We currently occupy our office space in Grand Cayman, Cayman Islands under an operating lease agreement which will expire on June 30, 2018 unless we renew the lease for an additional five year term. In addition, during 2011, GRIL entered into an operating lease agreement for office space in Dublin, Ireland which expires in 2031 but provides us an option to terminate the lease in 2016 or 2021 without any penalty. We believe that for the foreseeable future the office spaces in the Cayman Islands and Ireland will be sufficient for conducting our operations.
The following is a discussion and analysis of our results of operations for the years ended December 31, 2012, 2011 and 2010 and financial condition as of December 31, 2012 and 2011. The following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes, which appear elsewhere in this filing.
We believe the reinsurance industry in general has been, and for the foreseeable future will remain, over capitalized. Over the past year there has been an influx of new capital for peak zone catastrophe risk from alternative capital market participants such as hedge funds, pension funds and other fixed income bond managers. Additionally, we believe that the slowdown in worldwide economic activity continues to weaken the overall demand for property and casualty insurance and, accordingly, reinsurance.
Notwithstanding the foregoing, the over capitalization of the reinsurance industry may be countered by the introduction of more stringent capital requirements in the industry (particularly in Europe), the recalibration of catastrophe risk models to reflect recent catastrophic activity and a sustained low interest rate environment. We believe the introduction of Solvency II for European insurers and reinsurers may create a demand for capital and/or reinsurance solutions for some smaller and less diversified companies. The persistent low interest rate environment has reduced the earnings of many insurance and reinsurance companies and we believe, the continuation of low interest rates, coupled with the reduction of prior years' reserve redundancies, could cause the industry to adopt overall higher pricing.
We believe that we are well positioned to compete for frequency business due to our increasing market recognition, the development of strategic relationships and Greenlight Re's "A (Excellent)" rating by A.M. Best. The over capitalization of the market is not uniform. There are a number of insurers and reinsurers that have suffered and continue to suffer from capacity issues. We continue to assess the possibility of partnering with these companies.
We expect our investment portfolio will continue to be conservatively postured for 2013, with a net long position of 38.5% as of December 31, 2012. The investment environment improved in 2012 as market prices reflected reduced concern about economic uncertainty, particularly towards the end of the year. However, the U.S. economy slowed, with the fourth quarter GDP turning negative, and corporate earnings growth all but stopped. Equity markets in the U.S. and Europe are volatile due to slowing economic growth and concerns about the sustainability of monetary and fiscal policies. Given the investment environment, we anticipate, for the foreseeable future, to continue holding a combination of a significant position in gold, macro positions in the form of options on higher interest rates and foreign exchange rates, short positions in sovereign debt and sovereign credit default swaps.
Acquisition costs consist primarily of brokerage fees, ceding commissions, premium taxes, profit commissions, letters of credit fees, federal excise tax, and other direct expenses we incur that are directly related to underwriting reinsurance contracts. We amortize deferred acquisition costs over the related contract term.
For stock option expenses, we calculate compensation cost using the Black-Scholes option pricing model and expense stock options over their vesting period, which is typically three years. For restricted stock awards, we calculate compensation cost using the grant date fair value of each award and expense the stock awards over their vesting period, which is typically three years.
Case reserves are provided by our clients, and IBNR losses are estimated each reporting period based on a contract by contract review of all data available to us for each individual contract. Each of our reinsurance contracts is unique and the methods and estimates we use vary depending on the facts and circumstances of each contract. The resulting total loss reserves, including IBNR loss reserves, are the sum of each loss reserve estimated on a contract by contract basis.
We rely more on client and industry data than our own data to identify unusual trends requiring changes in reserve estimates. Each reinsurance contract is different and the degree to which we rely on client data versus our own data varies greatly from contract to contract. The extent to which we rely on client data for reserve setting purposes depends upon the availability of historical loss data from the client and our judgment as to how reliable we believe the client’s historic loss performance is compared to its current book of business. We may from time to time supplement client data with industry and competitor information where we deem appropriate. Where available, we also receive relevant actuarial reports from the client. We supplement this information with subjective information on each client, which may include management experience, competitor information, meetings with the client and supplementary industry research and data.
Generally, we obtain regular updates of premium and loss related information for the current period and historical periods, which we utilize to update our initial expected loss and loss expense ratio. There may be a time lag from when claims are reported to our client and when our client reports the claims to us. This time lag may impact our loss reserve estimates from period to period. Client reports, whether due monthly or quarterly, have set reporting dates of when they are due to us (for example, fifteen days after month end). As such, the time lag in the client’s reporting depends upon the terms of the specific
Our aggregate reserves are the sum of the point estimate of all contracts. We perform a quarterly loss reserve analysis on each contract regardless of the line of business. This analysis may incorporate some or all of the information described above, using some or all of the methodologies described above. We generally calculate IBNR loss reserves for each contract by estimating the ultimate incurred losses at any point in time and subtracting cumulative paid claims and case reserves, which incorporate specific exposures, loss payment and reporting patterns and other relevant factors. Each quarter, our reserving committee, which is comprised of our Chief Executive Officer, Chief Financial Officer, Chief Actuary, Controller and Reserving Actuary, meets to assess the adequacy of our loss reserves based on the reserve analysis and recommendations prepared by the Company’s actuaries. The reserving committee discusses each contract individually and approves or revises the stated reserves.
Bonus Accruals. Under the Company's bonus program, each employee’s target bonus consists of two components: a discretionary component based on a qualitative assessment of each employee’s performance and a quantitative component based on the return on deployed equity (‘‘RODE”) for each underwriting year relating to reinsurance operations. The qualitative portion of an employee’s annual bonus is accrued at each employee's target amount, which may differ significantly from the actual amount awarded. The quantitative portion of each employee’s annual bonus is accrued based on the expected RODE for each underwriting year and adjusted for changes in the expected RODE and actual investment return each quarter until the final quantitative bonus is calculated and paid, in annual installments, between two and four years from the end of the fiscal year in which the business was underwritten. The Compensation Committee approves all quantitative bonuses prior to being paid. The expected RODE calculation utilizes a proprietary model which requires significant estimation and judgment. Actual RODE may vary significantly from the expected RODE and any adjustments to the quantitative bonus estimates, which may be material, are recorded in the period in which they are determined.
Share-Based Payments. We have established a Stock Incentive Plan for directors, employees and consultants. U.S. GAAP requires us to recognize share-based compensation transactions using the fair value at the grant date of the award. We calculate the compensation for restricted stock awards based on the price of the Company’s common shares at the grant date and recognize the expense over the vesting period. Determining the fair value of share option awards at the grant date requires significant estimation and judgment. We use an option-pricing model (Black-Scholes pricing model) to assist in the calculation of fair value. Our shares have not been publicly traded for a sufficient length of time to reasonably estimate the expected volatility. Therefore, we have determined our expected volatility based primarily on the historical volatility of a peer group of companies in the reinsurance industry while also considering our own historical volatility in determining the expected
volatility. We typically considered factors such as an entity's industry, stage of life cycle, size and financial leverage when selecting the peer group. Additionally, we used the full life of the option, ten years, as the estimated term of the option, and we have assumed that dividends will not be paid. If actual results differ significantly from these estimates and assumptions, particularly in relation to our estimation of volatility which requires significant judgment due to our limited operating history, share-based compensation expense, primarily with respect to future share-based awards, could be materially impacted.
For the year ended December 31, 2012, we reported net income of $14.6 million, compared to net income of $6.8 million reported for the year ended December 31, 2011. Our investment portfolio reported net income of $78.9 million, or a return of 7.1%, for the year ended December 31, 2012, compared to net investment income of $23.1 million, or a return of 2.1%, for the same period in 2011. The underwriting loss before general and administrative expenses for the year ended December 31, 2012 was $42.6 million, compared to underwriting loss of $0.7 million reported for the year ended December 31, 2011. The underwriting loss included $9.7 million of underwriting loss (net of reinstatement premiums) on a 2012 catastrophe contract relating to super-storm Sandy and $9.0 million of underwriting loss on a catastrophe contract relating to the 2010 New Zealand earthquake. The adverse loss development of $40.7 million on our commercial motor contracts also contributed to the increase in underwriting loss during 2012. General and administrative expenses increased for the year ended December 31, 2012 to $17.5 million from $13.9 million for the year ended December 31, 2011, primarily as a result of higher personnel costs due to additional staff hired during 2012.
Our primary financial goal is to increase the long-term value in fully diluted adjusted book value per share. During the year ended December 31, 2012, the fully diluted adjusted book value per share increased by $0.40 per share, or 1.9%, to $22.01 per share from $21.61 per share at December 31, 2011. For the year ended December 31, 2011, the fully diluted adjusted book value per share increased by $0.22 per share, or 1.0%, to $21.61 per share from $21.39 per share at December 31, 2010.
For the year ended December 31, 2012, the basic adjusted book value per share increased by $0.41 per share, or 1.9%, to $22.39 per share from $21.98 per share at December 31, 2011. During the year ended December 31, 2011, basic adjusted book value per share increased by $0.22 per share, or 1.0%, to $21.98 per share from $21.76 per share at December 31, 2010.
We expect quarterly reporting of premiums written to be volatile as our underwriting portfolio continues to develop. Additionally, the composition of premiums written between frequency and severity business may vary from year to year depending on the specific market opportunities that we pursue.
For the year ended December 31, 2012, the frequency gross premiums increased by $24.4 million, or 6.4%, primarily as a result of increases in our motor liability and motor physical damage lines which increased by $91.3 million and $53.2 million, respectively. The motor liability line includes both commercial motor contracts as well as private automobile contracts (also referred to as non-standard automobile). The increase in motor liability line includes an increase of $143.5 million in private automobile premiums written as a result of new non-standard automobile contracts entered into during late 2011 and early 2012, offset by a decrease of $52.3 million in commercial motor premiums written as we canceled all of our commercial motor related contracts during 2012. The increase in motor physical damage premiums written was entirely related to the new non-standard automobile contracts.
The increases in premiums written for motor liability and motor physical damage lines were offset by decreases in other lines of business. The largest decrease related to personal lines which decreased $76.3 million as we novated certain of our Florida homeowners' contracts and their corresponding retroceded contracts which resulted in a $35.4 million reversal in both gross written premiums and ceded premiums. The remainder of the decrease in gross premiums written for the Florida homeowners' personal lines was principally due to contracts which were renewed during 2012, at a lower quota share percentage than the expiring contracts, and to a lesser degree due to the termination of a contract during the fourth quarter of
For the year ended December 31, 2011, the premiums written relating to frequency business decreased by $10.8 million, or 2.8%, from the year ended December 31, 2010. The decrease in premiums written is the net impact of increases in certain lines of business being more than offset by decreases in other lines. The largest increase in frequency premiums written related to motor liability line of business, which increased $31.7 million, or 57.3%, compared to the same period in 2010. The increase was primarily related to several new non-standard automobile contracts entered into during the year ended December 31, 2011. Our motor physical damage premiums also increased by $3.3 million, or 89.3%, primarily as a result of these new contracts. Our professional liability premiums increased by $13.1 million, or 170.7%, partially due to a new quota share professional indemnity contract entered into during the year ended December 31, 2011 and partially due to an existing contract which generated higher volume of premiums upon renewal compared to the prior year. Our workers’ compensation premiums written for the year ended December 31, 2011, increased by $7.4 million, or 34.3%, principally due to higher volume of premiums written on an existing multi-line contract that was renewed during 2011.
These increases were offset by decreases in premiums written related to our specialty health, personal, general liability and financial lines during the year ended December 31, 2011. Health premiums written decreased $28.0 million, or 42.0%, partly due to certain contracts not being renewed during 2011 and partly due to our clients shrinking their premium volume on underlying contracts. Premiums written for our personal line decreased by $24.5 million, or 13.7%, primarily due to a Florida homeowners’ contract commuted during the fourth quarter of 2011 as the ceding insurer underwent a restructuring and both parties agreed to terminate the relationship. The decrease from the commuted contract was partially offset by an increase in premiums written on our other Florida homeowners’ contracts. Premiums written for our general liability lines decreased $9.2 million, or 21.7%, while lower surety and trade credit premiums written decreased the financial line by $4.5 million, or 29.5%.
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 in the following table:
Premiums relating to quota share contracts are earned over the contract period in proportion to the period of protection. Similarly, incoming unearned premiums are earned in proportion to the remaining period of protection.
For the year ended December 31, 2012, the frequency premiums earned increased by $84.2 million, or 23.4%, primarily as a result of our motor liability and motor physical damage contracts which increased net premiums earned by $101.3 million and $47.1 million, respectively. The increase in motor liability line includes an increase of $132.6 million in private automobile premiums earned as a result of new non-standard automobile contracts entered into during late 2011 and early 2012, offset by a decrease of $31.3 million in commercial motor premiums earned as we canceled the multi-line contracts with commercial motor coverages during 2012. The increase in motor physical damage premiums earned was entirely related to the new non-standard automobile contracts. Our professional liability line reported $6.9 million increase in premiums earned for the year ended December 31, 2012 as the premiums for the contracts written in late 2011 were fully earned during 2012.
The increases in premiums earned on motor liability and motor physical damage lines were offset by decreases in our other lines of business. For the year ended December 31, 2012, premiums earned on our Florida homeowners' personal lines contracts decreased by $38.6 million primarily due to a contract commuted during the fourth quarter of 2011. Our general liability and workers' compensation premiums earned decreased by $7.4 million and $6.4 million, respectively, because during the fourth quarter of 2012 we canceled our multi-line contracts which included coverages for commercial motor, workers' compensation and general liability. In addition, the financial line earned premiums decreased by $8.5 million due to the commutation of a surety and trade credit contract. Our health line premiums earned decreased by $13.5 million primarily due to some health contracts not renewed during 2012, as well as lower underlying business written by our existing clients.
of 2010, a large portion of the premiums was earned during 2011 as the period of protection extended into 2011. To a lesser extent, the increase in earned premiums related to professional indemnity, motor liability (including physical damage), financial, general liability and workers’ compensation contracts, which together accounted for $31.1 million of the increase. The increase in frequency earned premiums was partially offset by a $2.5 million decrease in the specialty health line.
We establish reserves for each contract based on estimates of the ultimate cost of all losses including losses incurred but not reported. These estimated ultimate reserves are based on reports received from ceding companies, industry data and historical experience as well as our own actuarial estimates. Quarterly, we review these estimates on a contract by contract basis and adjust as we deem appropriate based on updated information and our internal actuarial estimates. We expect losses incurred on our severity business to be volatile depending on the frequency and magnitude of catastrophic events from year to year.
Losses incurred as a percentage of premiums earned (i.e. loss ratio) fluctuate based on the mix of business, and the favorable or adverse development of our larger contracts. For the years ended December 31, 2012 and 2011, the overall loss ratios for our frequency business were 77.4% and 65.7%, respectively. The increase in loss ratio was primarily attributable to an increase in loss reserves relating to the commercial motor liability contracts discussed above. Excluding the commercial motor liability contracts, the frequency loss ratios were 67.0% and 56.9% for the years ended December 31, 2012 and 2011, respectively. Notwithstanding the commercial motor liability contracts, our frequency loss ratios were negatively impacted by the change in mix of business as the Florida homeowners' earned premiums became a smaller portion of our overall business while non-standard automobile earned premiums accounted for a significantly greater portion of our business. Since the non-standard automobile line of business normally has a higher loss ratio than the homeowners' personal line, our overall frequency loss ratio increased accordingly. Another factor contributing to the increase in the frequency loss ratio for the year ended December 31, 2012 was the higher loss ratios for some of our Florida homeowners' contracts impacted by sinkhole losses and damage caused by hurricane Isaac and tropical storm Debby during 2012.
The loss ratios for our severity business were 25.4% and (4.3)% for the years ended December 31, 2011 and 2010, respectively. The increase in the severity loss ratio for the year ended December 31, 2011, was primarily due to a full limit loss of $5.0 million on a natural peril contract resulting from the 2011 New Zealand earthquake. Additionally, loss reserves relating to the 2010 New Zealand earthquake which were reported and recorded in 2011, also contributed to the increase in the severity loss ratio. The negative severity loss ratio for the year ended December 31, 2010 was primarily due to the absence of any major catastrophe losses and, to a lesser extent, due to net favorable loss development of $6.0 million on prior year severity contracts.
For the year ended December 31, 2012, the increase in ceded reserves of $4.9 million was primarily related to the retrocession of multi-line frequency casualty contracts which experienced adverse loss development during 2012.
$21.9 million of adverse loss development, net of retrocesssion recoveries, relating to commercial motor liability exposures that are currently in run-off on two multi-line quota share contracts. Since these contracts are less mature than our other commercial motor liability contract, there is more uncertainty as to the ultimate losses to be paid. As a result we have recorded loss reserves for the commercial motor portion of these
contracts consistent with the loss ratio recorded for the more mature commercial motor contract. Loss reserves were increased on these contracts after extensive review of existing claims data, our previous experience with commercial motor liability business and actuarial analysis based on data received from third party claims handlers and the client;
Adverse loss development of $9.7 million, net of recoveries from related retroceded contracts, on multi-line quota share contracts based on data received from the clients and a reassessment in connection with our quarterly reserve analysis which indicated higher large loss activity on the accounts than originally expected;
Elimination of $1.9 million of reserves held on a medical malpractice contract commuted during 2010;
Favorable loss development of $1.4 million in aggregate, on two 2007 professional liability excess of loss contracts, based on data received from the clients and a reassessment in connection with our quarterly reserve analysis; and
We expect that acquisition costs will be higher for frequency business than for severity business. For the years ended December 31, 2012, 2011 and 2010, the acquisition cost ratios for frequency business were 31.4%, 37.4% and 36.7%, respectively. The acquisition cost ratios for severity business were 14.0%, 20.9% and 26.3% for the years ended December 31, 2012, 2011 and 2010, respectively. Overall, our total acquisition cost ratios were 30.6%, 36.5%, and 35.7% for the years ended December 31, 2012, 2011 and 2010.
Our general and administrative expenses for the years ended December 31, 2012, 2011 and 2010, were $17.5 million, $13.9 million, and $16.2 million, respectively. General and administrative expenses for the years ended December 31, 2012, 2011 and 2010 included $3.7 million, $2.9 million and $4.1 million, respectively, for the expensing of the fair value of stock options and restricted stock granted to employees and directors.
For the year ended December 31, 2011, the decrease in general and administrative expenses of $2.3 million, related primarily to a decrease in employee bonus accruals as a result of a decrease in underwriting results, and to a lesser extent related to lower share based compensation expense for the year ended December 31, 2011. The decrease in share based compensation expense was primarily due to a $1.1 million reversal of share based compensation expense relating to forfeited restricted shares and stock options upon retirement of our former chief executive officer. The decrease was partially offset by an increase in salaries and benefits expenses (excluding bonus) resulting from the addition of six new employees during 2011.
For the years ended December 31, 2012, 2011 and 2010, the gross investment returns (excluding investment advisor fees) were 9.0%, 2.7% and 12.5%, respectively, and were comprised of the following:
For the year ended December 31, 2012, included in investment advisor compensation was $16.9 million (2011: $15.2 million, 2010: $13.4 million) relating to management fees paid to DME Advisors and $18.8 million (2011: $5.4 million, 2010: $12.9 million) relating to performance allocation in accordance with the advisory agreement with DME Advisors.
As of December 31, 2012, a deferred tax asset of $0.1 million (2011: $0.1 million) resulting solely from the temporary differences in recognition of expenses for tax purposes was included in other assets on the consolidated balance sheets. As of December 31, 2012, an accrual for current taxes payable of $0.3 million (2011: $0.2 million) was recorded in other liabilities on the consolidated balance sheets. Based on the timing of the reversal of the temporary differences and likelihood of generating sufficient taxable income to realize the future tax benefit, management believes it is more likely than not that the deferred tax asset will be fully realized in the future and therefore no valuation allowance has been recorded. The Company has not taken any tax positions that are subject to uncertainty or that are reasonably likely to have a material impact to the Company, GRIL or Verdant.
Our investment portfolio, including any derivatives, is valued at fair value and any unrealized gains or losses are reflected in net investment income (loss) in the consolidated statements of income. As of December 31, 2012, 85.3% (2011: 86.3%) of our investment portfolio (excluding restricted and unrestricted cash and cash equivalents) was comprised of investments valued based on quoted prices in actively traded markets (Level 1), 12.9% (2011: 11.9%) was comprised of securities valued based on observable inputs other than quoted prices (Level 2) and 1.8% (2011: 1.8%) was comprised of securities valued based on non-observable inputs (Level 3).
During the year ended December 31, 2012, equity securities with a fair value of $5.0 million on the date of transfer, were transferred from Level 3 classification. These securities became publicly listed and commenced trading on an exchange during 2012. However, due to a lock-up period, the securities held in our investment portfolio may be restricted from being traded for a specified period which varies by security. Therefore, a discount factor is applied to determine the fair value of these securities and these securities are classified as Level 2. When the trading restrictions expire, these securities are transfered to Level 1 classification. During the year ended December 31, 2012, $32.4 million, respectively, of securities at fair value based on the date of transfer, were transferred from Level 2 to Level 1 as the lock-up periods on those securities expired and a discount factor was no longer applied in determining the fair value of these securities. A detailed reconciliation of Level 3 investments is presented in Note 3 of the accompanying consolidated financial statements. No other transfers into or out of Level 3 took place during the year ended December 31, 2012.
As of December 31, 2012, our securities sold, not yet purchased increased by $224.6 million, or 32.8%, to $908.4 million from $683.8 million at December 31, 2011, as we increased the number and size of short positions and increased the short exposure in our portfolio from 52% to 64%. As of December 31, 2012, the restricted cash included $910.0 million relating to collateral for securities sold, not yet purchased compared to $684.0 million as of December 31, 2011. Overall our restricted cash increased by $249.4 million, or 26.0%, from $957.5 million to $1,206.8 million, primarily as a result of needing more collateral to support the overall increase in securities sold, not yet purchased.
than the expected future claims and expenses. If a loss is probable on the unexpired portion of policies in force, a premium deficiency loss is recognized. As of December 31, 2012, we believe that the deferred acquisition costs were fully recoverable and no premium deficiency loss was recorded.
Loss and Loss Adjustment Expense Reserves; Loss and Loss Expenses Recoverable
Our severity business includes contracts that contain or may contain natural peril loss exposure. As of January 31, 2013, our maximum aggregate loss exposure to any series of natural peril events was $118.7 million. For purposes of the preceding sentence, aggregate loss exposure is net of any retrocession and is equal to the difference between the aggregate limits available in the contracts that contain natural peril exposure minus reinstatement premiums, if any, 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:
Greenlight Capital Re is organized as a holding company with no operations of its own. As a holding company, Greenlight Capital Re has minimal continuing cash needs, most of which are related to the payment of administrative expenses. All of our underwriting operations are conducted through our wholly-owned reinsurance subsidiaries, Greenlight Re and GRIL, which underwrite risks associated with our property and casualty reinsurance programs. There are restrictions on each of Greenlight Re’s and GRIL’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 December 31, 2012, Greenlight Re was rated “A (Excellent)” with a stable outlook, while GRIL was rated "A- (Excellent)" with a stable outlook, each by A.M. Best. The ratings reflect A.M. Best’s opinion of our reinsurance subsidiaries’ 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. If an independent rating agency downgrades our ratings below "A- (Excellent)" or withdraws our rating, we could be severely limited or prevented from writing any new reinsurance contracts, which would significantly and negatively affect our business. Insurer financial strength ratings are based upon factors relevant to policyholders and are not directed toward the protection of investors. Our A.M. Best ratings may be revised or revoked at the sole discretion of the rating agency.
As of December 31, 2012, we believe we have sufficient cash flow from operations to meet our foreseeable liquidity requirements. We expect that our operational needs for liquidity will be met by cash, funds generated from underwriting activities and investment income, including realized gains. As of December 31, 2012, we had no plans to issue debt and expect to fund our operations for the next twelve months from operating cash flow. However, we cannot provide assurances that in the future we will not incur indebtedness to implement our business strategy, pay claims or make acquisitions.
Although GLRE is not subject to any significant legal prohibitions on the payment of dividends, Greenlight Re and GRIL are each subject to regulatory minimum capital requirements and regulatory constraints that affect their ability to pay dividends to us. In addition, any dividend payment would have to be approved by the relevant regulatory authorities prior to payment. As of December 31, 2012, Greenlight Re and GRIL both exceeded the regulatory minimum capital requirements.
As of December 31, 2012, we had four letter of credit facilities with an aggregate capacity of $760.0 million (2011: $760.0 million) with various financial institutions. See Note 14 of the accompanying consolidated financial statements for details on each of these facilities. As of December 31, 2012, an aggregate amount of $416.5 million (2011: $382.8 million) in letters of credit was issued under these facilities. Under these facilities, we provide collateral that may consist of equity securities or cash and cash equivalents. At December 31, 2012, total equity securities and cash and cash equivalents with a fair value in the aggregate of $441.7 million (2011: $410.5 million) were pledged as security against the letters of credit issued.
Our capital structure currently consists entirely of equity issued in two separate classes of ordinary shares. We expect that the existing capital base and internally generated funds will be sufficient to implement our business strategy. Consequently, we do not presently anticipate that we will incur any material indebtedness in the ordinary course of our business other than temporary borrowing directly related to the management of our investment portfolio. In order to provide us with additional flexibility and timely access to public capital markets should we require additional capital for working capital, capital expenditures, acquisitions and other general corporate purposes, in June 2012, we renewed our Form S-3 registration statement, which expires in June 2015 unless renewed. We did not make any significant commitments for capital expenditures during the year ended December 31, 2012.
On August 5, 2008, our Board of Directors adopted a share repurchase plan authorizing the Company to repurchase up to 2.0 million Class A ordinary shares. From time to time, the repurchase plan has been modified at the election of our Board of Directors. On April 26, 2012, our Board of Directors extended the duration of the repurchase plan from June 30, 2012 to June 30, 2013. The Company is not required to repurchase any of the Class A ordinary shares and the repurchase plan may be modified, suspended or terminated at any time without prior notice. As of December 31, 2012, the Company was authorized to purchase up to 1,771,100 Class A ordinary shares or securities convertible into Class A ordinary shares in the open market or
The following table shows our aggregate contractual obligations as of December 31, 2012 by time period remaining:
(2) As of December 31, 2012, we had made total commitments of $36.2 million in private investments of which we have invested $15.3 million, and our remaining commitments to these investments total $20.8 million. Given the nature of the private equity investments, we are unable to determine with any degree of accuracy as to when the commitments will be called. As such, for the purposes of the above table, we have assumed that all commitments with no fixed payment schedule will be made within one year. Under our investment guidelines, in effect as of the date hereof, no more than 10% of the assets in the investment portfolio may be held in private equity securities without specific approval from the Board of Directors.
GRIL has entered into a lease agreement for office space in Dublin, Ireland. Under the terms of this lease agreement, GRIL is committed to average annual rent payments denominated in Euros approximating €67,528 until May 2016 (net of rent inducements), and adjusted to the prevailing market rates for each of the three subsequent five-year terms. GRIL has the option to terminate the lease agreement in 2016 and 2021. The minimum lease payment obligations are included in the above table under operating lease obligations and in Note 14 to the accompanying consolidated financial statements.
In February 2007, we entered into a service agreement with DME Advisors pursuant to which DME Advisors will provide investor relations services to us for compensation of $5,000 per month plus expenses. The service agreement had an initial term of one year, and continues for sequential one-year periods until terminated by us or DME Advisors. Either party may terminate the service agreement for any reason with 30 days prior written notice to the other party.