recognizing and measuring the goodwill acquired in the business combination
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. Management is reviewing this guidance; however, the effect of the
statement’s implementation will depend upon the extent and magnitude of
acquisitions, if any, after December 31, 2008.





In
December 2007, the FASB issued SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements — an amendment of ARB
No. 51.” SFAS No. 160 is effective for fiscal years beginning on
or after December 15, 2008 and early adoption is prohibited. This statement
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. Management is
reviewing this guidance; however, the effect of the statement’s implementation
is not expected to be material to the Company’s results of operations or
financial position.





In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133.” SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. This statement
changes the disclosure requirements for derivative instruments and hedging
activities by requiring enhanced disclosures about how and why an entity uses
derivative instruments, how an entity accounts for the derivatives and hedged
items, and how derivatives and hedged items affect an entity’s financial
position, performance and cash flows. Management is reviewing this guidance;
however, the effect of the statement’s implementation is not expected to be
material to the Company’s derivative disclosures.





In
March 2008, the FASB issued SFAS No. 163, “Accounting for Financial
Guarantee Insurance Contracts — an interpretation of FASB Statement
No. 60.” SFAS No. 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and all interim
periods within those fiscal years. Earlier application is not permitted except
for disclosures about the risk-management activities of the insurance enterprise
which is effective for the first interim period beginning after the issuance of
SFAS No. 163. This statement requires an insurance enterprise to
recognize a claim liability prior to an insured event when there is evidence
that credit deterioration has occurred in an insured financial obligation. This
statement also clarifies how FASB Statement No. 60 applies to financial
guarantee insurance contracts, including the recognition and measurement to be
used to account for premium revenue and claim liabilities. Finally, this
statement requires expanded disclosures about financial guarantee contracts
focusing on the insurance enterprise’s risk-management activities in evaluating
credit deterioration in its insured financial obligations. The effect of
the statement’s implementation is not expected to be material to the Company’s
results of operations or financial position. As of September 30, 2008, the
Company had no financial guarantee contracts that required expanded disclosures
under this statement.




In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, "Disclosures about Credit Derivatives
and Certain Guarantees - An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161." This FSP applies to: (a) credit derivatives within
the scope of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities"; (b) hybrid instruments that
have embedded credit derivatives; and (c) guarantees within the
scope of FASB Interpretation (FIN) No. 45,"Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others."This FSP amends
Statement 133 to require disclosures by sellers of credit derivatives, including
credit derivatives embedded in a hybrid instrument. This FSP also amends FIN 45,
to require an additional disclosure about the current status of the
payment/performance risk of a guarantee. In addition, this FSP clarifies the
FASB’s intent that the disclosures required by FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities",should be provided for any
reporting period (annual or interim) beginning after November 15,
2008.  The provisions of this FSP that amend Statement 133 and FIN 45
are effective for reporting periods (annual or interim) ending after November
15, 2008. Earlier adoption is encouraged for the provisions that amend Statement
133 and FIN 45. The clarification of the effective date of Statement 161 is
effective September 12, 2008. The Company early adopted the provisions of this
FSP for the provisions that amend Statement 133 and FIN 45. As a result of
adopting this FSP, these financial statements include the disclosures
relating to credit derivatives sold by the Company.




Reclassifications







9
 Table of Contents




3.  FINANCIAL
INSTRUMENTS





Fair
Value Hierarchy





Effective
January 1, 2008, the Company adopted SFAS No. 157 and
SFAS No. 159. As a result, all of the Company’s “trading
securities” are carried at fair value, and the net unrealized gains or
losses are included in net investment income in the condensed consolidated
statements of income. For private equity securities, the unrealized gains and
losses, if any, which would have been previously recorded in other comprehensive
income, are included in net investment income in the condensed consolidated
statements of income in order to apply a consistent treatment for the Company’s
entire investment portfolio. The change in treatment resulted in no
cumulative-effect adjustment to the opening balance of retained earnings. The
fair values of the private equity securities, existing at the date the Company
adopted SFAS No. 159, remained unchanged from the carrying values of
those securities immediately prior to electing the fair value
option.




The
following table presents the Company’s investments, categorized by the level of
the fair value hierarchy as of September 30, 2008:





Fair Value Measurements as of September 30,
      2008Description
            
            Total
      as of
                September 30,
      2008
            
            
            Quoted
      Prices in
                Active
      Markets
                (Level
      1)
            
            
            SignificantOther
                Observable
                Inputs
                (Level
      2)
            
            
            Significant
                Unobservable
                Inputs
                (Level
      3)($
      in thousands)Debt
      securities
            
            $
            8,458
            
            
            $
            —
            
            
            $
            2,748
            
            
            $
            5,710Listed
      equity securities
            
            
            368,864
            
            
            
            368,864
            
            
            
            —
            
            
            
            —Private
      equity securities
            
            
            12,165
            
            
            
            —
            
            
            
            1,607
            
            
            
            10,558Financial
      contracts receivable (payable), net
            
            
            (3,949
            )
            
            
            1,421
            
            
            
            (5,370
            )
            
            
            —$
            385,538
            
            
            $
            370,285
            
            
            $
            (1,015
            )
            
            $
            16,268Listed
      equity securities, sold not yet purchased
            
            $
            (369,504
            )
            
            $
            (369,504
            )
            
            $
            —
            
            
            $
            —$
            (369,504
            )
            
            $
            (369,504
            )
            
            $
            —
            
            
            $
            —





The
following table presents the reconciliation of the balances for all investments
measured at fair value using significant unobservable inputs
(Level 3):





Fair Value Measurements Using Significant
      Unobservable Inputs (Level 3)Three Months Ended September 30,
      2008
            
            
            Nine Months Ended September 30,
      2008Debt
              Securities
            
            
            PrivateEquity
              Securities
            
            
            Total
            
            
            Debt
              Securities
            
            
            PrivateEquity
              Securities
            
            
            Total($
      in thousands)Beginning
      balance
            
            $
            3,067
            
            
            $
            6,263
            
            
            $
            9,330
            
            
            $
            865
            
            
            $
            8,115
            
            
            $
            8,980Purchases,
      sales, issuances, and settlements, net
            
            
            3,066
            
            
            
            4,066
            
            
            
            7,132
            
            
            
            5,270
            
            
            
            7,631
            
            
            
            12,901Total
      realized and unrealized gains (losses) included in earnings,
      net
            
            
            (423
            )
            
            
            229
            
            
            
            (194
            )
            
            
            (425
            )
            
            
            17
            
            
            
            (408
            )Transfers
      in and/or out of Level 3
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (5,205
            )
            
            
            (5,205
            )Ending
      balance
            
            $
            5,710
            
            
            $
            10,558
            
            
            $
            16,268
            
            
            $
            5,710
            
            
            $
            10,558
            
            
            $
            16,268





Transfers
from Level 3 represent the fair value of private equity securities of an
entity that were transferred to Level 1 when the entity’s shares were
publicly listed during the second quarter of fiscal 2008, resulting in fair
value being based on the quoted price in an active market.





For
the three and nine months ended September 30, 2008, change in unrealized
losses of $0.2 million and $0.4 million respectively, on securities
still held at the reporting date, and valued using unobservable inputs, are
included in net investment income in the condensed consolidated statements of
income. There were no realized gains or losses for the three and nine months
ended September 30, 2008, relating to securities valued using unobservable
inputs.





Other
Investments





“Other
Investments” include options as well as private equity securities for which
quoted prices in active markets are not readily available. Options are
derivative financial instruments that give the buyer, in exchange for a premium
payment, the right, but not the obligation, to either purchase from (call
option) or sell to (put option) the 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 September 30, 2008, the Company did not hold any
exchange traded or OTC options.





10
 Table of Contents




As
of September 30, 2008, the following securities were included in “Other
Investments”:




Cost
            
            
            UnrealizedGains
            
            
            UnrealizedLosses
            
            
            Fair
      MarketValue($
      in thousands)Private
      equity securities
            
            $
            13,631
            
            
            $
            285
            
            
            $
            (1,751
            )
            
            $
            12,165$
            13,631
            
            
            $
            285
            
            
            $
            (1,751
            )
            
            $
            12,165


As
of December 31, 2007, the following securities were included in “Other
Investments”:





Cost
            
            
            UnrealizedGains
            
            
            UnrealizedLosses
            
            
            Fair
      MarketValue($
      in thousands)Private
      equity securities
            
            $
            10,932
            
            
            $
            150
            
            
            $
            (247
            )
            
            $
            10,835Call
      options
            
            
            1,943
            
            
            
            776
            
            
            
            (1,409
            )
            
            
            1,310Put
      options
            
            
            2,821
            
            
            
            3,266
            
            
            
            (1,182
            )
            
            
            4,905Commodity
      futures
            
            
            —
            
            
            
            1,526
            
            
            
            —
            
            
            
            1,526$
            15,696
            
            
            $
            5,718
            
            
            $
            (2,838
            )
            
            $
            18,576





During
the nine months ended September 30, 2007, other-than-temporary impairment
losses on private equity securities of $0.3 million were reported and
included in net realized gains on securities within net investment income, in
the condensed consolidated statements of income.





Financial
Contracts Receivable and Payable








Fair
      Market Value($
      in thousands)Credit default
      swaps, purchased - Corporate debt
            
            $
            2,345Credit default
      swaps, purchased - Sovereign debt
            
            
            1,923Index linked
      futures
            
            
            1,421Total return
      swaps - Equities
            
            
            634$
            6,323








Fair
      Market Value($
      in thousands)Credit default
      swap, issued - Corporate debt
            
            $
            (5,794
            )Total return
      swaps - Equities
            
            
            (4,478
            )$
            (10,272
            )




As of
September 30, 2008, included in financial contracts payable, was a credit
default swap (CDS) issued by the Company relatingtothe
debt issued byanother
entity ("reference entity"). The CDS has a term of 5 years and a notional amount
of $14million. Under
this contract, the Company receives fees for guaranteeing the debt and in return
will be obligated to pay the notionalamountto
the counterparty if the reference entity defaults under its debt
obligations. As of
September 30, 2008, based on the assessment conducted by the Company’s
investment advisor, the risk of default does not appear to be
likely. As of
September 30, 2008, the reference entity had a financial
strength rating of (A2) and a surplus notes rating of (Baa1) from
Moody’s Investors Service. The fair market value of the CDS at September 30,
2008 was $5.8 million which was determined based on broker quotes
obtained for identical or similar contracts traded in an active market
(Level 2 inputs).




4.  RETROCESSION





The
Company utilizes retrocession agreements to reduce the risk of loss on business
assumed. At September 30, 2008, the Company had in place coverage that
provide for recovery of a portion of loss and loss expenses incurred on certain
contracts. Loss and loss adjustment expense recoverables from the
retrocessionaires are recorded as assets. For the nine months ended
September 30, 2008, loss and loss adjustment expenses incurred are net of
loss and loss expenses recovered and recoverable of $9.2 million (2007:
$9.7 million). Retrocession contracts do not relieve the Company from its
obligations to policyholders. Failure of retrocessionaires to honor their
obligations could result in losses to the Company. The Company regularly
evaluates the financial condition of its retrocessionaires. At
September 30, 2008, the Company had loss and loss adjustment expense
recoverables of $0.2 with a retrocessionaire rated “A+ (superior)” by
A.M. Best Company. At December 31, 2007, the Company had loss and loss
adjustment expense recoverables of $1.3 million with a retrocessionaire rated “A
(excellent)” by A.M. Best Company. Additionally, at September 30, 2008, the
Company had loss and loss adjustment expense recoverables of $9.3 million
(2007: $5.4 million) with two unrated retrocessionaires. At September 30,
2008, the Company retained funds and other collateral from the unrated
retrocessionaires for amounts in excess of the loss recoverable asset, and the
Company has recorded no provision for uncollectible losses
recoverable.




11
 Table of Contents





5.  SHARE
CAPITAL





On
January 10, 2007, 1,426,630 Class B ordinary shares were transferred
from Greenlight Capital Investors, LLC (“GCI”) to its underlying owners and
automatically converted into an equal number of Class A ordinary shares on
a one-for-one basis, upon transfer. The remaining Class B ordinary shares
were transferred from GCI to David Einhorn, the Chairman of the Company’s Board
of Directors and a principal shareholder of the Company, and remained as
Class B ordinary shares.





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





On
August 5, 2008, the Board adopted a share repurchase plan. Under the share
repurchase plan, the Board authorized the Company to purchase up to two million
of its Class A ordinary shares from time to time. Class A ordinary
shares may be purchased in the open market or through privately negotiated
transactions. The timing of such repurchases and actual number of shares
repurchased will depend on a variety of factors including price, market
conditions and applicable regulatory and corporate requirements. The share
repurchase plan, which expires on June 30, 2011, does not require the Company to
repurchase any specific number of shares and may be modified, suspended or
terminated at any time without prior notice. As of the date of this filing, no
Class A ordinary shares had been repurchased pursuant to the share
repurchase plan.





During
the nine months ended September 30, 2008, 141,465 (2007: 108,160)
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 vest on March 24, 2011, subject to the grantee’s continued
service with the Company.





During
the nine months ended September 30, 2008, the Company also issued to
certain directors 20,724 (2007: 13,264) restricted shares of Class A
ordinary shares as part of the directors’ remuneration. Each of these restricted
shares issued to the directors contain similar restrictions to those issued to
employees and these shares will vest on the earlier of the first anniversary of
the share issuance or the Company’s next annual general meeting, subject to the
grantee’s continued service with the Company.





During
the nine months ended September 30, 2008, 660 stock options were exercised
which had a weighted average exercise price of $13.85. For any options
exercised, the Company issues new Class A ordinary shares from the shares
authorized for issuance as part of the Company’s stock incentive plan. The
intrinsic value of options exercised during the nine months ended
September 30, 2008, was $6,067. During the nine months ended
September 30, 2007, no stock options were exercised.





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





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





During
the nine months ended September 30, 2008, the Company granted 80,000 (2007:
50,000) Class A ordinary share purchase options to the Chief Executive Officer,
pursuant to his employment contract. These options vest 25% on the date of
grant, and 25% each in 2009, 2010 and 2011. The options expire after 10 years
from grant date. The Company uses the Black-Scholes pricing model to determine
the valuation of these options and has applied the assumptions set forth in the
following table:




2008
            
            2007Risk
      free rate
            
            
            3.99
            %
            
            
            4.79
            %Estimated
      volatility
            
            
            30.00
            %
            
            
            30.00
            %Expected
      term
            
            
            10.00
            years
            
            
            10.00
            yearsDividend
      yield
            
            
            0.00
            %
            
            
            0.00
            %Weighted
      average exercise price
            
            $
            29.39
            
            
            $
            19.60







12
 Table of Contents




If
actual results differ significantly from these estimates and assumptions,
particularly in relation to management’s estimation of volatility which requires
the most judgment due to the Company’s limited operating history, share-based
compensation expense, primarily with respect to future share-based awards, could
be materially impacted.




At
the present time, the Board of Directors does not anticipate that any dividends
will be declared during the expected term of the options. The Company uses
graded vesting for expensing employee stock options. The total compensation cost
expensed for the nine months ended September 30, 2008 related to employee
and director stock options was $1.2 million (2007: $1.9 million). At September
30, 2008, the total compensation cost related to non-vested options not yet
recognized was $0.9 million (2007: $1.8 million) to be recognized over a
weighted average period of 1.2 years (2007: 1.6 years) assuming no forfeitures
given that all employees are expected to complete their service period
for vesting of the options.




Employee
and director stock option activity during the nine months ended September 30,
2008 and year ended December 31, 2007 was as follows:




Number
      ofOptions
            
            
            WeightedAverage
                ExercisePrice
            
            
            WeightedAverage
                Grant
      DateFair
      ValueBalance
      at December 31, 2006
            
            
            1,131,000
            
            
            $
            11.83
            
            
            $
            6.01Granted
            
            
            50,000
            
            
            $
            19.60
            
            
            $
            10.18Exercised
            
            
            —
            
            
            
            —
            
            
            
            —Forfeited
            
            
            (2,000
            )
            
            
            12.05
            
            
            
            6.17Expired
            
            
            —
            
            
            
            —
            
            
            
            —Balance
      at December 31, 2007
            
            
            1,179,000
            
            
            $
            12.19
            
            
            $
            6.20Granted
            
            
            80,000
            
            
            $
            29.39
            
            
            $
            8.69Exercised
            
            
            (660
            )
            
            
            13.85
            
            
            
            7.13Forfeited
            
            
            —
            
            
            
            —
            
            
            
            —Expired
            
            
            —
            
            
            
            —
            
            
            
            —Balance
      at September 30, 2008
            
            
            1,258,340
            
            
            $
            13.29
            
            
            $
            6.36




At
September 30, 2008, the weighted-average remaining contractual term for options
outstanding was 7.5 years (December 31, 2007: 8.09 years).




At
September 30, 2008, 912,000 (December 31, 2007: 553,000) stock options were
exercisable. These options had a weighted-average exercise price of $11.13
(December 31, 2007: $11.61) and a weighted-average remaining contractual term of
6.9 years (December 31, 2007: 7.9 years).




The
weighted average grant date fair value of options granted during the nine months
ended September 30, 2008, was $8.69 (year ended December 31, 2007: $10.18).
The aggregate intrinsic value of options outstanding and options exercisable at
September 30, 2008 was $12.2 million and $9.9 million, respectively
(December 31, 2007: $10.2 million and $5.1 million). During the nine months
ended September 30, 2008, 359,000 options vested (year ended December 31,
2007: 553,000).




6.  RELATED
PARTY TRANSACTIONS





Investment
Advisory Agreement





The
Company was party to an Investment Advisory Agreement (the “Investment
Agreement”) with DME until December 31, 2007. DME is a related party and an
affiliate of David Einhorn, Chairman of the Company’s Board of Directors (the
“Board”) and the beneficial owner of all of the issued and outstanding
Class B ordinary shares. Effective January 1, 2008, the Company
terminated the Investment Agreement and entered into an agreement (the “Advisory
Agreement”) wherein the Company and DME agreed to create a joint venture for the
purposes of managing certain jointly held assets. Pursuant to this agreement,
there were no changes to the monthly management fee or performance compensation
contained in the Investment Agreement.





Pursuant
to the Advisory Agreement, performance compensation equal to 20% of the net
income of the Company’s share of the account managed by DME is allocated,
subject to a loss carry forward provision, to DME’s account. Included in net
investment income for both the three months and nine months ended
September 30, 2008 is performance compensation expense of $0 (2007:
$1.2 million and $0.1 million respectively). At September 30, 2008 and
December 31, 2007, $0 and $6.9 million, respectively, remained
payable.




13
 Table of Contents





Additionally,
pursuant to the Advisory Agreement, a monthly management fee equal to 0.125%
(1.5% on an annual basis) of the Company’s share of the account managed by DME
is paid to DME. Included in the net investment income for the three months ended
September 30, 2008 are management fees of $2.6 million (2007:
$2.4 million). Included in net investment income for the nine months ended
September 30, 2008, are management fees of $7.7 million (2007:
$5.3 million). The management fees were fully paid as of September 30,
2008, and December 31, 2007.




Service
Agreement





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





7.  COMMITMENTS
AND CONTINGENCIES





Letters
of Credit





At
September 30, 2008, the Company had one letter of credit agreement for a
total facility of $400 million of which the Company had issued
$104.9 million letters of credit (December 31, 2007:
$76.5 million). In addition, a $25.0 million letter of credit
agreement with another bank was terminated on June 6, 2008; although,
letters of credit of $23.9 million issued under the agreement prior to
June 6, 2008, remain outstanding until their respective expiration dates.
At September 30, 2008, total investments and cash equivalents with a fair
market value of $248.2 million (December 31, 2007:
$148.9 million) have been pledged as security against the letters of credit
issued. Each of the credit facilities requires that the Company comply with
covenants, including restrictions on the Company’s ability to place a lien or
charge on the pledged assets, and restricts issuance of any debt without the
consent of the letter of credit provider. The Company was in compliance with all
the covenants of each of its letter of credit facilities as of
September 30, 2008.





Operating
Leases





Effective
September 1, 2005, the Company entered into a five-year non-cancelable
lease agreement to rent office space. The total rent expense charged for the
three months ended September 30, 2008 was $23,683 (2007:
$22,555).  The total rent expense charged for the nine months ended
September 30, 2008, was $70,271 (2007: $66,925).





On
July 9, 2008, the Company entered into an additional lease agreement for
new office space in the Cayman Islands. Under the terms of the lease agreement,
the Company is committed to annual rent payments ranging from $253,539 to
$311,821 starting from the earlier of December 1, 2008 or when the premises
are occupied, and ending on June 30, 2018. The Company also 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.





Specialist
Service Agreement





Effective
September 1, 2007, the Company entered into a service agreement with a
specialist whereby the specialist service provider provides administration and
support in developing and maintaining relationships, reviewing and recommending
programs and managing risks on certain specialty lines of business. The service
provider does not have any authority to bind the Company to any reinsurance
contracts. Under the terms of the agreement, the Company has committed to
quarterly payments to the service provider. If the agreement is terminated after
two years, the Company is obligated to make minimum payments for another two
years, as presented in the schedule below, to ensure any bound contracts are
adequately run-off by the service provider.





Private
Equity




The
Company periodically makes investments in private equity vehicles. As part of
the Company’s participation in such private equity securities, the Company may
make funding commitments. As of September 30, 2008, the Company had
commitments to invest an additional $20.9 million in private equity
securities.




14
 Table of Contents





Schedule
of Commitments and Contingencies





As
of September 30, 2008, the following is a schedule of future minimum
payments required under the above commitments:





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            Total($
      in thousands)Operating
      leases obligations
            
            $
            93
            
            
            $
            376
            
            
            $
            345
            
            
            $
            276
            
            
            $
            276
            
            
            $
            1,519
            
            
            $
            2,885Specialist
      service agreement
            
            
            180
            
            
            
            610
            
            
            
            400
            
            
            
            150
            
            
            
            —
            
            
            
            ––
            
            
            
            1,340Private
      equity and limited partnerships(1)
            
            
            20,868
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            20,868$
            21,141
            
            
            $
            986
            
            
            $
            745
            
            
            $
            426
            
            
            $
            276
            
            
            $
            1,519
            
            
            $
            25,093


____________





(1)
            Given
      the nature of these investments, the Company is unable to determine with
      any degree of accuracy when the remaining commitments will be called.
      Therefore, for purposes of the above table, the Company has assumed that
      all commitments will be paid within one
year.





Litigation





In
the normal course of business, the Company may become involved in various
claims, litigation and legal proceedings. As of September 30, 2008, the
Company was not a party to any litigation or arbitration
proceedings.





8.  SEGMENT
REPORTING





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





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





Gross
Premiums Written by Line of Business





Three
      MonthsEnded
      September 30,2008
            
            
            Three
      MonthsEnded
      September 30,2007
            
            
            Nine
      MonthsEnded
      September 30,2008
            
            
            Nine
      MonthsEnded
      September 30,2007($
      in millions)PropertyCommercial
      lines
            
            $
            7.5
            
            
            
            19.9
            %
            
            $
            7.5
            
            
            
            37.9
            %
            
            $
            13.6
            
            
            
            10.2
            %
            
            $
            17.6
            
            
            
            14.3
            %Personal
      lines
            
            
            0.4
            
            
            
            1.1
            
            
            
            8.7
            
            
            
            43.9
            
            
            
            (3.7
            )
            
            
            (2.8
            )
            
            
            39.5
            
            
            
            32.0


CasualtyGeneral
      liability
            
            
            2.2
            
            
            
            5.8
            
            
            
            3.0
            
            
            
            15.2
            
            
            
            12.5
            
            
            
            9.3
            
            
            
            20.0
            
            
            
            16.2Motor
      liability
            
            
            15.5
            
            
            
            41.1
            
            
            
            0.4
            
            
            
            2.0
            
            
            
            52.4
            
            
            
            39.2
            
            
            
            0.3
            
            
            
            0.3Professional
      liability
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2.1
            
            
            
            1.6
            
            
            
            27.3
            
            
            
            22.1SpecialtyHealth
            
            
            7.6
            
            
            
            20.2
            
            
            
            0.2
            
            
            
            1.0
            
            
            
            35.9
            
            
            
            26.8
            
            
            
            15.0
            
            
            
            12.2Medical
      malpractice
            
            
            1.3
            
            
            
            3.4
            
            
            
            —
            
            
            
            —
            
            
            
            8.4
            
            
            
            6.3
            
            
            
            3.6
            
            
            
            2.9Workers’
      compensation
            
            
            3.2
            
            
            
            8.5
            
            
            
            —
            
            
            
            —
            
            
            
            12.6
            
            
            
            9.4
            
            
            
            —
            
            
            
            —$
            37.7
            
            
            
            100.0
            %
            
            $
            19.8
            
            
            
            100.0
            %
            
            $
            133.8
            
            
            
            100.0
            %
            
            $
            123.3
            
            
            
            100.0
            %





Gross
Premiums Written by Geographic Area of Risks Insured





Three
      MonthsEnded
      September 30,2008
            
            
            Three
      MonthsEnded
      September 30,2007
            
            
            Nine
      MonthsEnded
      September 30,2008
            
            
            Nine
      Months EndedSeptember 30,2007($
      in millions)USA
            
            $
            27.8
            
            
            
            73.7
            %
            
            $
            9.2
            
            
            
            46.7
            %
            
            $
            114.1
            
            
            
            85.3
            %
            
            $
            75.8
            
            
            
            61.5
            %Worldwide(1)
            
            
            9.9
            
            
            
            26.3
            
            
            
            10.6
            
            
            
            53.3
            
            
            
            18.9
            
            
            
            14.1
            
            
            
            44.7
            
            
            
            36.3Europe
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2.2
            
            
            
            1.7Caribbean
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            0.8
            
            
            
            0.6
            
            
            
            0.6
            
            
            
            0.5$
            37.7
            
            
            
            100.0
            %
            
            $
            19.8
            
            
            
            100.0
            %
            
            $
            133.8
            
            
            
            100.0
            %
            
            $
            123.3
            
            
            
            100.0
            %


____________





(1)
            “Worldwide”
      risk comprise individual policies that insure risks on a worldwide
      basis.







9. 
SUBSEQUENT EVENT
 
 For
the month ended October 31, 2008, the Company's investment portfolio generated
an investment loss of 12.7%, or approximately $78.9 million, net
of all fees and expenses.


15
 Table of Contents








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





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





The
following is a discussion and analysis of our results of operations for the
three and nine months ended September 30, 2008 and 2007 and financial
condition as of September 30, 2008 and December 31, 2007. 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,
2007.





Special
Note About Forward-Looking Statements





Certain
statements in Management’s Discussion and Analysis (“MD&A”), other than
purely historical information, including estimates, projections, statements
relating to our business plans, objectives and expected operating results, and
the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. 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,
2007. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Readers are cautioned not to place undue reliance on the
forward looking statements which speak only to the dates on which they were
made.





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





General





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




owever, as part of our
opportunistic strategy, we now have the ability to selectively
evaluate opportunities relating to long-term business.





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.





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




16
 Table of Contents





Segments





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





•
            frequency
      business; and





•
            severity
      business.





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





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


Outlook
and Trends




Due to
our increasing market recognition, weexpect to
see an increase in frequency business written in 2008 compared to
2007,and
continued diversification of business by client, line of business, broker
and geography.In the
second quarter of 2008,
webelieved
there was an excess of capacity in the property and casualty reinsurance
business,primarilydue to
two consecutive years ofbelow-averagenatural
catastrophe losses.During
the third quarter of 2008, there were two hurricanes(Gustav
and Ike)that made
landfall in the United
States;preliminary
estimatesindicatetotal
industry-wide insured lossesrangefrom$15to$25
billion, but we do not expect to experience any losses from
these hurricanes.  In addition, there are anumber
of insurers and reinsurers that have had significant investment-related
issues that have createduncertainty
intheir
businesses.Finally,
we believe that the financial and credit crisis currently underway in the U.S.
and the rest of
the world has thepotentialtocausesignificant
losses in certain lines of business.While it
is too early to tell, we believe that these potential dislocations will create
opportunities for us in the near term. We intend to maintain our
underwriting discipline in the face of such potential market
conditions.
  If the
current challenges facing theinsuranceindustry
create significant dislocations, we believe we will be well positioned to
capitalize on resulting opportunities. While
itisunclear
what businesses could be most affected by the current financial and
credit issues,we
believethat
opportunities are likely to arise in two areas.  The firstarea islines of
business that havethe
potential toexperience
poor loss experience.  The secondarea
isbusinesses
where current market participants are experiencingfinancialdistress
or uncertainty.  Theselines ofbusiness
are likely to includepropertycatastrophereinsurance,propertycatastropheretrocession,generalliability,surety,directors
andofficersliability
anderrors andomissionsliability,
among others.  In addition,
webelieve
that we canalso
continue tofindattractive
opportunities in motor liability, health and medical malpractice
risks.
  Any
significant market dislocations that increasethe
pricing of certain insurance coverages could createthe need
for
insureds to retain risks and thus fuelthe
opportunity for new captives to form.  If this happens, a number of
these captives could form in the Cayman Islands, enhancing our
opportunityto
provideadditionalreinsurance
tothe
Cayman Islands' captive market.
  Our
investment strategy has been affected by the difficultiesfaced by
the overallfinancial
markets.  It
is our belief that over the past few months, the marketplace hasincreased
the risk premium on many asset classes as a result ofheadlinenewseventsincludingcorporate
failures,recent
government interventions, current economic slowdown and the ever-widening credit
crisis. We believe that when the macro economic and political uncertainties
are eventually reduced, idiosyncratic risk will again have a greater impact on
asset values than market risk.This
is a basic premise of our value oriented investment strategy.While
this has created disappointing recent results for our strategy, we believe that
this also creates long-term
opportunities
for usdue
tohigher
risk premium throughout the asset markets. We envision no changes to
our overall investment strategy.





Critical
Accounting Policies





Our
condensed consolidated financials statements are prepared in accordance with
U.S. GAAP, which requires management to make estimates and assumptions that
affect reported and disclosed amounts of assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. We believe that
the critical accounting policies set forth in our annual report on
Form 10-K for the fiscal year ended December 31, 2007, continue to
describe the more significant judgments and estimates used in the preparation of
our condensed consolidated financial statements. These accounting policies
pertain to revenue recognition, loss and loss adjustment expense reserves and
investment valuation. Effective January 1, 2008, as a result of adopting
SFAS No. 157 and SFAS No. 159, we record unrealized gains
and losses, if any, on private investments in net investment income in the
condensed consolidated statements of income. There was no material impact to our
results of operations or financial condition as a result of this change. We did
not make any material changes to our valuation techniques or models during the
period.





If
actual events differ significantly from the underlying judgments or estimates
used by management in the application of these accounting policies, there could
be a material effect on our results of operations and financial
condition.




17
 Table of Contents





Results
of Operations





For
the Three and Nine Months Ended September 30, 2008 and 2007





For
the three months ended September 30, 2008, our net loss widened by
$116.3 million as compared to the same period in 2007 mainly due to a net
investment loss of $117.8 million, a loss of 15.9%, for the third quarter
of 2008 as compared to a net investment loss of $4.8 million, a loss of
0.8%, for the third quarter of 2007. The higher investment loss reported in
2008 is primarily due to a volatile investing environment during the month of
September which was amplified by restrictions placed on short selling on U.S.
and foreign exchanges. Additionally, underwriting income decreased to
$1.6 million for the three months ended September 30, 2008, from
$5.9 million for the three months ended September 30, 2007. The
decrease in underwriting income for the three months ended September 30,
2008, was primarily due to an increase in loss and loss adjustment expenses, net
of loss recoveries.





For
the nine months ended September 30, 2008, we incurred a net loss of $89.6
million as compared to a net income of $6.1 during the same period in 2007. Our
net loss is mainly attributable to a net investment loss of $92.5 million for
the nine months ended September 30, 2008 compared to a net investment income of
$0.7 million during the same period in 2007.  Additionally, our
underwriting income decreased by $1.3 million to $13.2 million, and our general
and administrative expenses increased by $2.0 million to $11.1 million for the
nine months ended September 30, 2008.





One
of our primary financial goals is to increase the long-term value in fully
diluted book value per share. For the three months ended September 30,
2008, fully diluted book value decreased by $3.07 per share, or 17.8%, to $14.22
from $17.29 at June 30, 2008. For the nine months ended September 30,
2008, fully diluted book value decreased by $2.35 per share, or 14.2%, to $14.22
from $16.57 at December 31, 2007.





Premiums
Written





Details
of gross premiums written are provided below:





Three Months Ended
      September 30,
            
            
            Nine Months Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007($
      in thousands)Frequency
            
            $
            27,787
            
            
            
            73.7
            %
            
            $
            9,228
            
            
            
            46.7
            %
            
            $
            105,432
            
            
            
            78.8
            %
            
            $
            73,029
            
            
            
            59.2
            %Severity
            
            
            9,897
            
            
            
            26.3
            
            
            
            10,538
            
            
            
            53.3
            
            
            
            28,378
            
            
            
            21.2
            
            
            
            50,246
            
            
            
            40.8Total
            
            $
            37,684
            
            
            
            100.0
            %
            
            $
            19,766
            
            
            
            100.0
            %
            
            $
            133,810
            
            
            
            100.0
            %
            
            $
            123,275
            
            
            
            100.0
            %





We
expect quarterly reporting of premiums written to be volatile as our
underwriting portfolio continues to develop and due to our strategy to insure a
concentrated portfolio of significant risks. Additionally, the composition of
premiums written between frequency and severity business will vary from quarter
to quarter depending on the specific market opportunities that we pursue. The
volatility in premiums is reflected in the premiums written for both frequency
and severity business when comparing the three and nine month periods ended
September 30, 2008 to the same periods in 2007. For the three and nine
months ended September 30, 2008, the increase in frequency premiums related to
quota share contracts for motor liability, health, and workers’ compensation
lines of business. These increases were partially offset by a decrease in
written premiums for personal property and general liability lines when compared
to the same periods in 2007. A more detailed analysis of gross premiums written
by line of business can be found in Note 8 to the condensed consolidated
financial statements.





For
the three months ended September 30, 2008, severity premiums decreased by $0.6
million when compared to the same period in 2007. The decrease in written
premiums is the net result of timing of certain contract renewals. Specifically,
a severity contract written during September 2007 was not renewed as of
September 2008, and another severity contract written in June 2007 was renewed
in July 2008. In addition, reinstatement premiums relating to a severity
contract were recorded during the three months ended September 30, 2008. For the
nine months ended September 30, 2008, the severity premiums written decreased
$21.9 million when compared to the same period in 2007. The main
contributing factor for the lower severity premium written for the nine month
period ended September 30, 2008 is a multi-year professional liability
severity contract written in the second quarter of 2007 which was recognized as
written at inception in accordance with our accounting policy for premium
recognition.





We
ceded premiums of negative $1.2 million for the three months ended
September 30, 2008 compared to ceded premiums of $0.2 million for the same
period in 2007. The negative premiums ceded are attributed to periodic
adjustments to premium estimates on a number of retroceded frequency
contracts.





For
the nine months ended September 30, 2008, our premiums ceded decreased by
$14.8 million, or 51.8%, mainly due to frequency contracts restructured on
renewal which resulted in lower subject premiums and where we retained certain
additional risks which were previously ceded. To a lesser extent, the
adjustments to premium estimates on some frequency contracts also contributed to
the decrease in ceded premiums for the nine months ended September 30,
2008.




18
 Table of Contents




Details
of net premiums written are provided below:





Three Months Ended
      September 30,
            
            
            Nine Months Ended September,
    302008
            
            
            2007
            
            
            2008
            
            
            2007($
      in thousands)Frequency
            
            $
            28,956
            
            
            
            74.5
            %
            
            $
            9,019
            
            
            
            46.1
            %
            
            $
            91,714
            
            
            
            76.4
            %
            
            $
            44,543
            
            
            
            47.0
            %Severity
            
            
            9,897
            
            
            
            25.5
            
            
            
            10,538
            
            
            
            53.9
            
            
            
            28,378
            
            
            
            23.6
            
            
            
            50,246
            
            
            
            53.0Total
            
            $
            38,853
            
            
            
            100.0
            %
            
            $
            19,557
            
            
            
            100.0
            %
            
            $
            120,092
            
            
            
            100.0
            %
            
            $
            94,789
            
            
            
            100.0
            %





Our
severity business includes contracts that contain or may contain natural peril
loss exposure. As of November 1, 2008, our maximum aggregate loss exposure
to any series of natural peril events was $69.5 million.
For purposes of the preceding sentence, aggregate loss exposure is equal to the
difference between the aggregate limits available in the contracts that contain
natural peril exposure and reinstatement premiums for the same contracts. 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)
            
            $
            51,750
            
            
            $
            69,500Europe
            
            
            43,750
            
            
            
            51,500Japan
            
            
            43,750
            
            
            
            51,500Rest
      of the world
            
            
            23,750
            
            
            
            31,500Maximum
      Aggregate
            
            
            51,750
            
            
            
            69,500


____________





(1)
            Includes
      the Caribbean





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
      September 30,
            
            
            Nine Months Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007($
      in thousands)Frequency
            
            $
            21,042
            
            
            
            73.6
            %
            
            $
            22,390
            
            
            
            72.9
            %
            
            $
            54,338
            
            
            
            67.3
            %
            
            $
            58,807
            
            
            
            76.8
            %Severity
            
            
            7,555
            
            
            
            26.4
            
            
            
            8,322
            
            
            
            27.1
            
            
            
            26,433
            
            
            
            32.7
            
            
            
            17,798
            
            
            
            23.2Total
            
            $
            28,597
            
            
            
            100.0
            %
            
            $
            30,712
            
            
            
            100.0
            %
            
            $
            80,771
            
            
            
            100.0
            %
            
            $
            76,605
            
            
            
            100.0
            %





For
the three months ended September 30, 2008, the earned premiums on the
frequency business decreased $1.3 million or 6.0% compared to the same
period in 2007. Similarly for the nine months ended September 30, 2008, the
earned premiums on the frequency business decreased by $4.5 million or 7.6%.
Premiums relating to quota share contracts are earned over the contract period
in proportion to the period of protection. For the nine months ended September
30, 2008, several quota share contracts incepted throughout the nine month
period, whereas for the same period in 2007 the majority of earned premiums
related to one large frequency contract that was in effect for the entire nine
month period. Therefore the decreases in frequency premiums earned, when
considered in conjunction with the increases in net frequency premiums written,
indicate that a significant portion of the written premiums are to be earned
over the remaining period of the contracts.





For
the three months ended September 30, 2008, the earned premiums on the
severity business decreased $0.8 million or 9.2% compared to the same period in
2007. This decrease is mainly a result of fewer active severity contracts during
the three months ended September 30, 2008 when compared to the same period in
2007. For the nine months ended September 30, 2008, earned premiums on the
severity business increased by $8.6 million or 48.5% compared to the nine months
ended September 30, 2007. The increase is largely due to the fact that earned
premiums for the nine months ended September 30, 2008 include premiums earned
for the entire nine month period on a multi-year excess of loss contract written
towards the end of the second quarter of 2007. In addition, reinstatement
premiums written on a severity contract were earned in full for the nine months
ended September 30, 2008. Also contributing to the increase were a number of
annual severity contracts written during the second and third quarter of 2007
which earned substantially large portions of their premiums during the nine
months ended September 30, 2008, compared to the same period in
2007.




19
 Table of Contents





Losses
Incurred





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





Three Months Ended
      September 30,
            
            
            Nine Months Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007($
      in thousands)Frequency
            
            $
            5,142
            
            
            
            34.8
            %
            
            $
            9,689
            
            
            
            85.4
            %
            
            $
            19,240
            
            
            
            53.1
            %
            
            $
            28,855
            
            
            
            91.7
            %Severity
            
            
            9,635
            
            
            
            65.2
            
            
            
            1,650
            
            
            
            14.6
            
            
            
            16,998
            
            
            
            46.9
            
            
            
            2,610
            
            
            
            8.3Total
            
            $
            14,777
            
            
            
            100.0
            %
            
            $
            11,339
            
            
            
            100.0
            %
            
            $
            36,238
            
            
            
            100.0
            %
            
            $
            31,465
            
            
            
            100.0
            %





The
loss ratios for our frequency business were 35.4% and 49.1% for the nine months
ended September 30, 2008 and 2007 respectively. The lower loss ratio for
frequency business for 2008 primarily reflects favorable loss development
compared to the corresponding 2007 period.





We
expect losses incurred on our severity business to be volatile from period to
period. The loss ratios for our severity business were 64.3% and 14.7% for the
nine months ended September 30, 2008 and 2007 respectively. The increase in
the loss ratio for severity business during the nine months ended
September 30, 2008 is due to the different composition of the severity
underwriting portfolio and due to losses developing on non natural peril
severity contracts. During the nine months ended September 30, 2007, a majority
of the severity underwriting portfolio related to natural peril and professional
liability risks, while for the current nine months ended September 30,
2008, the severity contracts are diversified between medical malpractice and
professional and general liability as well as natural peril risks.





During
the nine months ended September 30, 2008, the frequency business reported
favorable loss development of prior period incurred losses of $9.6 million. For
the nine months ended September 30, 2008, unfavorable loss development on
severity business resulted in additional prior period incurred losses of$4.3
million.





Losses
incurred in the three and nine month periods ended September 30, 2008 and
2007 were comprised of losses paid and changes in loss reserves as
follows:





Three Months Ended September 30,
      2008
            
            
            Three Months Ended September 30,
      2007Gross
            
            
            Ceded
            
            
            Net
            
            
            Gross
            
            
            Ceded
            
            
            Net($
      in thousands)Losses
      paid (recovered)
            
            $
            7,469
            
            
            $
            (2,042
            )
            
            $
            5,427
            
            
            $
            4,372
            
            
            $
            (1,587
            )
            
            $
            2,785Increase
      (decrease) in reserves
            
            
            11,150
            
            
            
            (1,800
            )
            
            
            9,350
            
            
            
            10,747
            
            
            
            (2,193
            )
            
            
            8,554Total
            
            $
            18,619
            
            
            $
            (3,842
            )
            
            $
            14,777
            
            
            $
            15,119
            
            
            $
            (3,780
            )
            
            $
            11,339





Nine
      Months Ended September 30,2008
            
            
            Nine
      Months Ended September 30,2007Gross
            
            
            Ceded
            
            
            Net
            
            
            Gross
            
            
            Ceded
            
            
            Net($
      in thousands)Losses
      paid (recovered)
            
            $
            19,309
            
            
            $
            (6,451
            )
            
            $
            12,858
            
            
            $
            6,766
            
            
            $
            (2,238
            )
            
            $
            4,528Increase
      (decrease) in reserves
            
            
            26,139
            
            
            
            (2,759
            )
            
            
            23,380
            
            
            
            34,399
            
            
            
            (7,462
            )
            
            
            26,937Total
            
            $
            45,448
            
            
            $
            (9,210
            )
            
            $
            36,238
            
            
            $
            41,165
            
            
            $
            (9,700
            )
            
            $
            31,465





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
      September 30,
            
            
            Nine Months Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007($
      in thousands)Frequency
            
            $
            12,508
            
            
            
            102.5
            %
            
            $
            11,017
            
            
            
            81.9
            %
            
            $
            29,045
            
            
            
            92.6
            %
            
            $
            26,204
            
            
            
            85.4
            %Severity
            
            
            (304
            )
            
            
            (2.5
            )
            
            
            2,441
            
            
            
            18.1
            
            
            
            2,316
            
            
            
            7.4
            
            
            
            4,481
            
            
            
            14.6Total
            
            $
            12,204
            
            
            
            100.0
            %
            
            $
            13,458
            
            
            
            100.0
            %
            
            $
            31,361
            
            
            
            100.0
            %
            
            $
            30,685
            
            
            
            100.0
            %





20
 Table of Contents




For
the nine month period ended September 30, 2008, the acquisition cost ratio
for frequency business was 53.5% compared to 44.6% for the corresponding 2007
period. The increase was primarily the result of higher profit commissions
accrued on a frequency contract due to favorable underwriting results. The
acquisition cost ratio for severity business was 8.8% for the nine month period
ended September 30, 2008 compared to 25.2% for the corresponding 2007
period. The decrease in severity acquisition cost ratio is a result of
(a) lower profit commissions accrued and paid on severity contracts
during the nine months ended September 30, 2008 due to losses developing on
non-natural peril contracts, and (b) the premiums earned on certain
multi-year professional liability severity contracts which incepted in the later
part of the second quarter of 2007, had no acquisition costs associated
with them. We expect that acquisition costs will be higher for frequency
business than for severity business. Overall, the total acquisition cost ratio
decreased to 38.8% for the nine month period ended September 30, 2008 from
40.1% for the corresponding 2007 period.





General
and Administrative Expenses





For
the three month periods ended September 30, 2008 and 2007 our general and
administrative expenses were $3.5 million and $3.2 million,
respectively. The increase primarily relates to salaries, benefits, and stock
based compensation paid for additional staff hired subsequent to the third
quarter of fiscal 2007.





For
the nine month period ended September 30, 2008 the general and
administrative expenses increased by $2.0 million, or 22.5% to $11.1 million
compared to the same period in 2007. The increase primarily relates to higher
personnel costs including employee bonus accruals relating to the 2007
year.





For
the nine month periods ended September 30, 2008 and 2007, the general and
administrative expenses include $2.3 million and $2.2 million,
respectively, for the expensing of the fair value of stock options and
restricted stock granted to employees and directors.





Net
Investment Income (Loss)





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





Three
      Months EndedSeptember 30,
            
            
            Nine Months EndedSeptember 30,2008
            
            
            2007
            
            
            2008
            
            
            2007($
      in thousands)Realized losses
      and change in unrealized gains and losses, net
            
            $
            (121,075
            )
            
            $
            (6,998
            )
            
            $
            (89,008
            )
            
            $
            (5,581
            )Interest,
      dividend and other income
            
            
            4,368
            
            
            
            5,499
            
            
            
            17,308
            
            
            
            16,750Interest,
      dividend and other expenses
            
            
            (4,611
            )
            
            
            (2,103
            )
            
            
            (13,112
            )
            
            
            (5,030
            )Investment
      advisor compensation
            
            
            3,509
            
            
            
            (1,174
            )
            
            
            (7,734
            )
            
            
            (5,432
            )Net
      investment income (loss)
            
            $
            (117,809
            )
            
            $
            (4,776
            )
            
            $
            (92,546
            )
            
            $
            707





For
the three months ended September 30, 2008, investment loss, net of all fees
and expenses, resulted in a negative return of 15.9% on our investment
portfolio. This compares to a negative return of 0.8% reported for the
corresponding 2007 period. For the nine months ended September 30, 2008,
the negative return on investment, net of all fees and expenses, was 12.9%
compared to positive return of 1.6% for the first nine months of
2007.





Investment
advisor compensation for the three months ended September 30, 2008 includes
management fees of $2.6 million and a reversal of previously accrued performance
compensation of $6.1 million. The reversal of previously accrued performance
compensation is due to the year to date investment returns being negative
as a result of the net investment loss for the three months ended September 30,
2008. For the nine months ended September 30, 2008, the investment advisor
compensation includes $7.7 million in management fees and no performance
compensation.





Our
entire investment portfolio, including any derivatives, is valued at fair value
and any unrealized gains or losses are reflected in net investment income in the
consolidated statements of operations. As of September 30, 2008, 95.4% of
our investment portfolio (excluding restricted and unrestricted cash and
cash equivalents) was comprised of securities valued based on quoted prices
in actively traded markets (Level 1), and 2.1% was comprised of securities
valued based on non-observable inputs (Level 3). Non-observable inputs used by
our investment advisor include discounted cash flow models for valuing certain
corporate debt securities as well as investment manager statements and
management estimates based on third party appraisals of underlying assets for
valuing private equity investments.









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.





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 nine month periods ended September 30, 2008 and
2007:





Nine Months Ended September 30,
      2008
            
            
            Nine Months Ended September 30,
      2007Frequency
            
            
            Severity
            
            
            Total
            
            
            Frequency
            
            
            Severity
            
            
            TotalLoss
      ratio
            
            
            35.4
            %
            
            
            64.3
            %
            
            
            44.9
            %
            
            
            49.1
            %
            
            
            14.7
            %
            
            
            41.1
            %Acquisition
      cost ratio
            
            
            53.5
            %
            
            
            8.8
            %
            
            
            38.8
            %
            
            
            44.6
            %
            
            
            25.2
            %
            
            
            40.1
            %Composite
      ratio
            
            
            88.9
            %
            
            
            73.1
            %
            
            
            83.7
            %
            
            
            93.7
            %
            
            
            39.9
            %
            
            
            81.2
            %Internal
      expense ratio
            
            
            
            
            
            
            
            
            
            
            13.8
            %
            
            
            
            
            
            
            
            
            
            
            11.9
            %Combined
      ratio
            
            
            
            
            
            
            
            
            
            
            97.5
            %
            
            
            
            
            
            
            
            
            
            
            93.1
            %





The
loss ratio is calculated by dividing loss and loss adjustment expenses incurred
by net premiums earned. For the nine months ended September 30, 2008, our
frequency and severity businesses reported a loss ratio of 35.4% and 64.3%,
respectively. A more diverse mix of lines of business in our severity business
combined with losses developing on severity contracts, contributed to the higher
loss ratio for our severity business during the nine months ended
September 30, 2008 than in the corresponding 2007 period. We expect that
our loss ratio will be volatile for our severity business and may exceed that of
our frequency business in certain periods.





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





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





The
internal expense ratio is the ratio of all general and administrative expenses
to net premiums earned. We expect our internal expense ratio to decrease as we
continue to expand our underwriting operations. However, the higher internal
expense ratio reported for the nine month period ended September 30, 2008
was mainly due to higher general and administrative expenses relating to higher
personnel costs including bonus accruals. During the nine month period ended
September 30, 2008, our net earned premiums increased 5.4% while our
general and administrative expenses increased 22.5% compared to the
corresponding 2007 period, resulting in a higher internal expense
ratio.





The
combined ratio is the sum of the composite ratio and the internal expense ratio.
It measures the total profitability of our underwriting operations. This ratio
does not take net investment income into account. The reported combined ratio
for the nine month period ended September 30, 2008 was 97.5% compared to
93.1% for the same period in 2007. Given the nature of our opportunistic
underwriting strategy, we expect that our combined ratio may be volatile from
period to period.





22
 Table of Contents




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 ("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
losses.





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 use industry
information, knowledge of the business written and management’s
judgment.





Reserves
for loss and loss adjustment expenses as of September 30, 2008 and
December 31, 2007 were comprised of the following:


September 30, 2008
                
                
                December 31, 2007Case
                  Reserves
                
                
                IBNR
                
                
                Total
                
                
                Case
                  Reserves
                
                
                IBNR
                
                
                Total($
      In thousands)Frequency
                
                $
                4,053
                
                
                $
                41,277
                
                
                $
                45,330
                
                
                $
                1,712
                
                
                $
                34,477
                
                
                $
                36,189Severity
                
                
                —
                
                
                
                23,174
                
                
                
                23,174
                
                
                
                —
                
                
                
                6,188
                
                
                
                6,188Total
                
                $
                4,053
                
                
                $
                64,451
                
                
                $
                68,504
                
                
                $
                1,712
                
                
                $
                40,665
                
                
                $
                42,377
  The increase in frequency
reserves relate to the additional exposures covered during the nine months ended
September 30, 2008. This increase was partially offset by favorable loss
development on prior period frequency contracts. The increase in severity
reserves relates to the adverse loss development on prior period contracts, and
the additional exposures covered during the nine months ended September 30,
2008.




For substantially all of the contracts written as of September 30, 2008,
our risk exposure is limited by the fact that the contracts have defined limits
of liability. Once the loss limit for a contract has been reached, we have no
further exposure to additional losses from that contract. However, certain
contracts, particularly quota share contracts which relate to first dollar
exposure, may not contain aggregate limits.





Liquidity
and Capital Resources





General





We
are organized as a holding company with no operations of our own. As a holding
company, we have minimal continuing cash needs, and most of such needs are
principally related to the payment of administrative expenses. All of our
operations are conducted through our sole reinsurance subsidiary, Greenlight
Reinsurance, Ltd., which underwrites risks associated with our property and
casualty reinsurance programs. There are restrictions on Greenlight Reinsurance,
Ltd.’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 September 30, 2008, the financial strength of our reinsurance subsidiary
was rated “A- (Excellent)” by A.M. Best Company. This rating reflects the
A.M. Best Company’s opinion of our financial strength, operating
performance and ability to meet obligations and it is not an evaluation directed
toward the protection of investors or a recommendation to buy, sell or hold our
Class A ordinary shares.




23
 Table of Contents




Sources
and Uses of Funds





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





For
the nine month period ended September 30, 2008, we had a positive cash flow
of $151.9 million. We generated $40.0 million in cash from operating
activities primarily relating to net premiums collected and retained from
underwriting operations. Additionally, $112.0 million of cash was generated from
the net sale of securities and financial contracts which, as of September
30, 2008, remained in cash and was not reinvested.  As of
September 30, 2008, we believe we had sufficient projected cash flow from
operations to meet our liquidity requirements. We expect that our operational
needs for liquidity may be met by cash, funds generated from underwriting
activities and investment income, although we may seek additional funding in the
near term through issuance of equity or debt in order to enable us to increase
our capital base and continue to implement our business strategy. As of
September 30, 2008, we did not have any plans to issue equity or debt but we
cannot provide assurance that in the future we will not issue equity or incur
indebtedness to increase our capital base, implement our business strategy, pay
claims or make acquisitions, nor can we provide assurance that prevailing market
conditions would enable us to issue equity or incur indebtedness.




We
may also use available cash to repurchase our Class A ordinary shares from
time to time. Currently the Board has authorized management to repurchase up to
two million Class A ordinary shares from time to time. As of the date of
this filing, no Class A ordinary shares had been repurchased.





Although
Greenlight Capital Re, Ltd. is not subject to any significant legal prohibitions
on the payment of dividends, Greenlight Reinsurance, Ltd. is subject to Cayman
Islands regulatory constraints that affect its ability to pay dividends to
Greenlight Capital Re, Ltd. and include a minimum net worth requirement.
Currently, the statutory minimum net worth requirement for Greenlight
Reinsurance, Ltd. is $120,000. In addition to Greenlight Reinsurance, Ltd. being
restricted from paying a dividend if such a dividend would cause its net worth
to drop to less than the required minimum, any dividend payment would have to be
approved by the appropriate Cayman Islands regulatory authority prior to
payment.





Letters
of Credit





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





Greenlight
Reinsurance, Ltd. has a letter of credit facility as of September 30, 2008
of $400.0 million with Citibank, N.A. with a termination date of
October 11, 2009. The termination date is automatically extended for an
additional year unless written notice of cancellation is delivered to the other
party at least 120 days prior to the termination date.





An
additional $25.0 million letter of credit facility with UniCredit Bank
Cayman Islands Ltd. (formerly Bank Austria Cayman Islands Ltd.) was terminated
on June 6, 2008. Any letters of credit issued prior to the termination
under this facility remain in effect until their respective expiry
dates.





As
of September 30, 2008, letters of credit totaling $128.8 million were
outstanding under the above letters of credit facilities. Under these letter of
credit facilities, we are required to provide collateral that may consist of
equity securities. As of September 30, 2008, we had pledged
$248.2 million of equity securities and cash equivalents as collateral for
the above letter of credit facilities. The letter of credit facility agreements
contain various covenants that, in part, restrict Greenlight Reinsurance, Ltd.’s
ability to place a lien or charge on the pledged assets, to effect transactions
with affiliates, to enter into a merger or sell certain assets and further
restrict Greenlight Reinsurance, Ltd.’s ability to issue any debt without the
consent of the letter of credit providers. Additionally, if an event of default
exists, as defined in the credit agreements, Greenlight Reinsurance, Ltd. will
be prohibited from paying dividends. For the nine month period ended
September 30, 2008, the Company was in compliance with all of the covenants
under each of the letter of credit facility agreements. In addition to the
credit facilities described above, the Company is in the process of evaluating
additional facilities.




24
 Table of Contents





Capital





As
of September 30, 2008, total shareholders’ equity was $518.3 million
compared to $605.6 million at December 31, 2007. This decrease in
total shareholders’ equity is principally due to the net loss of
$89.6 million reported during the nine month period ended
September 30, 2008.





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 as part of our capital structure. However, we cannot
provide assurances that in the future we will not be required to raise
additional equity or incur indebtedness to implement our business strategy, pay
claims or make acquisitions. We did not make any significant capital
expenditures during the period from inception to September 30,
2008.





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





Contractual
Obligations and Commitments





The
following table shows our aggregate contractual obligations by time period
remaining to due date as of September 30, 2008:





Total
            
            
            Less
      Than1 Year
            
            
            1-3 Years
            
            
            3-5 Years
            
            
            More
      Than5 Years($
      in thousands)Operating
      leases obligations(1)
            
            $
            2,885
            
            
            $
            374
            
            
            $
            647
            
            
            $
            552
            
            
            $
            1,312Specialist
      service agreement
            
            
            1,340
            
            
            
            665
            
            
            
            675
            
            
            
            —
            
            
            
            —Private
      equity investments(2)
            
            
            20,868
            
            
            
            20,868
            
            
            
            —
            
            
            
            —
            
            
            
            —Loss
      and loss adjustment expense reserves(3)
            
            
            68,504
            
            
            
            28,676
            
            
            
            20,238
            
            
            
            9,541
            
            
            
            10,049$
            93,597
            
            
            $
            50,583
            
            
            $
            21,560
            
            
            $
            10,093
            
            
            $
            11,361


____________




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


(2)
            As
      of September 30, 2008, we had made commitments to invest a total of
      $37.5 million in private investments. As of September 30, 2008,
      we had invested $16.6 million of this amount, and our remaining
      commitments to these vehicles were $20.9 million. Given the nature of
      these investments, we are unable to determine with any degree of accuracy
      when the remaining commitments will be called. Therefore, for
      purposes of the above table, we have assumed that all commitments will be
      made within one year. Under our investment guidelines, no more
      than 10% of the assets in the investment portfolio may be held in private
      equity securities.





(3)
            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 the accompanying condensed
consolidated financial statements.





On
July 9, 2008, we signed a ten year lease agreement for new office space in
the Cayman Islands with the option to renew for an additional five year term.
The lease term is effective from July 1, 2008, and the rental payments
commence from the earlier of December 1, 2008 or when we occupy the
premises. We currently do not anticipate occupying the premises prior to
December 1, 2008. Under the terms of the lease agreement, our minimum
annual rent payments will be $253,539 for the first three years, increasing by
3% thereafter each year to reach $311,821 by the tenth year. The minimum lease
payments are included in the above table under operating lease obligations and
in the accompanying condensed consolidated financial statements.





Effective
September 1, 2007, we entered into a service agreement with a specialist
service provider whereby the specialist service provider provides administration
and support in developing and maintaining relationships, reviewing and
recommending programs and managing risks on certain specialty lines of business.
The specialist service provider does not have any authority to bind the Company
to any reinsurance contracts. Under the terms of the agreement, the Company has
committed to quarterly payments to the specialist service provider. If the
agreement is terminated after two years, the Company is obligated to make
minimum payments for another two years to ensure any bound contracts are
adequately run-off by the specialist service provider.




25
 Table of Contents





As
described above, we had one letter of credit facility as of September 30,
2008. This $400.0 million facility can be terminated by either party with
effect from any October 11, the anniversary date, by providing written
notification to the other party at least 120 days before the anniversary
date. The earliest possible termination date of this facility is
October 11, 2009.





On
January 1, 2008, we entered into an agreement wherein the Company and DME
agreed to create a joint venture for the purposes of managing certain jointly
held assets. The term of the agreement is January 1, 2008, through
December 31, 2010, with automatic three-year renewals unless either we or
DME terminate the agreement by giving 90 days notice prior to the end of
the three year term. Pursuant to this agreement, we pay a monthly management fee
of 0.125% on our share of the assets managed by DME and performance compensation
of 20% on the net income of our share of assets managed by DME subject to a loss
carryforward provision.





In
February 2007, we entered into a service agreement with DME pursuant to which
DME 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.
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 have
not participated in any 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.





Item3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





We
believe we are principally exposed to six 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 September 30, 2008, our investment portfolio
consisted primarily of long and short equity securities, along with certain
equity-based derivative instruments, the carrying values of which are primarily
based on quoted market prices. Generally, market prices of common equity
securities are subject to fluctuation, which could cause the amount to be
realized upon the closing of the position to differ significantly from the
current reported value. This risk is partly mitigated by the presence of both
long and short equity securities. As of September 30, 2008, a 10% decline
in the price of each of these listed equity securities and equity-based
derivative instruments would result in a $1.8 million, or 0.3%, decline in
the fair value of the total investment portfolio.





Computations
of the prospective effects of hypothetical equity price changes are based on
numerous assumptions, including the maintenance of the existing level and
composition of investment securities and a broad market decline which would
equally affect our entire investment portfolio 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 September 30, 2008, we have 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.




26
 Table of Contents





Through
investments in securities and cash denominated in foreign currencies, we
are exposed to foreign currency risk. Foreign currency exchange rate risk is the
potential for loss in the U.S. dollar value of investments and speculative
foreign cash positions due to a decline in the exchange rate of the foreign
currency in which the investments and cash positions are denominated. As of
September 30, 2008, our gross exposure to foreign denominated securities
and cash positions was approximately
$320.0 million. However, as of September 30, 2008, a
portion of our currency exposure resulting from these foreign denominated
securities was hedged, leadingto anet
exposure to foreign currencies of $236.3million.
As of September 30, 2008, a 10% increase in the value of the
United States dollar against select foreign currencies would result in a
$23.6 million, or 3.8%, decrease in the value of the investment portfolio.
A summary of our total net exposure to foreign currencies as of
September 30, 2008 is as follows:





Original Currency
            
            US$
      Equivalent
              Fair Value($
      in thousands)Japanese
      yen
            
            $
            69,411Swiss
      franc
            
            
            68,436European
      Union euro
            
            
            64,275Hong
      Kong dollar
            
            
            29,929South
      Korean won
            
            
            7,395Other
            
            
            5,686British
      pounds
            
            
            (8,798
            )$
            236,334





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
related hedges, and should not be relied on as indicative of future
results.





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





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 and cash in our investment portfolio are held with
several prime brokers and we have credit risk from the possibility that one or
more of them may default on their obligations to us. Other than our investment
in derivative contracts and corporate debt, if any, and the fact that our
investments 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 the values of the assets 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 permanent
measures, which may have a material adverse impact on our investment
strategy.




Item 4T.CONTROLS AND PROCEDURES.





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





There
have not been any changes in our internal control over financial reporting
during the three months ended September 30, 2008, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





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




27
 Table of Contents





PART II— OTHER INFORMATION.





Item 1.Legal
Proceedings.





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





Item 1A.  Risk Factors.





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




As
of November
4,
2008, 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, 2007, as filed with the SEC, except we
may disclose changes to such factors or disclose additional factors from time to
time in our future filings with the SEC.





Item 2.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 Class A ordinary shares. Shares may be purchased in the open
market or through privately negotiated transactions. The plan, which expires on
June 30, 2011, does not require the Company to repurchase any specific number of
shares and may be modified, suspended or terminated at any time without prior
notice. The Company has not repurchased any shares under its share repurchase
plan as of the date of this filing.


Item 3.Defaults Upon
Senior Securities.





None.





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





Annual General Meeting of
Shareholders. The Company held its 2008 Annual General
Meeting of Shareholders on July 10, 2008. Pursuant to the Company’s Third
Amended and Restated Articles of Association, each Class A ordinary share
is entitled to one vote per share and each Class B ordinary share is
entitled to ten votes per share; provided, however, that the total voting power
of the issued and outstanding Class B ordinary shares shall not exceed 9.5%
of the total voting power of all issued and outstanding ordinary shares. Since,
on the record date of the 2008 Annual Meeting of Shareholders, the total voting
power of the issued and outstanding Class B ordinary shares exceeded 9.5%
of the total voting power, the voting power of the Class B ordinary shares
was reduced with the excess being allocated to the Class A ordinary shares
in accordance with Article 53 of the Company’s Third Amended and Restated
Articles of Association.


The
following tables summarize the voting results after adjustment of voting power.
For more information on the following proposals, see the Company’s definitive
proxy statement dated June 6, 2008.





(1) The
following persons were elected Directors of Greenlight Capital Re, Ltd. by
shareholders to serve for the term expiring at the Annual General Meeting of
Shareholders in 2009.





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





28
 Table of Contents




(2) The
following persons were elected Directors of Greenlight Reinsurance, Ltd. by
shareholders to serve for the term expiring at the Annual General Meeting of
Shareholders in 2009





Director
            
            Class A
              For
            
            
            Class A
              Against
            
            
            Class A
              Abstain
            
            
            Class
      A Withheld
            
            
            Class B
              For
            
            
            Class B
              Against
            
            
            Class B
              Abstain
            
            
            Class
      B
              WithheldAlan
      Brooks
            
            
            62,899,583
            
            
            
            77,360
            
            
            
            23,198
            
            
            
            0
            
            
            
            8,793,149
            
            
            
            0
            
            
            
            0
            
            
            
            0David
      Einhorn
            
            
            62,899,583
            
            
            
            77,360
            
            
            
            23,198
            
            
            
            0
            
            
            
            8,793,149
            
            
            
            0
            
            
            
            0
            
            
            
            0Leonard
      Goldberg
            
            
            62,899,583
            
            
            
            77,360
            
            
            
            23,198
            
            
            
            0
            
            
            
            8,793,149
            
            
            
            0
            
            
            
            0
            
            
            
            0Ian
      Isaacs
            
            
            62,899,583
            
            
            
            77,360
            
            
            
            23,198
            
            
            
            0
            
            
            
            8,793,149
            
            
            
            0
            
            
            
            0
            
            
            
            0Frank
      Lackner
            
            
            62,899,583
            
            
            
            77,360
            
            
            
            23,198
            
            
            
            0
            
            
            
            8,793,149
            
            
            
            0
            
            
            
            0
            
            
            
            0Bryan
      Murphy
            
            
            62,899,583
            
            
            
            77,360
            
            
            
            23,198
            
            
            
            0
            
            
            
            8,793,149
            
            
            
            0
            
            
            
            0
            
            
            
            0Joseph
      Platt
            
            
            62,899,583
            
            
            
            77,360
            
            
            
            23,198
            
            
            
            0
            
            
            
            8,793,149
            
            
            
            0
            
            
            
            0
            
            
            
            0





(3) The
shareholders approved the amendment to Article 11 of Greenlight Capital Re,
Ltd.’s Third Amended and Restated Articles of Association by Special
Resolution.





Class A
            
            
            Class BFor
            
            
            53,628,006
            
            
            
            8,793,149Against
            
            
            7,960,427
            
            
            
            0Abstain
            
            
            1,411,708
            
            
            
            0Withheld
            
            
            0
            
            
            
            0





(4) The
shareholders ratified the appointment of BDO Seidman, LLP to serve as the
independent auditors of Greenlight Capital Re, Ltd. for 2008.





Class A
            
            
            Class BFor
            
            
            62,902,754
            
            
            
            8,793,149Against
            
            
            82,159
            
            
            
            0Abstain
            
            
            15,229
            
            
            
            0Withheld
            
            
            0
            
            
            
            0





(5) The
shareholders ratified the appointment of BDO Seidman, LLP to serve as the
independent auditors of Greenlight Reinsurance, Ltd. for 2008.





Class A
            
            
            Class BFor
            
            
            62,886,338
            
            
            
            8,793,149Against
            
            
            98,574
            
            
            
            0Abstain
            
            
            15,229
            
            
            
            0Withheld
            
            
            0
            
            
            
            0





29
 Table of Contents


Item 5.Other
Information.





None.





Item 6.Exhibits.





3.1
            Third
      Amended and Restated Memorandum and Articles of Association, as revised by
      special resolution on July 10, 2008 (incorporated by reference to Exhibit
      3.1 to the Company's Form 10-Q filed on August 7, 2008)31.1
            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





30
 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
Goldberg


Name:     Leonard
Goldberg


Title: Chief Executive Officer


Date: November
4,
2008





/s/  Tim
Courtis


Name:     Tim Courtis


Title: Chief Financial Officer


Date: November
4,
2008